Financial Crocodile

His cash had now reached 120 million.

In his estimation, those Wall Street crocodiles wouldn't let Bear Stearns' stock keep rising. At $71 a share, it was close to its limit.

He decisively went two-to-one on margin, using 240 million to spread out his short positions in Bear Stearns.

At 1:30 p.m., news broke on Wall Street that a bank had refused to process a routine transaction for Bear Stearns.

The rumors suddenly seemed to have a basis. Goldman Sachs urgently issued a notice stating that it had reviewed Bear Stearns' credit rating and would temporarily no longer support normal transactions. The repo market was closed to Bear Stearns.

The news exploded in an instant.

Another report added fuel to the fire: the hedge funds managed by Bear Stearns had less than 5 billion in available funds left, down from 18 billion before—a loss of 13 billion.

Spooked investors voted with their feet, frantically selling their long positions. Investors with margin accounts began shorting Bear Stearns instead.

The panic-stricken chaos sent Bear Stearns' stock plunging. Before the closing bell, it triggered two circuit breakers in a row and closed down 8.1%.

Before the market closed, Huang Xiuyuan placed short orders totaling 240 million, reaping a profit of 86 million.

That brought his cash holdings to 203 million.

At that point, he stopped using leverage and opted to buy directly with cash, reducing the risks that came with borrowing.

He kept 100 million in short positions against Bear Stearns. The rest was transferred through various offshore accounts. After a 15% capital gains tax was deducted, 75 million dollars was sent back to Huang's International.

Meanwhile, Bear Stearns, battered by Wall Street, was growing ever more precarious. In less than a week, its hedge funds' cash reserves had fallen to 2 billion, leaving the firm with almost no cash at all.

New York.

Goldman Sachs headquarters.

In the president's office, a sharp-eyed, middle-aged white man reported to the Mediterranean old man:

"President Lloyd, today's hunt was a great success. A lot of little fish are already out of the game."

"Mm. Excellent."

"There's one more thing. People inside the Federal Reserve are very worried Bear might go bankrupt because of this. They're discussing how to rescue the market."

The old man from the Mediterranean closed his eyes in thought. After two or three minutes, he opened them and gave an order. "Stick to the original plan. Keep a close eye on the others."

"OK."

March 13.

Bear Stearns was running out of cash, with barely 2 billion in liquid funds left. Its stock plunged again, and panic spread further through the market.

Inside Bear Stearns, everyone was in a panic. They repeatedly appealed to the Federal Reserve for help, hoping to secure funds to stabilize the firm.

Holding cash, Huang Xiuyuan followed the other financial crocodiles and reaped another windfall.

Bear Stearns had fallen into despair. Whether it would see another sunrise depended entirely on the Federal Reserve.

That evening, regulators led by the Federal Reserve and the Treasury Department held urgent talks. But the first question they needed to settle wasn't how to save Bear Stearns—it was whether to save it at all.

It wasn't that Bernanke, Paulson, and the others disliked Bear Stearns, though the firm was certainly unpopular. The problem was that official intervention in the market went against the free-market spirit of the USA.

The last time they'd done something like this was in 1998, when Clinton dealt with LCTM. He'd been roundly denounced for it.

In the conference room,

everyone weighed the pros and cons: whether to brave public condemnation—and risk their own positions—to save a company nobody liked.

Paul, a former Goldman Sachs president, said gravely, "If Bear Stearns goes under, hundreds or even thousands of counterparties will stop holding its collateral and try to sell it instead, driving prices down. That'll cause even greater losses."

Good heavens! The lid on LCTM's coffin was about to fly off. That was exactly why the Federal Reserve had arranged for private institutions to bail out LCTM ten years ago—and Bear Stearns had refused to take part in that rescue.

"All right, I agree. But how do we save it?" asked another senior official at the meeting.

The problem was that, although the Federal Reserve served as the lender of last resort, Bear Stearns wasn't a bank, and in principle, the Fed had no authority to regulate it.

Bernanke, a master of financial machinations, pulled out the Federal Reserve Act and pointed to the little-known Section 13(3). It allowed the Fed to provide funds to "any individual, partnership, or corporation" in "unusual and exigent circumstances."

The clause gave the agency extraordinary power, even beyond the scope of Congress's authorization.

After a whole night of preparations, the next day, March 14, the Federal Reserve issued a notice before the markets opened on Friday.

In essence, the notice said that the Fed would use JPMorgan as an intermediary to provide Bear Stearns with a temporary loan to help it weather the crisis.

Far away, Huang Xiuyuan saw the news and knew that this would be Bear Stearns' darkest hour. Using his existing 100 million in short positions, he quickly borrowed from his broker and secured another 300 million.

As soon as the market opened, Bear Stearns plunged as if it had swallowed a laxative. Its stock fell 48.7% that day, even worse than the 45.9% drop Huang Xiuyuan remembered.

After cashing in again, he transferred the 190 million in profits through several accounts. Once the 15% capital gains tax had been paid, 161.5 million dollars went back to Huang's International in Xiangjiang.

He kept the remaining 100 million in various accounts. In this year's financial markets, as long as he avoided leverage and kept shorting, he could make money almost for sure.

He looked at the 236.5 million dollars sitting quietly in Huang's International's account. The exchange rate was currently about 7.11 Huayuan to the dollar.

Through Bank of China in Xiangjiang, he exchanged 230 million dollars of it for Huayuan and wired the money to Suiren Company's account, for a total of 1.6353 billion Huayuan.

After finishing that, he showered and went to bed.

On March 15, Li Ce, head of Suiren Company's finance team, arrived at the office with several colleagues to perform a routine check of the company's accounts.

After opening the account information, he instinctively took off his glasses, wiped them, then put them back on.

The balance showed 1,643,673,671 yuan. Li Ce turned around. "Xiao Li, check the company's remittance records."

"Sure." Xiao Li hurriedly searched through the records and double-checked with the bank. Only then did she say, sounding excited, "Team leader, it's true. At around five thirty this morning, 1.6353 billion came in from Xiangjiang."

When Lin Baijie got the news, he was about to call the chairman to confirm it, but stopped himself. He remembered Huang Xiuyuan's recent habits and figured he was probably still asleep. There was no harm in asking that afternoon.

Given what Huang Xiuyuan had said earlier, Lin Baijie guessed this must be an investment from the "parent company." With that money, his restless heart finally settled.

The funds also brought greater stability within Suiren Company. After all, with food in hand, one had no cause for panic.

When he woke up at noon, Huang Xiuyuan stood quietly by the window. His preparations had finally laid the groundwork, and he could start stepping back from the financial markets.

The two investment companies in Xiangjiang were also nearly ready to begin normal operations.