My Peninsula 2007

Chapter 486 Giant Crocodile
Ultimately, DFJ's investment is an investment, and BlackRock's investment is also an investment. Regardless of which company it is, the payments made to NGN are in US dollars, which can help NGN grow and expand.

Last year, An Rusong might have considered that BlackRock Group wasn't large enough, and its background and influence were perhaps weaker than DFJ's. For emerging companies like NGN, when considering financing, they can't just focus on who offers the most money; they also need to prepare for future financing and even an IPO. Last year, BlackRock Group wasn't as strong in this regard.

It is now 2008, not the era before An Rusong's rebirth. The BlackRock Group at this time is quite different in terms of overall scale from the BlackRock Group in An Rusong's memory.

But now, to be precise, after entering August, with the release of an announcement by the Federal Reserve, BlackRock, which was originally somewhat well-known but not among the top in the international financial world, suddenly became a capital management company that attracted the attention of the entire Wall Street and even the global financial community. Its position in the global asset management field jumped to the forefront almost overnight.

Earlier this year, Bear Stearns, a Fortune 500 company and one of the five major investment banks on Wall Street, was exposed for huge losses. For a period of time, Bear Stearns, and even the entire American financial community, tried their best to cover up the news.

Until two months ago, the news could no longer be concealed. Bear Stearns, suffering huge losses, could no longer hold on and had to publicly appeal to the Federal Reserve for help, which finally exposed the news: affected by the global subprime mortgage crisis, more than 75 financial derivative contracts based on subprime mortgages held by Bear Stearns directly became "toxic assets," causing the company's assets to shrink significantly and even facing insolvency.

Back then, An Rusong and his "secret team" made a fortune from this shocking scandal by shorting Bear Stearns' shares, so he had a very clear understanding of the whole process.

While Bear Stearns was a private financial institution and a non-commercial bank, the "too big to fail" rule still applied to it. Because the economic tsunami that its bankruptcy could trigger was too severe, neither the US government nor the financial community could stand by and watch it collapse. Therefore, providing it with a bailout, or rather, encouraging some well-funded companies to acquire it, was an outcome acceptable to both the US political and financial circles.

In response, at the Federal Reserve's urging, Congress quickly established a so-called regulatory troubled assets bailout program, and subsequently, news of a $300 billion bailout plan for Bear Stearns spread through various channels.

But at this point, the entire investment community was paralyzed with fear. Without seeing any real money, no one dared to get involved. Therefore, the spread of this positive news failed to stabilize Bear Stearns' plummeting stock price, and the threat of bankruptcy still loomed over its head.

Thus, the $300 billion bailout plan was finally officially launched. However, instead of giving the money directly to Bear Stearns, the plan was given to JPMorgan Chase, which used it as emergency funds to save Bear Stearns.

To put it bluntly, even at this point, the Federal Reserve still had no intention of actually providing the funds. The reason JPMorgan Chase was brought in was more like it was there to endorse Bear Stearns' reputation, hoping to stabilize Bear Stearns' situation.

But as it turns out, in the current situation where an economic crisis is sweeping the globe, any form of positive news is ineffective; people only believe what they see, not what they hear.

So, the plan was eventually changed to JPMorgan Chase acquiring Bear Stearns.

The problem is that JPMorgan Chase is a multinational investment bank, not a fool. It's not that it won't do acquisitions, but it certainly won't do investments that lose money. If JPMorgan Chase could acquire a financial behemoth like Bear Stearns, that would certainly be a good thing, but the prerequisite is that JPMorgan Chase would absolutely not accept the bad debts Bear Stearns carried.

Thus, in mid-March, JPMorgan Chase and Bear Stearns engaged in a series of repeated negotiations, during which the Federal Reserve also intervened. In this process, the shareholders of JPMorgan and Bear Stearns, as the buyer and seller respectively, naturally held differing positions; the former wanted a lower acquisition price, while the latter wanted a higher one.

After several rounds of negotiations, JPMorgan Chase, losing patience, publicly announced that their offer for Bear Stearns was $2 per share, not a cent higher. As a result, JPMorgan Chase's stance did not deter Bear Stearns' shareholders, but it did frighten the entire market. In just five days, Bear Stearns' stock price plummeted from over $60 per share to less than $3 per share.

Those five days affected far more than just Bear Stearns' stock price; the global stock market was in turmoil. It was during these few days that An Rusong and his partners made their biggest fortune in the short-selling game.

The entanglement between Morgan and Bear Stearns ultimately attracted intervention from the Federal Reserve and the US government. In order to finally facilitate the deal, the US government, under the impetus of the Federal Reserve, provided $30 billion in cash through the Troubled Asset Relief Program to subsidize the acquisition.

The subsidies here are not actually $300 billion given to Morgan or Bear Stearns, but rather the US government used this money to acquire the "toxic assets" carried by Bear Stearns, mainly the 75 derivative contracts.

In other words, JPMorgan Chase only acquired the high-quality assets held by Bear Stearns, while the low-quality assets, or even "toxic assets," were taken over by the US government. To put it bluntly, taxpayers' money was used to balance the books.

However, whether they are low-quality assets or toxic assets, they are still assets. To go further, behind those 75 derivative contracts, there is actually a family in the United States of America, or more precisely, the property where that family lives.

Before the financial crisis, these assets were considered high-quality assets, and the vast majority of people who could afford these contracts were actually middle-class Americans. The reason these assets have become toxic is because, during the economic crisis, these middle-class individuals went bankrupt, couldn't repay their loans, and became homeless. Ultimately, however, the houses they bought with loans are still there; they just can't be sold now and can't be converted into the most valuable asset in an economic crisis—cash.

Therefore, what the US government did was to take out $300 billion in cash and buy up all the fixed assets that Bear Stearns couldn't get rid of.

However, this raises a problem: the US government purchased 75 contracts for $300 billion, and the associated properties can't just be left unmanaged and abandoned. But the US government doesn't have the resources, nor the capability, to manage these assets. Therefore, what the US government needs most at this point is an experienced company to take over and manage these "toxic assets," ideally revitalizing them in the shortest possible time—profitability is secondary, the goal is simply to minimize the US government's losses.

The company that helped the U.S. government take over these assets and manage them is BlackRock, which seems to have some close ties with both parties in the U.S. political party.

Just as the Federal Reserve officially announced its $300 billion bailout plan, BlackRock was designated by the U.S. government and the Congressional Committee on the Rescue of Problem Assets by the United States as a partner company specifically responsible for liquidating Bear Stearns' toxic assets. The reason given was BlackRock's extensive experience in the mortgage lending sector.

BlackRock's role in this bailout plan was to manage all the real estate associated with Bear Stearns' 75 derivative contracts, re-evaluate these properties, and then auction them off at those valuations. Finally, after deducting certain fees, all proceeds from the auction would go to the Congressional Committee on the Oversight of the Troubled Asset Relief Program.

The subprime mortgage crisis that swept the globe was a devastating blow to many, but for others it was an opportunity to get rich quick, and BlackRock Group clearly belongs to the latter group.

Since the Federal Reserve's announcement, BlackRock's assets have been expanding rapidly almost daily. It's like a real estate agency with powerful connections, allowing speculators to buy top-quality, prime properties at the lowest prices. Moreover, it handles all the tedious paperwork, including title transfers and registration, for them within a day. Most importantly, buying through it even avoids taxes. If you were a speculator, what would you choose?
Of course, in An Rusong's memory, this is only the first step BlackRock has taken, and the most insignificant one. In the near future, the $5 trillion in assets and liabilities of Fannie Mae and Freddie Mac will also be supervised and liquidated by BlackRock. That will be when they will truly take off.

(End of this chapter)