Free Web NovelAfter Cayne's remarks, Congressman Frank spoke with a stiff expression.
“Mr. Cayne, I respect your decision. However, please understand that this matter will not end simply because you step down as CEO. We intend to thoroughly determine the cause of this crisis and take the necessary measures.”
The comment effectively blocked his escape route, causing Cayne's face to stiffen for a moment.
But he quickly composed himself and nodded.
“I understand. As Chairman of Bear Stearns, I believe it is my duty to take responsibility. This decision is not an attempt to evade responsibility, but part of an effort to restore confidence in the company and the market.”
“That is something time will decide.”
After several rounds of questions and answers, Cayne returned to his seat.
Then Jamie Dimon, Chairman of JPMorgan Chase, took the witness stand.
“Chairman Dimon, could you explain why JPMorgan Chase declined the acquisition proposal?”
Dimon took a breath and grasped the microphone.
“Thank you, Congressman. When JPMorgan Chase first received the proposal to acquire Bear Stearns, we viewed it positively. We examined it very carefully afterward. However, we ultimately decided to reject the offer for several important reasons.”
Frank nodded, encouraging him to continue.
Dimon glanced at the prepared statement in front of him before speaking.
“First, Bear Stearns' financial situation was extremely opaque and unstable. When we analyzed its asset and liability structure, the scale and complexity made it difficult to evaluate accurately. In particular, assets tied to subprime mortgages had already deteriorated significantly, making it impossible to predict the extent of potential losses.”
Apparently feeling thirsty, Dimon picked up the bottle of water in front of him and continued.
“Second, we have to prioritize the interests of JPMorgan Chase shareholders and customers. Acquiring Bear Stearns would require an enormous amount of capital, which could jeopardize JPMorgan Chase's own financial soundness. Therefore, we had no choice but to proceed cautiously to preserve the trust of our shareholders and clients.”
Frank nodded as if he understood.
“Very well. Then what was the final reason for deciding not to proceed?”
After briefly surveying the audience, Dimon continued.
“Despite mediation and support from the government and the Federal Reserve, we concluded that Bear Stearns' financial condition was too severe. The scale of their troubled assets was far greater than we had anticipated, and we believed it could inflict serious damage on our bank even after the acquisition. Therefore, we ultimately decided not to proceed.”
After his explanation, Frank invited other lawmakers to ask questions.
Several representatives continued the discussion.
One of them, Congressman Richard, asked,
“Chairman Dimon, are you saying the reason you rejected the acquisition, despite government support, was because of the scale of Bear Stearns' bad assets?”
“That is correct.”
“Then should we interpret that to mean Bear Stearns is beyond saving?”
“Hmm......”
Dimon deliberately remained silent, appearing troubled.
“Please answer, Chairman Dimon.”
“This is merely my personal opinion. Bear Stearns can be saved.”
“Then...”
“But is Bear Stearns the end of it? I don't believe so. Bear Stearns is only the tip of the iceberg. A much larger storm could strike Wall Street and the American economy. If we overextend ourselves to save Bear Stearns, we may lose the strength needed to stop that storm later.”
The room became so quiet that one could hear a pin drop.
Dimon continued.
“The reason this crisis erupted is because of management incompetence and poor decisions. If the government and the Federal Reserve intend to rescue them, they should first hold them accountable and issue a stern warning. Otherwise, they will effectively grant immunity to other financial institutions.”
The chairman of JPMorgan Chase himself was arguing that management should be held responsible for incompetence and bad decisions.
It was nothing short of betrayal in the eyes of Wall Street.
“Are you suggesting this legislation could encourage moral hazard?”
“Yes, I am. Too big to fail. Everyone believes that no matter how disastrous their decisions are, the government will step in and save them. That's the common mentality among Wall Street's major banks. I was no different.”
Congressman Richard appeared flustered and objected.
“But isn't this intended to protect the American economy? Is allowing a giant corporation to collapse really a good idea?”
“That's right. I'm not saying they shouldn't receive any support. But I believe management should first be held accountable, and assistance should be selective.”
People observing the hearing began murmuring among themselves.
“If JPMorgan Chase found itself in the same situation as Bear Stearns, would you still say the same thing?”
“That won't happen. Once the deterioration of subprime mortgage loans became apparent, we immediately accepted losses and began unwinding our positions. We'll suffer major losses in the short term. But in the long term, we'll get through this crisis safely.”
The lawmakers began discussing among themselves.
Frank addressed Dimon.
“It couldn't have been easy to testify. Thank you for speaking so candidly. You've worked hard, Chairman Dimon.”
“Not at all. This isn't just Bear Stearns' problem. It's a problem for Wall Street, for the American economy, and ultimately for the global economy.”
With that, Chairman Dimon and Baltice had become complete enemies.
No—not only them. Many investors on Wall Street would likely turn against him as well.
* * *
The hearing was nearing its conclusion.
Watching it, Han Kyungyeong let out a small exclamation.
“Chairman Dimon really went all in.”
“I told him to testify clearly. He's crossed the Rubicon now.”
“Hm... he won't get kicked out by the board, right?”
I smiled at Han Kyungyeong's concern and shook my head.
“His grip on the company is stronger than I thought. And joining hands with Dreamhigh earned him a lot of goodwill.”
“That's a relief. Still, Wall Street won't have anything nice to say about him. People already consider me a heretic, so nobody cares what I say. But Chairman Dimon isn't like that.”
“That's why we need him. It's important that someone from within Wall Street says things like that. Starting with Chairman Dimon, more people on Wall Street will start speaking up.”
No matter how much the families connected to Baltice controlled Wall Street, not everyone was under their influence.
If that had been possible, Dreamhigh and I could never have grown this large.
Congressman Frank's voice came from the television.
—Today, we heard the views of various stakeholders involved in the Bear Stearns crisis. These discussions will play an important role in understanding the problems of the financial system and establishing better regulations and policies in the future. Thank you to everyone who attended today's hearing.
He struck the gavel again, ending the hearing, and the broadcast returned to the anchor.
I turned off the television.
“We'll probably hear from the Fed or the government soon.”
Judging by the atmosphere at today's hearing, support for Bear Stearns could take quite some time.
In that case, there was only one option left—find someone willing to acquire Bear Stearns.
But there were only a handful of people capable of swallowing Bear Stearns.
Eventually, they might come to us with an acquisition offer.
“We can't digest Bear Stearns right now either.”
I nodded.
We had practically concentrated all our assets on this operation, leaving no room to spare.
“How much CDS tied to Bear Stearns do we have?”
“Hm... you'd have to ask Eva for the exact number.”
Most of the CDS purchases had been handled by Eva.
I nodded and called her.
Switching to speaker mode, I set the phone down on the table.
“Boss!”
“Eva, the phone's on speaker. Kyungyeong-hyung is listening too. Can you tell me the size of the CDS contracts we have with Bear Stearns?”
“Just a moment. I'll check and tell you right away, Boss.”
Eva hung up first.
A short while later, she called back.
“All together, around fifty billion dollars.”
“Good. Then request full payment.”
There were two types of CDS structures.
In one, after buying a CDO tied to the CDS, the holder entered into a CDS contract linked to that CDO as a hedge, spreading the risk.
If the CDO defaulted, the holder could deliver the CDO and receive its face value.
But we hadn't invested in those CDOs.
No, we had already sold most of the CDOs we had invested in.
What we chose was naked CDS.
It was a method of betting on the credit risk of an asset through CDS contracts without actually owning the underlying asset.
The CDO itself was held by the financial institutions that sold the CDS.
They profited from the CDO while also collecting premiums through CDS contracts, creating a double stream of income.
If nothing went wrong, the profits were enormous.
But when things went wrong, as they had now, the damage became catastrophic.
“Already? If we wait a little longer, they'll go bankrupt. We can collect one hundred percent.”
“No. Even if we receive slightly less, I want to turn Bear Stearns' finances into an even bigger mess.”
At that moment, Manager Ma entered the living room.
A phone was in his hand.
“First notify Bear Stearns that a credit event has occurred and demand payment. Then we'll talk again. I'll call later.”
After giving Eva her instructions, I hung up and turned to Manager Ma.
“A call from Italy?”
“Yes, Boss. They successfully rescued Lorenze.”
“That's good. But what's the issue? I told John to make decisions on the scene.”
“Well... Lorenze says he refuses to leave Italy.”
What the hell?
I frowned.
“He wants to speak with you personally.”
“Haah... Give it to me.”
Just as I extended my hand in irritation, Han Kyungyeong quickly stood up.
“I'll get going. We have things to do too.”
“Sure. When you come back later, let's have a drink.”
Han Kyungyeong waved and left.
Only then did I speak into the receiver.
“John, what's going on?”
“Boss, we've rescued Lorenze safely. And...”
John explained the entire situation.
After hearing everything, I could understand Lorenze's feelings.
But understanding them and allowing them were two entirely different things.
“Lorenze wants to speak with you directly, Boss.”
“Alright. Do that. Call me when things are settled.”
“Understood. I'll contact you again.”
The call ended.
As I stared absentmindedly at the phone while organizing my thoughts, I spoke.
“Manager Ma. Where's Igor?”
“He just arrived in Italy.”
“Tell him to join immediately. And tell him to take command from John.”
“Yes, Boss.”
About an hour later, John called again.
