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

Wednesday, November 2008, 7.

The first thing Robert Steele does every morning is to draw back the curtains.

In Washington in July, the morning sun at seven o'clock hadn't yet accumulated enough heat to scorch, and gently laid its light on the dark oak floors, making the waxed surface gleam with a honey-colored light.

He liked this moment. The curtains were drawn back, light streamed in, he sat down at the table, opened the first document, and the day officially began.

As the third-ranking person in the building, Steele's initial list of responsibilities was very clear.

Two years ago, Paulson brought him from Goldman Sachs' trading desk to Washington, drawn by his 28 years of experience in bonds, to keep an eye on the ever-expanding structured products. That was originally a tedious but controllable regulatory job.

The situation has gone off track over the past four months.

Bear Stearns collapsed, Fannie Mae and Freddie Mac teetered on the brink of collapse, crude oil prices soared, and Lehman Brothers' stock price grew worse day by day.

Behind every incident lies a string of staggering numbers and a host of decisions made without any precedent. The parking attendant lost his footing and fell into the field first aid room.

The difference is that first responders are at least trained.

In this exhaustion that is on the verge of spiraling out of control, one name has been appearing repeatedly recently.

Farstar Capital. Lance Walker.

Two days ago, Monday morning.

Steele first saw the open letter at 7:45.

The assistant brought it in, tucked inside the daily market monitoring briefing. On the cover, a line was written in pencil: "An open letter from Farstar Capital, attracting significant market attention; recommended reading."

He quickly read the four pages, then turned them over and placed them face down on the table.

The first reaction that came to mind was annoyance. Not attribution to the content itself. The commercial real estate bubble, the lack of transparency in Level 3 assets, and the fragility of short-term financing chains—these arguments had already been discussed and debated for six months in closed-door meetings at the Ministry of Finance.

What infuriated him was the act itself: a hedge fund manager who heavily shorted the financial sector publicly issued a inflammatory warning letter, precisely targeting his own shorted assets.

He was used to this tactic during his time at Goldman Sachs. They would quietly build up short positions, then go into the spotlight to spread negative news, create panic, drive down stock prices, and profit from their positions.

The entire process operates in a gray area, making it difficult for the SEC to intervene because the line between free speech and market manipulation is extremely blurred. Unless you can prove the person in question is lying.

The tricky part is that everything in Farstar's letter was true. You can't sue someone for telling the truth, even if their only purpose in telling the truth was to make money.

Steele picked up the phone and dialed SEC Chairman Christopher Cox.

"Chris, did you see that open letter from Farstar Capital?"

"I've read it." Cox's voice sounded as if he had just finished reading it.

"Is there anything you can do? This person is openly manipulating market sentiment. He's holding short positions and sent out a inflammatory letter to create panic. Does 10b-5 cover this?"

There was a moment of silence on the other end of the phone.

"Robert,"

Cox slowed his speech, as if choosing each word carefully.

"10b-5 requires us to prove that his statements are false or misleading. You read that letter. Which statement in it is false?"

Steele didn't respond.

"and,"

Cox continued, "If the SEC were to investigate someone who just rose to fame for accurately predicting the Bear Stearns crash at this critical juncture, what do you think the media would write? 'The government is trying to silence those who speak the truth'? That would make us look like henchmen of Wall Street."

Steele knew Cox was right. But knowing that didn't quell her anger.

After hanging up the phone, he paced back and forth in his office a few times before sitting down to draft a memo for Paulson.

The core recommendation is to closely monitor Farstar Capital's subsequent moves, assess the actual impact of the open letter on market sentiment and financial stocks, and, if necessary, consider requesting the SEC to conduct an informal review of Farstar's trading activities.

In the last paragraph of the memo, he wrote a sentence, stared at the screen for a long time, and then deleted it word by word.

That statement was a suggestion for the Ministry of Finance to publicly refute some of the exaggerated assessments in Yuanxing's open letter in order to stabilize market confidence.

The reason for deleting it is simple. He wasn't confident he could win the argument against the letter in a public debate.

Because every word in that letter was true.

on Tuesday.

The market has rebounded.

When Steele saw the closing data before leaving get off work, his shoulders, which had been tense all day, finally relaxed.

The S&P 500 rose, Lehman Brothers rebounded by 6%, crude oil recovered most of its losses, and the VIX fell. A CNBC host famously remarked, "Wall Street is immune to doomsday prophecies."

Steele watched the scene, her lips twitching slightly, but she didn't actually laugh. But she did feel a sense of relief.

The market was not devastated by the letter. After a day and night of calm evaluation, Wall Street's smart money responded: the problems mentioned in the letter did exist, but they were already priced in and did not constitute new negative news.

He left the memo he wrote to Paulson in his drafts folder and didn't send it.

Since the market has absorbed the shock itself, there's no need to distract Paulson. He already has enough on his desk: Fannie Mae, Freddie Mac, Lehman Brothers, AIG—each one heavier than an open letter from a hedge fund.

On Tuesday night, while driving home, he heard a song playing on the radio and hummed along for a few lines.

I don't remember what song it was. It was the sound my body made when a string that had been stretched for two days suddenly loosened.

Wednesday. July 9th. Today.

Steele sat at his desk, which was illuminated by the morning sunlight, opened the Bloomberg terminal, and glanced at the pre-market data.

S&P futures edged higher, crude oil nearly returned to pre-opening levels, and Lehman Brothers' pre-market quote was almost 8 percent higher than Monday's low.

The shockwaves from Farstar's open letter have completely subsided.

He picked up the Americano his assistant had brought him and took a sip. It was warm, with just the right amount of bitterness. Then he leaned back in his chair.

He rarely felt this way in the past four months, thinking that there probably wouldn't be anything major to deal with today.

This feeling was so rare that it took him a while to recognize what it was: the normal state that a government official should have on a typical workday morning.

He began working on the stack of routine documents on his desk: the agenda for an interagency coordination meeting, a comment request for revisions to community bank regulatory standards, and a draft quarterly report to the House Financial Services Committee.

The tedious bureaucratic work. He even somewhat enjoyed the tedium. He had missed it terribly over the past four months.

The market opened at 9:30.

Steele doesn't watch the market like a trader, but about ten minutes after the market opened, he casually glanced at Bloomberg's main interface.

The S&P 500 rose three points, just shy of its pre-letter levels. Crude oil has already surpassed its pre-letter price levels. Lehman Brothers rose three percent.

The entire financial sector is rising, and it's not the kind of tentative rebound that could turn around at any moment; there's a sense of certainty in the trend.

Steele stared at the green numbers on the screen, the face of the 26-year-old Chinese-American fund manager briefly flashing through his mind. Bear Stearns' performance was indeed impressive, he admitted.

But a person can't rely on one victory to make a living forever.

Walker's success at Bear Stearns gave him a kind of illusion that he saw things that others couldn't see, so he wrote that letter, putting his judgment before the whole world and betting his entire reputation on it.

The market gave him an answer in three days.

It's not "You're wrong," but rather closer to "We already know what you're saying; you haven't told us anything new."

Steele closed the briefing containing the open letter from Farstar, casually placed it on the corner of the table, pulled up the consultation request for revisions to the community bank regulatory standards in front of him, and uncapped his pen.