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

[New York, Goldman Sachs Headquarters]

It was 4 PM, one hour before the market closed.

Lloyd Blankfein sat in his CEO office on the 50th floor, holding a briefing on the week's key trading activities for the FICC (Fixed Income, Foreign Exchange, and Commodities) division.

This is usually a routine matter.

As CEO, he doesn't need to manage the specifics of a multi-million dollar royalty transaction, but today, his gaze lingered on a familiar name.

Client Name: Yuanxing Capital

Transaction type: OTC macro credit default swap

Notional principal: US$1.1 billion

Key terms: Daily mark-to-market, cash collateral (trigger threshold 10 Bps)

Blankfein frowned slightly, his fingers tapping lightly on the lines of text.

$1.1 billion in notional principal is not a large sum for Goldman Sachs.

After all, this is a legitimate transaction with hedging, unlike Bear Stearns where Goldman Sachs had to take a loss to fulfill its obligations.

But the logic behind this action made him feel a strange, inexplicable unease.

He turned a page and looked at the list of underlying assets in the CDS basket.

Lehman Brothers. Merrill Lynch. Citigroup. Washington Mutual. AIG. Fannie Mae. Freddie Mac.

This is a standard, typical macro tail risk hedging basket.

Any savvy fund manager heavily invested in crude oil or commodities would spend a small amount of money to buy a "US financial doomsday insurance" policy to protect their long positions in the face of the spreading subprime crisis.

This is like winning a large sum of chips at a casino and then spending a small amount to hire a few bodyguards.

Very reasonable. So reasonable that it seems there's nothing wrong with it.

But what if the owner of this order is Lu Ze?

The young man who, on the green at Hampton, used extremely subtle yet penetrating words to hint that Lehman, this "rotten tree," might collapse the entire estate fence.

Is he a so-called "traditional energy bull"?

That's a lie.

A strange sense of unease settled over Blankfein.

Blankfein's gaze moved down the list and stopped at the last two lines.

Goldman Sachs.

Morgan Stanley.

He stared at the words "Goldman Sachs," his eyes narrowing slightly.

The probability of death of his trading counterpart (Goldman Sachs) was also included in this insurance policy purchased from Goldman Sachs.

This is an extremely subtle sleight of hand.

If Lu Ze only buys Lehman Brothers, or only buys a few other investment banks on Wall Street, Goldman Sachs' trading desk will immediately be alert—this kid is making precise kills.

Therefore, no matter how high the premium is, Goldman Sachs will never accept this order.

Or try to find a way to increase the cost of building a position in Yuanxing.

But Lu Ze also included Goldman Sachs.

It's like telling the Goldman Sachs trading desk, "I'm not targeting Lehman Brothers, I just think all of you Wall Street bigwigs are crazy. I'm just buying critical illness insurance for the American financial system."

Blankfein closed the briefing and leaned back in his chair.

He had a hunch: this seemingly neutral macro-hedging basket was just a large overcoat. Beneath that overcoat lay a sharp knife pressed against the throat of some specific prey.

That knife was most likely pointed at Lehman Brothers.

It should be.

However, the two extremely demanding terms that Lu Ze requested—"daily mark-to-market" and "cash collateral"—made Blankfein feel uneasy.

If Lehman Brothers does indeed default, the default interest spread generated by this $1.1 billion notional principal will translate into a daily cash outflow of tens or even hundreds of millions of dollars.

Goldman Sachs will have to humiliatingly deposit real money into Farstar's account every day at 5 p.m.

This is fatal because it touches upon the most important aspect of investment banks: liquidity.

Blankfein placed his hand on the telephone receiver on the table.

He could call the FICC director right now and, on the grounds of risk control, forcefully cancel this transaction that has not yet been finalized.

But he didn't pick it up.

Because Goldman Sachs' proprietary trading desk is also building up a huge short position in Lehman Brothers at this moment.

If Goldman Sachs had backed down over a mere billion dollars in counterparty exposure before Lehman Brothers collapsed, it would have sent an extremely dangerous signal to the market:

Goldman Sachs is scared. Its balance sheet can't even withstand this level of hedging volatility.

"You win."

Blankfein muttered something under his breath and casually tossed the briefing into the folder he had already read.

He chose to trust Goldman Sachs's massive cash reserves model, believing it would be sufficient to handle any volatility arising from the deal.

[Headquarters of AIG Financial Products (AIGFP), Connecticut]

That same afternoon, in Wilton, a two-hour drive from Manhattan.

This is the nerve center of AIG's Financial Products Division (AIGFP).

This department, with just over four hundred employees, has contributed more than two-thirds of the AIG Group's profits over the past few years.

The office area lacked the loud noise of Wall Street; instead, there was only the extremely quiet sound of keyboard typing.

Most of the employees here are top mathematicians, physicists, and quantum model engineers.

They don't watch the news or politicians' speeches; they only look at the data.

Sales director Brad Livingston had just finished a call with Isabella from Farstar Capital and was in a very good mood.

He walked over to David's workstation, holding a Starbucks cup.

"David, I just landed a big order."

Brad tapped on the table.

"Yuanxing Capital bought a macro-financial insurance policy with a premium of 20 million and a notional exposure of 800 million US dollars. The main targets were Lehman Brothers and ourselves."

David looked up from the three screens displaying complex Gaussian Copula functions and pushed up his thick black-rimmed glasses.

"What are the conditions?"

"They require daily market monitoring and do not set any trigger thresholds."

Brad shrugged.

"That Asian female COO surnamed Chen is very tough. I think they were terrified by the small shock of the subprime mortgage crisis in February."

David stared at the risk control model running on the screen and nodded without hesitation: "Take it. This is practically a free $20 million year-end bonus for us."

"Are you sure you don't want to conduct stress tests on Lehman Brothers' weights?"

Brad asked casually.

"Their recent losses in commercial real estate seem quite substantial, and the short sellers are aggressively targeting them."

"unnecessary."

David brought up an interface with an extremely smooth curve that was almost touching the zero axis.

"My Copula default correlation model has been run over 10,000 Monte Carlo simulations."

David's voice carried an almost religious devotion and arrogance toward mathematical formulas.

"Whether it's Lehman Brothers, Goldman Sachs, or AIG itself, these financial giants with a century-long history have an average historical default rate of less than 0.1% over the past five years."

Even in the most extreme Six Sigma tail risk events, the probability of systemic default is determined by the model to be "statistically impossible".

David picked up his coffee, took a sip, and said with absolute certainty:

"Don't worry, Brad. Lehman Brothers has government backing, the Federal Reserve is watching them, they have a 158-year history and hundreds of billions of dollars in assets."

David turned to look at Brad, as if stating an absolute physical law:

"Lehman Brothers is absolutely not going to fail."