A $50 million margin call? I'll short Wall Street.

March 14, 2008, Friday, 7:35 a.m.

There are still two hours until the US stock market opens.

All financial media outlets across the United States were simultaneously abuzz with excitement.

CNBC, Bloomberg, Reuters, The Wall Street Journal—almost all the front pages were dominated by the same news:

[Breaking News] The Federal Reserve has announced an emergency liquidity support of $290 billion to Bear Stearns, guaranteed by JPMorgan Chase, for a period of 28 days.

This is not an ordinary rescue operation.

This was after Federal Reserve Chairman Bernanke convened an emergency meeting at 4 a.m., in which he used the long-dormant "nuclear weapon" of Section 13, Paragraph 3 of the Federal Reserve Act—an emergency authorization for the New York Fed to provide unlimited liquidity loans directly to a non-depository institution (Bear Stearns)!

The last time this level of aid was used was during the Great Depression of 1929.

The moment the news broke, global financial markets were instantly ignited.

London, Tokyo, Hong Kong, New York—all the night shift traders were chanting: "The Fed has intervened! The Fed has intervened!"

In their eyes, if Wall Street is a sinking Titanic, then the Federal Reserve is the lifeboat that will eventually arrive.

As long as they are willing to open the floodgates, all crises can be submerged in the overwhelming torrent of liquidity.

……

Lower Manhattan, Goldman Sachs headquarters, 43rd floor.

In Richard Kleiman's office.

He has barely slept for the past three days.

His dark circles looked like they'd been punched in the eye, his face was deathly pale, and his hair was a mess, as if he'd just crawled out of a trash can.

But at that moment, when he saw that bold red scrolling news item on the Bloomberg terminal—

"The Federal Reserve has intervened... the Federal Reserve has really intervened..."

Richard, like a drowning man grasping at a straw, jumped up from his chair, his voice trembling so much it was almost unrecognizable.

He frantically refreshed various news websites, every word confirming the hope in his heart that had been almost extinguished in his despair.

$290 billion! JPMorgan Chase guarantees 28 days of liquidity support!

Richard's fingers gripped the edge of the table tightly, as if he had seen the first ray of dawn in the darkness.

"As long as Bear Stearns survives today...as long as the market stabilizes...as long as that foolish Chinese kid can't exercise his options..."

He looked at the calendar hanging on the wall.

Today is Friday, March 14th.

There are exactly seven days left until the options expire on March 21.

The Federal Reserve used $290 billion in cash to give Bear Stearns 28 days to survive.

He only needs Bear Stearns to last seven days!

Just seven days!

Richard's eyes suddenly welled up with tears.

At that moment, he felt an overwhelming sense of gratitude in his heart for the country, for the white-haired Federal Reserve Chairman, and for the great national emblem that read "In God We Trust".

He picked up his personal cell phone and frantically dialed Bear Stearns Jason's number.

It rang for a long time before the other end finally answered.

"Feed?"

Jason's voice sounded extremely tired, but compared to the desperate screams of three days ago, it had regained a trace of human warmth.

"Jason! It's me! Did you see the news?! The Federal Reserve has intervened! $290 billion!"

Richard's voice carried a euphoric joy, as if he had survived a catastrophe.

"You're saved! You're saved, aren't you?!"

There was a few seconds of silence on the other end of the phone.

"Maybe."

Jason said wearily,

"But Richard, don't fucking call me. I feel like throwing up just looking at the words Goldman Sachs now."

You blocked us yesterday and are now buying up our assets at rock-bottom prices; you're nothing but bloodsucking vampires who devour people without spitting out the bones.

"beep--"

The phone hangs up.

But Richard didn't care at all.

He slumped into his chair, staring at the ceiling, and for the first time in days, he showed a genuine smile.

America will save me.

The Federal Reserve will save me.

God wouldn't let a Goldman Sachs vice president die so easily.

……

W Hotel, Business Suite 2317.

Isabella rushed into the room with an extremely pale face.

Her hair was disheveled from running, and she clutched tightly a copy of the Wall Street Journal's emergency reprint, still damp with ink, which she had just picked up from Starbucks downstairs.

"Boss! Something terrible has happened!"

She slammed the newspaper down on the table. The front page featured a black-and-white photograph of Bernanke's serious face, with a startling headline:

The Federal Reserve has activated emergency authorization to provide Bear Stearns with a $290 billion bailout loan.

"The Federal Reserve saved Bear Stearns!"

Isabella's voice carried an undisguised urgency and anxiety.

"Boss, if they really pull through... if the stock price rebounds to $50 or $60 because of this money... our options..."

She didn't finish her sentence, but the worry in her eyes was clear.

That initial investment of $512 million, plus the time lost over the past few days, could instantly become nothing.

Furthermore, if Bear Stearns had actually survived thanks to the Federal Reserve's bailouts, Farstar Capital would not only have lost everything, but would have become the biggest joke in this century-long gamble.

However, Lu Ze merely raised his eyelids and glanced at the newspaper.

Then, he lowered his head again and continued to slowly stir the steaming espresso in front of him with a small silver spoon.

"sit down."

Lu Ze's voice was soft, yet it carried an undeniable calmness.

Isabella paused for a moment, then took a deep breath and forced herself to sit on the sofa opposite.

"When you were studying at Wharton, did your professors ever tell you—"

Lu Ze took a sip of his coffee. "The Fed can save liquidity, but what can it save?"

Isabella was stunned.

Lu Ze put down his coffee cup and looked out the window at the city that was gradually being lit up by the morning light.

"$290 billion. Sounds like an astronomical figure, doesn't it?"

"But this money is merely a 28-day mortgage loan guaranteed by JPMorgan Chase. It's not a free gift, much less a solution to the problem."

Lu Ze turned around and looked at Isabella, his eyes extremely deep:

"All the Federal Reserve can do is throw a rope to a drowning man. But if that man's lungs are already full of water, if he's also strapped with a heavy anchor—"

He paused:

"This rope is merely delaying his descent to the sea."

Isabella stared at Lu Ze, her mind racing.

"You mean... Bear Stearns' underlying assets?"

"clever."

Lu Ze nodded.

"The Federal Reserve can give them $290 billion in liquidity, but that doesn't change the undeniable fact—Bear Stearns' tens of billions of dollars in subprime CDOs were completely rotten."

"The valuations of these toxic assets are plummeting, evaporating every day."

And those giants on Wall Street—Goldman Sachs, Morgan Stanley, Lehman Brothers… they have already told the world in the coldest of ways: Bear Stearns' credit is bankrupt.

Lu Ze walked to the Bloomberg terminal and pulled up an extremely complex chart—Bear Stearns' credit default swap (CDS) spread curve.

The curve has been rising almost vertically over the past three days.

"Look at this line. The CDS spread has surged to 1800 basis points."

Lu Ze pointed at the screen,

"This means that the savvy hedge funds in the market are willing to pay an 18% annual premium to buy insurance against Bear Stearns defaulting."

"Isabella, this is not about hedging."

This is like betting in a casino on a terminally ill patient who will die before the morgue trolley is wheeled in.

Isabella's breathing quickened slightly.

"Then... the Fed's money..."

"The Fed's money will only give Bear Stearns a few more breaths."

Lu Ze turned around, looked at Isabella, and a chilling smile curled at the corner of his lips:

"But those few breaths won't be enough for them to live until next Friday."

"Because what's truly fatal isn't a liquidity crunch."

Lu Ze walked to the window and looked down at the city that had just awakened.

In the distance, several taxis filled with well-dressed professionals were heading towards various corners of Wall Street. Most of them were unaware that they were about to witness history.

"The fatal flaw is the complete collapse of trust."

Lu Ze said softly,

"When your counterparties no longer believe you'll live to see tomorrow, when your clients flee your building in the middle of the night clutching their safes, when the entire market is betting on your demise with CDS—"

"At that time, even if the Federal Reserve gave you $2900 billion, it would only be like injecting a corpse with a stimulant."

Lu Ze picked up the cup of coffee and drank the last sip.

"Let's wait and see."