September 2, 1998.
New York, Manhattan, with skyscrapers packed tight.
A tall, broad-shouldered man in a dark gray suit pushed open the wooden door and stepped inside. It was Dan Perry, Chairman of Merrill Lynch.
"Good morning, Clara."
"Good morning, sir."
His blonde secretary, seated at her desk, stood with a bright smile.
"Coffee, please. The usual."
"Yes, sir."
Clara answered briefly, then glanced at him as he walked past with his briefcase in hand.
"LTCM sent a letter. I placed it on your desk with the rest of the mail."
"Did they?"
Perry twitched an eyebrow and continued walking.
The chairman's office was furnished with a large picture window overlooking Wall Street's skyscrapers and decorated in understated luxury.
Stepping across the thick carpet, Perry set his briefcase down on the desk and hung his jacket on the coat rack.
He lowered himself into the plush chair, his eyes settling on the neatly stacked pile of mail. Remembering Clara's words, he reached for the envelope on top, stamped with the LTCM logo.
"Here's your coffee, sir."
Clara entered again, setting a steaming cup fragrant with roasted beans on the desk.
"Thank you. That'll be all."
"Yes, sir."
Clara gave a light nod and left the room.
Perry hesitated for a moment, then moved his hand again, slicing open the sealed envelope with a silver letter opener. He pulled out the letter inside and unfolded it.
[... As you are all aware, the Russian moratorium has triggered a dramatic surge in volatility across the markets over the past month.
Unfortunately, LTCM's portfolio was not immune to the fallout, and we have suffered a sharp decline in net asset value.]
Perry's expression twisted as he read that line.
They had dodged disclosure again and again with excuses, but just as he had feared, they had touched Russian bonds and taken a beating.
"Tsk."
Clicking his tongue, Perry kept reading.
[... In August alone, our asset value declined by 45%.
Measured against historical volatility, such an immense loss has been a profound shock to us, just as it has been to other investors on Wall Street.
Nonetheless, given our past track record, we believe these losses can be recovered...]
"...!"
At the line about assets being cut nearly in half, Perry froze, eyes wide.
Wondering if he had misread, he rubbed his eyes with the back of his hand and looked again. The number hadn't changed.
"Goddamn it!"
He spat the curse and crumpled the letter in his hand, his body trembling with anger.
Losing half their capital hadn't even crossed his mind as a possibility.
Of course, he had known LTCM was exposed to Russian debt and had expected some losses.
But he had assumed they would have cut their positions and escaped once things went bad. Half gone? He had never imagined they'd sit on such an absurd loss.
"How the hell could this even happen!"
Chairman Perry roared in fury.
This was a fund built with the brains of not one but two Nobel laureates in economics.
And after years of steady, high returns that had earned his absolute trust, this was the result? Perry was overwhelmed with a sense of betrayal.
What enraged him most was that until now they hadn't said a word, only to drop a single letter on his desk, as if merely notifying him after the fact.
Grinding his teeth, Perry snatched up the phone and called Wisemann.
And the same scene was playing out at Goldman Sachs, Lehman Brothers, Bear Stearns, and other banks across Wall Street.
Seok-won sat on the penthouse balcony in a light shirt.
The cool autumn breeze ruffled his hair as he sipped coffee, a market report in hand, looking completely at ease.
Then the phone on the table buzzed against the surface. He picked it up at once.
[Boss. It's finally blown up!]
Hearing Landon's excited voice, Seok-won set the report aside and leaned back.
"Calm down and explain so I can understand."
[Jacob Wisemann just sent a letter to the Wall Street banks tied to LTCM. Bloomberg got hold of it and put out a breaking report.]
"...!"
A gleam flashed in Seok-won's eyes.
"Does it mention the Russian bonds?"
[It does. According to the letter, they lost 45% of their assets in this crash.]
He'd expected it, but hearing they had actually wiped out nearly half made him let out a breath.
[If you go by the letter, that's a $1.9 billion loss.]
"With losses like that, the banks that lent them money must be in an uproar."
[Of course. The moment Bloomberg's story broke, Bear Stearns—handling LTCM's settlements—plunged, and Goldman Sachs, Lehman Brothers, and Merrill Lynch all went down too, just for being connected.]
Phone to his ear, Seok-won gave a small nod.
"In an already fragile market, a shock like this can only hit harder."
[Exactly. Risk appetite was weak as it is. With this mess, everyone's instinct will be to sell first and think later.]
"How are the lending banks reacting?"
[They've only just realized they were sitting on a bomb. Right now they're scrambling to figure out the scale. Only once they have the full picture will they be able to take action.]
And that was only sensible. With so much money at stake, a hasty move could make the damage worse.
'But bad news always comes in clusters.'
Seok-won knew what was coming. Before long, they would regret not acting faster.
[As it is, our own arbitrage desk has taken heavy losses from the Russian bond collapse. Now with LTCM blowing up too, the big Wall Street banks must be in hell.]
"This LTCM crisis is only just beginning. The market crash will keep going," Seok-won replied calmly.
[It's already down 10% from the peak. The thought of it falling further is dizzying.]
Despite his words, Landon's voice brimmed with energy.
The worse the market fell, the more profit Eldorado Fund made on its short bets.
Seok-won, smiling broadly now, said,
"You showed Andrew and Dan the list I gave you yesterday, right?"
[Of course.]
"When it bottoms out, I'll give the signal. Close the shorts and sweep up every share on that list."
[Don't worry. We'll scoop up as much as possible at bargain prices.]
Landon's confidence was unmistakable.
They intended to use this crash to load up on tenbagger stocks, ones that would rocket sky-high on the coming dot-com wave.
'Come to think of it, this is the last clearance sale before the big rally,' Seok-won thought to himself.
[And there's one more thing to report.]
"Go on."
[Sony got back to us. They've agreed to our proposal.]
Seok-won's eyes lit up.
"Is that true?"
[Yes. They'll sell 100% of Sony Music's shares for $4.8 billion, just as we offered.]
Back in the booming 1980s, Sony had bought CBS Records from CBS as part of its diversification push and rebranded it as Sony Music.
Later, after acquiring Columbia Pictures and TriStar Studios from Coca-Cola, they had renamed the division again, this time to Sony Music Entertainment.
"It was a division Sony had put quite a lot of effort into, but the negotiations ended surprisingly easily."
[In the old days, Sony would never have let it go. But now their core electronics business is under threat from latecomers. And since the media division hasn't produced the profits they once expected, they seem eager to unload it and refocus on electronics.]
"True enough. Sony's once-dominant position has fallen a long way."
Companies like Sasung, TG, and Hyunwoo—firms Sony used to ignore—were now breathing down their necks, rapidly eating away at the market share of Sony and other Japanese manufacturers.
In semiconductors, especially DRAM, the tables had turned completely. Instead of just catching up, the Korean firms had already pulled ahead, leaving Sony struggling.
'Which means I've managed to get my hands on what will one day become Sony's cash cow far more easily than expected.'
At the moment, Sony Music was seen as dead weight, a low-return asset. But in time, it would become one of the two wings that powered Sony's revival, after the company stumbled and lost its hold on the market during the digital transition.
Now that Seok-won had taken it, Sony's future comeback looked even less certain—but that wasn't his concern.
"Let's not waste time. Close the deal right away."
[Understood.]
After a few more words, Seok-won ended the call and set the phone down with a satisfied smile.
Everything was unfolding exactly as planned, and the progress pleased him.
"If it were only the Russian bonds collapsing, they might have managed to patch things together. But if another shock widens the spreads further, they'll find themselves in completely unmanageable territory."
He lifted his cup, took a sip of coffee, and set it down again, his smile widening.
"Heh… I'm already looking forward to tomorrow."
Ring ring! Ring ring!
Standing in front of the mirror, tying his necktie as he got ready for work, Bear Stearns Chairman Fuller frowned at the loud ringing of the phone.
"Who's calling at this hour?"
Grumbling, Fuller picked up the receiver.
"Hello."
The anxious voice of Joseph Royer, Bear Stearns' CIO, came through.
[Chairman, have you heard the news?]
Fuller's brow furrowed at the abrupt question.
"What news?"
[Moody's has downgraded the credit ratings of Brazil and Venezuela.]
"...!"
[Not only that, they're also reviewing possible downgrades for Mexico and Argentina.]
The news struck like a bolt of lightning. Fuller froze with his mouth agape before spitting out a harsh curse.
"Damn it!"
[Chairman, what should we do?]
"Call an emergency meeting immediately and check the size of our repo contracts across all emerging markets, starting with South America!"
[Understood.]
Slamming the receiver down in irritation, Fuller stomped his foot and vented his anger.
"Damn it all!"
Already reeling from yesterday's LTCM disaster, the string of fresh shocks sent a wave of dread coursing through him.