After Yoo Seon-jun left, there was still a considerable amount of work left for me. It wasn’t as if I spent my time cooped up in Alpha Fund’s cramped office instead of socializing at school for no reason.

–Rustle.

[S&P upgrades South Korea’s national credit rating by three notches to BB+...]

[This is BS Investment. There are signs that a few journalists have breached the internal security system. It wasn’t serious, so we resolved it on our own judgment, but we are reporting the situation nonetheless...]

[This is Daehwa Securities. One of the recently acquired companies is included in the new financial restructuring proposal, so we’re reporting it to /N_o_v_e_l_i_g_h_t/ the young miss. Also, there’s a matter regarding the newly allocated budget for this month that we’d like to ask about...]

[NASDAQ Top 100 company analysis—Over 70% in risk grade.]

[This is MD Ha Yeong-il. I received a report that Aqua Capital is slipping out of our control. It seems we’ve left the reins too loose. I’ve attached the detailed report.]

Brief news articles, basic internal memos from the company’s network, confidential matters raised within the “organization,” reports submitted by Alpha Fund’s analysts, and all sorts of other issues that aren’t critically important but still must be reported to me...

“If only Seo Ji-yeon were here, this would be easier.”

Having organized the documents by priority, I found myself momentarily missing the one who used to assist me with this task.

Even someone like Gray—or anyone I could shift some of the burden to—would have been welcome, but unfortunately, I had to deal with all of this myself today.

Seo Ji-yeon was currently running BS Investment in Korea and so busy that she barely noticed Aqua Capital drifting out of control. Charles Gray had taken a brief vacation and disappeared for now.

‘Still, it looks like Charles will be back soon.’

I had someone tail him, just in case he tried to reveal my identity to someone, but it really was just a vacation. He had the sense to grasp the situation and, aside from occasionally glancing nervously around, he hadn’t leaked any significant information.

It seemed like he was trying to organize his thoughts... but well, I wasn’t going to let him go anyway.

–Clack.

[Recipient: BS Investment.

It’s best to dig up dirt on the journalist who broke in and use it to control him. I recommend using it as leverage for the upcoming Korean presidential election. I’ll give a heads-up to President Do Yeong-il at Sangam Daily, so ask him about the specifics.]

I quickly typed up the reply while in the back of my mind I turned over thoughts of the Russian moratorium.

‘Yoo Seon-jun will decide the timing for the bond sale, so I can move once the collapse is confirmed... Hmm, or maybe not. I kind of want to sweep in fast and grab a quick profit.’

–Clack.

[Recipient: Daehwa Securities.

Has the financial restructuring plan not been reported yet? I know we’ve been distanced from the political sphere, but Daehwa Securities now needs to establish its own internal connections. Assemblyman Choi Ji-seong has agreed to help once, so make sure there are no more mistakes.

Since it’s your first time, I’ll have Seo Ji-yeon allocate around 1 billion won for support. Use it as political funds. Don’t forget to always be cautious when handing out bribes.]

‘Tch, Daehwa Securities is stable, but the lack of competence is still a problem. If anyone proves incompetent during this Russian bond situation, I may have to fire a few people.’

–Crinkle.

I unwrapped a chocolate next to my desk and popped it into my mouth. The sweet flavor dulled my throbbing headache.

“Next is MD Ha Yeong-il... I’d better talk to him directly about this.”

Aqua Capital was something I managed personally, and very few people inside the organization even knew the details. That was part of the reason it wasn’t running smoothly.

Shaking my head, I turned to the day’s remaining work.

The daily quests were done—time to dig into the main dish.

***

Russian government bonds.

The important thing here is that this whole game revolves around “sovereign bonds.”

It’s a market big enough to go all out. Just in terms of face value, it’s a market worth hundreds of billions of dollars.

If you add in derivatives, even massive funds like LTCM or Alpha Fund could jump in and still find room to play.

But the problem with markets of that size is...

–Riiiing!

“Um, bond prices are rising.”

The movements were way too slow. I had just heard news that a small derivative I placed had been liquidated.

“It’s fine. It’ll drop soon. What, did we lose $100,000? That’s nothing, right?”

Even as I said it, I felt a bit uneasy.

Both Lee Si-hyun and I were certain that Russia would declare a moratorium. But the Russian government kept stubbornly holding out.

[Yeltsin: “There will absolutely be no moratorium or devaluation of the ruble”...]

[Russian government displays strong will to defend the ruble... New Prime Minister Kiriyenko’s economic reforms ignite renewed interest in Russian markets.]

[Kiriyenko: “To be honest, Russia is poor” – Yields on Russian bonds fluctuate following statement.]

[Conflict escalates between IMF and Russian government... Russia insists IMF policies are flawed.]

Goddamn it, that shit-stirring bastard... What? No moratorium?

I came from the future and I know what’s going to happen, and he’s saying that?

No wonder Yelizaveta always curses out the Russian government.

Of course, the tide couldn’t be resisted. Over the past month, short-term bond yields kept climbing (bond yields and prices are inversely related). At the end of last year, yields were just under 20%, but they had already climbed to nearly 30%.

Still, whenever news of a credit rating upgrade came in, the momentum would temporarily falter.

.

.

.

Time flew by.

By February 1997, Russian bond yields had climbed past 40% and were approaching 50%. By March, they blew past 60% and naturally touched 70%.

Finally, in April 1997...

[Russian GKO yields hit 80%! Massive returns, but liquidity has evaporated...]

[No buyers in the market... Liquidity in the Russian bond market dries up.]

Russia had begun to waver.

***

While Yoo Ha-yeon was gleefully ordering a sell position on Russian government bonds and a buy position on U.S. bonds...

Inside LTCM’s office, one man let out a deep sigh.

“Hoo...”

The world had gone mad.

No—more precisely, Russia had gone mad.

–Clack.

He threw off his tie, squirmed irritably in his chair, and shouted.

“What the hell is their problem?!”

Sure, the Russian economy was a mess. Everyone knew that.

And politically? Sure, it was unstable. The Soviet Union only just collapsed—it’s natural politics would be a wreck.

But this? This was just ridiculous.

[U.S. Treasury reveals meeting with Kiriyenko has been canceled...]

[Sergei Dubinin, head of the Russian Central Bank: “A foreign debt crisis could come within three years.” Economic crisis debate spreads.]

The Russian Prime Minister—some thirty-something political rookie handpicked by Yeltsin—had the gall to blow off a meeting with the U.S. Treasury?

Even the chairman of Goldman Sachs bows to the Treasury Secretary (and the current Treasury Secretary was former Goldman Sachs chairman, so that was a given)... And why the hell were Russian officials casually talking about their own economic collapse like it was no big deal?

Increasing short-term debt to this extent was madness to begin with. LTCM had judged it manageable and entered the market—but if that was their stance, why pick a fight with the IMF?

Who was going to provide the money to cover that debt? Sure, a stabilized Russian economy might manage it long term, but for now, that money had to come from the IMF.

Of course. That’s the whole reason they borrow from the IMF in the first place. If they had money, they wouldn’t go there...

‘The theory is solid... The theory is perfect.’

LTCM’s portfolio was perfect. Nearly... perfect.

If there are two bonds of equal value, they should logically be priced the same. That’s just common sense.

If there are Russian short-term and long-term government bonds, and you know how to strip out the time value, they’re fundamentally equal. They’re both just Russian bonds.

But market inefficiency occasionally creates a gap between them—and LTCM’s main strategy was to exploit that gap and profit.

It was a “money-making formula” that had produced an unprecedented 40% return over three years. LTCM founder John Meriwether believed in it.

Theoretically, the risk was near zero. To someone unfamiliar with arbitrage, it might sound like a scam—but really, it’s no different from trading.

–Buy low in one place, sell high in another. That’s profit.

A concept as old as civilization itself.

Medieval merchants staked their lives and years on trade. Modern merchants invest in infrastructure, capital, and time. Sure, profits have shrunk due to supply-demand equilibrium... but the fundamental structure is unchanged.

Buy low, sell high.

And LTCM merely executed trades based on that formula. It made perfect sense. In this hyper-connected age of the Internet, there was no need to take any real risk when trading bonds!

So, at least for LTCM, arbitrage trading was a completely blue ocean. That’s how they “stably” pulled off an insane 40% yield.

Every person who could calculate those gaps—and everyone who created those formulas—was working at LTCM.

“If we can just hold on...”

With bloodshot eyes, Meriwether stared at the portfolio.

Even if they lost in Russia, it didn’t matter. Diversifying across baskets was common sense, and they had excellent risk management.

A few hundred million dollars in losses? Manageable. The investment in Russian bonds was just one part of the whole—they could offset it with gains from other countries’ bonds.

But sometimes...

Sometimes the very foundation of the theory cracks.

May 1997.

Russia declared a moratorium.