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

"Therefore, it cannot be purchased individually."

Lu Ze's gaze fell on the crude oil position report that Isabella had just brought in, and he tapped his fingers lightly on the table.

"To outsiders, we are currently a bullish energy company heavily invested in crude oil. Crude oil and the macroeconomy are strongly intertwined. Go to the prime brokerage departments of major investment banks under the name of Yuanxing and tell them we are concerned about systemic risks in the US financial system, which could lead to a collapse in crude oil demand."

"To hedge our massive long positions in crude oil, we need to buy insurance from them in a 'macro-financial short-selling basket.' This basket includes Citigroup, Fannie Mae and Freddie Mac, Wachovia, AIG, and Lehman Brothers—all bundled together."

If you only sell CDS for Lehman Brothers, they might think you've seen problems with Lehman that others haven't, and that you're specifically shorting Lehman. In that case, they'll raise the price arbitrarily.

But if you're buying insurance from companies that make up half of the US financial system, then that's perfectly normal.

Isabella immediately jotted down notes on her tablet: "Understood. I'll adjust the weighting of this basket, increasing the proportion of Lehman. As for the counterparty, I suggest Merrill Lynch or Citibank. I just checked the terminal; their Lehman CDS premiums are the cheapest in the market. With the same principal, we can get the maximum leverage..."

"no."

Lu Ze rejected it without hesitation.

Isabella paused for a moment, then asked, "Why? In financial derivatives trading, isn't it about buying from whoever offers the lowest price?"

Isabella.

Lu Ze crossed his arms, leaned forward slightly, and looked at her.

"Buying a CDS is essentially buying fire insurance for a house that's about to catch fire. When you're certain the house will burn to the ground, your biggest concern shouldn't be which insurance company offers the cheapest premium."

"It's not about whether the insurance company that sold you the policy is still alive when the house burns down."

Isabella realized what was happening instantly, but she didn't stop there.

"Understood. Therefore, Merrill Lynch must exclude its own balance sheet..."

Lu Ze continued.

"A pile of shit. Not much better than Lehman Brothers."

Isabella nodded, her fingers already flying across the tablet, bringing up a comparison table of CDS quotes from various investment banks. Her train of thought didn't falter.

"However, the opposing side has more options than just Goldman Sachs and Morgan Stanley."

She turned the screen towards Lu Ze.

"Deutsche Bank, Barclays, and UBS—these major European banks are offering prices about 15 to 20 basis points cheaper than Goldman Sachs, and given their size, the Europeans won't let them fail."

She looked up at Lu Ze: "Diversify our competitors and reduce overall premium costs. Two American companies and several European companies—we won't put all our risk in one basket."

Lu Ze did not answer immediately.

His finger paused on the table for a moment—a very short pause, about a second, less than two.

If Isabella hadn't spent more than ten hours a day with him, she wouldn't have noticed the pause.

But she noticed.

She had no idea what he was thinking for that brief second.

What Lu Ze was thinking had nothing to do with the CDS price list in front of Isabella.

Deutsche Bank. Its corporate finance division has long-standing credit relationships with half of Germany's industrial giants. Porsche. Volkswagen. Siemens. Huge corporate bond positions.

Barclays. One of the UK's largest investment banks. Plays a central role in debt financing for the European automotive supply chain and energy sector.

UBS. Switzerland. One of the world's largest wealth management firms. Its investment banking division suffered huge losses in the subprime mortgage crisis, but its corporate credit portfolio contains a large amount of high-quality debt from European manufacturing companies.

A few other names that Isabella hadn't mentioned flashed through his mind at that moment.

Royal Bank of Scotland. BNP Paribas.

The two giants, who are of great importance in the European financial system, each hold a huge portfolio of corporate bonds that cover the entire European industrial landscape.

These banks are currently on Wall Street, gleefully selling credit insurance policies they deem "almost impossible to trigger" on the CDS market, earning hefty premium income.

They don't know—or rather, they choose not to think—that a few months later, when the shockwaves of the crisis spread from the United States to Europe, they themselves will be dragged into the quagmire of liquidity.

At that time, they will be in dire need of cash.

The CDS compensation rights held by Farstar Capital—those irrevocable cash compensation obligations written in black and white in the ISDA agreement—will become a noose around their necks.

A rope that can be used to exchange for many things.

Not just cash.

These thoughts flashed through Lu Ze's mind as fast as lightning.

He didn't think about it deeply.

Now is not the time to think about these things. The priority now is the layout of the CDS itself.

But the seed had already fallen into the soil.

"Can."

Lu Ze spoke, his tone unchanged from before.

"And the share from major European banks can be even larger. It shouldn't just be two or three banks each taking a small portion. We need to broaden the coverage. Let's include Deutsche Bank, Barclays, and UBS. And add two more—Royal Bank of Scotland and BNP Paribas."

Isabella's pen paused briefly on the tablet.

"Five European banks?"

"right."

"Including Goldman Sachs and Morgan Stanley, there are a total of seven channels."

"right."

Isabella quickly recalculated the share allocation in her mind.

Seven channels mean that each individual channel has a smaller exposure, and the impact of any problem on Yuanxing as a whole is more limited. From a purely risk control perspective, this is an impeccable choice.

But she still asked one more question: "Five European banks... isn't that a bit too many? The administrative costs of managing seven ISDA frameworks are not low. Moreover, we haven't had any prior contact with the CDS trading desks of Royal Bank of Scotland and BNP Paribas; establishing relationships will take time."

"There's enough time," Lu Ze said. "Europeans move at a slower pace than Wall Street, but they read the terms more carefully before making a decision. This is actually a good thing for us—once they sign, they're much less likely to back out than Americans."

"and,"

He added, in an extremely casual tone, as if he were mentioning a minor technical detail.

"Establishing ISDA master agreement frameworks with major European banks in the coming months is not a bad thing. Once the framework is in place, any other types of transactions that need to be conducted later can be executed quickly within the same framework."

Isabella glanced at him.

The words "other types of transactions" left an extremely faint echo in her ears.

But she didn't press further. Because in the current context, that statement could be interpreted as—if Yuanxing wants to hedge other derivatives through European banks in the future, having an existing ISDA framework would save a lot of trouble.

This is a reasonable and standard business consideration.

She nodded and noted on her tablet: "Seven channels. US: Goldman Sachs, Morgan Stanley. European: Deutsche Bank, Barclays, UBS, Scottish Open, BNP Paribas. Share allocation to be determined."

In terms of share,

Lu Ze said, "Goldman Sachs and Morgan Stanley together took 40%. Five European banks together took 40%."