I Became the Youngest Daughter of a Chaebol Family-Chapter 43: The End of the 80s (3)

"The Soviet Union will collapse. Within two years."

Their reaction to my prediction? Pretty damn intense.

“...The Soviet Union? No way, that’s impossible.”

“What are you planning this time, Miss?”

“Okay, but seriously—what the hell is a CDS?”

I gave a slow, silent nod, my face taking on a serious expression.

“Technically... two years after Eastern Europe crumbles. The USSR is already at its economic and political limit. Once Eastern Europe falls apart, they won’t last more than two years.”

December 26, 1991—the Soviet Union is officially dissolved. It's March 1989 right now, so there’s just over two years to go.

The directors glanced at each other, their faces stuck somewhere between confusion and disbelief.

They believed in me, so they trusted my words. But the future I was describing? They couldn’t process it.

If I hadn’t nailed Black Monday, they would’ve laughed me off completely. The idea of the Soviet Union collapsing... it’s that kind of wild.

I mean, we’re talking about one of the two superpowers of the world, standing shoulder to shoulder with the US—falling apart before ‘91 ends? Nobody here could even imagine that.

“Um, Miss. So, what exactly is a CDS?”

Director Choi adjusted his glasses and stared at me intently.

“A Credit Default Swap. From now on, we’ll be trading corporate and national credit. There are plenty of bonds out there teetering on the edge of default now, aren’t there? Which means, there’s demand.”

Credit Default Swap, or CDS for short, is a derivative that trades on the risk of bond defaults. There are other derivatives that deal with credit, but... CDS is the most basic.

The simplest way to think of it? It’s insurance. If a company goes bust and its bonds turn into toilet paper, if you’re holding a CDS, the seller pays you.

Originally, CDS was created by JP Morgan in 1994. Then ISDA (the International Swaps and Derivatives Association) formalized it in 1997, and it exploded in popularity.

In other words, in the normal timeline, it would take another three years for CDS to even exist, let alone take off. That’s why I’m pushing to get CDS up and running the moment Daehwa Investment Bank is established.

“I get it. You’ll keep taking short positions until then, and when the Soviet Union collapses, you’ll scoop up a ton of CDS.”

The directors, starting to catch on to my way of thinking, nodded with these knowing little smiles.

Something like that, right?

“Yup! Love how quick you all are—told you my directors are sharp.”

Of course, that’s because I already axed all the dead weight and only brought up the smart ones.

Some of these guys were just department heads or section chiefs a few years ago. Now? No one dares to look down on me because I’m young, and their loyalty? Solid.

I grinned and popped a candy from the glass dish on the table.

-Crunch.

Sweetness danced across my tongue.

“Alright, let’s issue CDS under the investment bank’s name. We’re a fresh face from the East, so even if we show up with a weird product, people will just think we’re... different.”

-Thump.

I passed around my neatly printed portfolio. A basic CDS structure, perfectly legal—or at least, nothing exists to make it illegal yet.

Technically, there aren’t even regulations or authorities in place to deal with this kind of thing.

“...Impressive as always. You’ve never even worked in the field, and this is what you come up with.”

Director Seo, who used to work with Ha Joo-seong before joining Daehwa Securities, let out a genuine gasp of admiration. Since he came from the trenches, he had a good eye for talent.

The only downside? He’s so tall I have to look up at him. Before I showed up, he was stuck in the cold with the Ha Joo-seong crowd—not exactly politically savvy.

Which is great for me, since I hate watching underlings try to play politics.

“We’ll need to move fast. The Alpha Fund will help, sure, but getting a new product like this to catch on won’t be easy.”

“...Even if it means taking losses?”

I nodded.

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“Yup. No matter how well I know the future, I can’t predict everything perfectly. So, think of this as hedging our risks—let’s sell CDS on Eastern European bonds. Pair it with shorting their bonds, and it’ll cancel out.”

Alpha Fund’s the one making the real money. As long as Daehwa Investment Bank doesn’t eat into its capital, we’re good. What matters here is influence.

If we’re known as the investment bank that created CDS—the same CDS that helped trigger the Great Recession—that name alone will be worth everything.

“Then... won’t it be tough to scale up CDS? The risk is way bigger than just shorting bonds.”

If companies or countries actually start going bankrupt, the payouts could get massive. Unlike ordinary options, the terms here are way more extreme.

“Right. CDS premiums are in basis points. When the Eastern European crisis hits, we’ll have to sell at sky-high premiums... but demand will keep growing. People always buy insurance when the risk feels real.”

“So supply will naturally increase. We’re just opening the floodgates...”

It must’ve clicked for them, because their faces lit up with interest.

“We could charge obscene premiums, and it’d still work.”

“Let’s test the waters on US companies first. Slowly ease in, then when Eastern Europe’s about to collapse like Miss said, we bring in Alpha Fund for a big play.”

“I don’t know... What do you think, Director Choi? Personally, I think we should just dive straight into Eastern Europe. The communist countries have already borrowed tons from the West. Except for Romania, none of them have repaid a damn thing—it’s about time the lenders start getting nervous.”

“Ahh, so you’re saying we approach Eastern Europe right now...? Based on sovereign debt, that’s not a bad move. Money’s been stuck over there because of the risk, but if we take that risk off their hands, they’ll love us for it.”

I couldn’t help but smile proudly, watching them debate so enthusiastically.

See? It’s not that we don’t have talent in this country. It’s just the environment and experience that’s lacking... These guys are all sharp.

Sure, a lack of experience isn’t something that can be fixed easily—but that’s what I’m here for.

“Alright, let’s get to work. Director Seo, pick a company and put together a portfolio. I’m thinking 500 basis points for the premium.”

I clapped my hands with a cheerful grin. The sweetness of that candy still lingered on my tongue.

“Isn’t that too high? You’d only get that rate from a company that’s about to go under.”

Director Seo looked worried. He knew 500bp was ridiculous—it meant they’d have to pay us 5% of the bond’s value every year in premiums.

Usually, you only see 500bp in junk bonds. When Lehman was about to go bankrupt, or when AIG needed a bailout, or when Greece hit its sovereign debt crisis, that number shot past 1000bp.

But for now? It’s fine. Taking massive premiums before the market’s fully structured is just «N.o.v.e.l.i.g.h.t» business as usual.

“Ahaha, don’t worry. Somewhere out there, there’s a bank or fund desperate for risk management. And they can only make a deal with us. Later on, it’ll be way easier to attract competitors too.”

“...You’re doing this on purpose? Overcharging to force competitors into the market?”

“Exactly. The more competitors, the easier it’ll be to offload our sell positions and switch to buy when the Soviet Union collapses.”

With derivatives, you need someone to take the other side of your contract. Same with stocks, really... but this market’s still too damn small.

“I get it. This’ll take some time. I’ll start by reviewing the materials Alpha Fund sent over. Maybe I’ll look into the US instead of Tokyo...”

Watching Director Seo sink into thought, I gave him a warm smile and praised him.

“Quick thinking, as always. You Daehwa Securities—no, Daehwa Investment Bank—directors really are the best.”

This time, I’d just plan it out, and they’d handle the actual execution.

I can’t be the one doing all the work forever. A great leader isn’t the one who’s best at getting their hands dirty—it’s the one who’s best at getting others to do the job right.

Looking around at my smoothly running company, I felt this deep, satisfying sense of fulfillment.

***

The end of the '80s was coming together, one careful step at a time.

The department store I’d hounded the construction companies over was finally open, built with solid, reliable techniques. The Alpha Fund was pulling in steady profits off the Japanese stock market and US companies.

And... even though it was tough getting permission to sell CDS, that massive premium helped convince the government.

‘Seriously, why so many damn regulations just for one deal?’

No one really wanted to make a contract, so in the end, I went back to that Japanese securities firm I’d done a favor for in the past and made a deal.

If they defaulted, we’d have to pay 10 billion won. Our premium? 500 million won. Not exactly amazing, but compared to the 40bp JP Morgan got in the original timeline, it wasn’t bad.

As if it were all scripted (it was), Alpha Fund, still killing it in the US, announced it would start trading credit itself. Wall Street blew up with articles and analysis about this new financial product.

And with Eastern Europe in chaos, the timing couldn’t have been better.

May 2nd, Hungary began tearing down the barbed wire that separated it from Austria.

June 4th, Poland’s parliamentary elections ended in a crushing defeat for the Communist Party. They barely clung to their top spot thanks to pre-assigned seats, but they didn’t win a single one in the free elections.

And on that same June 4th... China’s last push for democracy was crushed at Tiananmen Square.

It was fascinating—and tragic.

Sure, I made a fortune bleeding the free world’s excitement dry... but if China had democratized, there’d have been so much more to milk. That market is huge.

All I could do was sigh and watch history’s wheels turn.

‘I hate dictators.’

...Well, I hate the ones that are against me.

Still, it looks like I might be able to meddle in Russia, so that’s something.

And hey, I’ve always had a refined taste for good black tea.