Golden Spoon Investor

Mapo-gu, Seoul.

The headquarters of Daeheung Group, a 20-story building with 3 underground levels, stood along a wide boulevard where cars passed by. On the top floor, the 20th was Chairman Park Tae-hong's office.

In his spacious office, decorated in a classic style with mahogany furniture, Chairman Park Tae-hong was sitting at his desk reviewing documents when he heard a knock at the door and looked up.

A slender, middle-aged man wearing gold-rimmed glasses opened the door and bowed slightly as he entered. It was Gil Sung-ho, the chief secretary who had served as Chairman Park's close aide for many years.

Approaching the desk, Gil Sung-ho placed a stack of newspapers on it and said,

"Chairman, I've brought the American newspapers from last Monday as you requested."

"Ah, yes."

Straightening his posture, Chairman Park Tae-hong picked up the topmost paper, USA Today. Since this was before the internet became widespread, one had to obtain and read the actual newspapers to see articles published in the U.S.

It didn't take long for Chairman Park to find the article he was looking for.

[Powerball Jackpot Hits in Texas! After five consecutive drawings without a first-place winner, the Powerball jackpot soared to $190 million, and finally, a lucky winner has emerged. The Texas Lottery Commission announced that the lucky winner is a foreign student in his 20s living in Massachusetts, named Seok-won Park. While on a trip to Texas, he purchased a Powerball ticket and won the entire jackpot. The winner decided to receive the prize as a lump sum, even though this would incur a high tax.]

Along with the article, there was a large photo of his second son posing with a panel that had $190,000,000 written on it.

Although the black-and-white photo was a bit blurry, Chairman Park Tae-hong immediately recognized his second son's face. He had been doubtful even after the phone call, but now, seeing the newspaper article with his own eyes, he couldn't help but believe that his son had indeed won a huge lottery.

"Hah."

As Chairman Park let out a short laugh, Gil Sung-ho, who was standing in front of him, cautiously asked, "Is there something wrong?"

Lifting his head, Chairman Park Tae-hong replied with a still dazed expression,

"There is, and it's something big."

Since he was unaware of any significant issues within the company, Gil Sung-ho looked puzzled.

"What do you mean?"

"See for yourself."

Chairman Park placed the newspaper down and leaned back in his chair.

Puzzled, Gil Sung-ho picked up the newspaper and soon confirmed the article Chairman Park had been reading, his eyes widening in shock.

"This… Could this really be the second young master?"

Chairman Park Tae-hong chuckled softly,

"You seem quite surprised. Well, I was just as stunned."

"The second young master is currently studying in the United States, isn't he?"

"That's right. But yesterday, Seok-won suddenly called and told me that he… What's the name of that American lottery again?"

"Powerball."

"Yes, that's it. Powerball. Anyway, he said he won first place. I was so taken aback that I'm still in shock."

Nodding in understanding, Gil Sung-ho also found it hard to contain his surprise. Winning a housing lottery with a 150 million won prize was already remarkable, but a $190 million jackpot?

Even with taxes deducted, it was an unimaginable fortune for most people.

Watching Gil Sung-ho, who still seemed stunned, Chairman Park Tae-hong asked,

"What's today's exchange rate?"

Immediately, Gil Sung-ho responded,

"780.5 won per dollar."

"Hm. So, the prize Seok-won will receive amounts to approximately 93.4 billion won."

"Yes, that sounds about right."

Even after considering it again, the amount was staggering.

"Contact the head of our U.S. branch and have him go to Cambridge where Seok-won is."

"Because of the prize money?"

"Yes. With such a large amount of money involved, it's likely to attract trouble."

Hearing this, Gil Sung-ho's expression hardened.

"If news of such a huge lottery win spreads, various kinds of people will flock around him. Moreover, since he's abroad, the temptation of bad influences will be even stronger, so it would be better to take precautions early."

"Exactly. Especially after what happened last time, I'm even more uneasy."

A shadow briefly passed over Chairman Park Tae-hong's face as he recalled the incident where Seok-won had barely survived after being shot by an armed robber.

Although his son had fortunately recovered without any lasting effects, the thought of his son getting involved in another serious incident was something he wanted to avoid at all costs.

Gil Sung-ho, sensing Chairman Park's concern, nodded firmly,

"Understood. I'll contact our U.S. branch right away."

"Have them invest the prize money under Seok-won's name in a suitable investment product in the U.S."

"Yes."

As Gil Sung-ho turned to leave, Chairman Park Tae-hong, now alone in his office, looked down at the newspaper photo of his son and murmured as if still in disbelief,

"Well, life certainly has its surprises."

***

Austin, Texas.

Dressed casually, Seok-won sat alone in the hotel lounge cafe, where bright sunlight streamed in through large glass windows, sipping coffee and reading today's Wall Street Journal.

[British Government Rejects Industry's Call for Interest Rate Cuts! As the economic recession deepens, British industry has issued a statement calling for the pound's value within the ERM to be devalued to 1.60 marks and for a 3% interest rate cut. However, Downing Street and the Bank of England have rejected these demands, stating that they will maintain the current monetary policy to support European integration. In response…]

Reading the article, a gleam appeared in Seok-won's eyes, and he curled one corner of his mouth into a smile.

"So, it's happening just as expected."

As part of the preliminary steps towards launching the Euro, the 12 member states of the European Community (EC) had established the European Exchange Rate Mechanism (ERM).

The goal was to stabilize exchange rates by fixing the exchange rates of various European currencies at a single rate.

"Until now, the ERM has played a crucial role in stabilizing European exchange rates, but not anymore."

Resting his chin on his hand, Seok-won recalled old memories.

When he first started shining shoes in Yeouido's financial district, he had a regular customer.

A cheerful man who loved to chat endlessly while Seok-won polished his shoes, often sitting in a plastic chair in his three-stripe slippers.

He talked so much that his stories seemed to never end, most of which were trivial gossip. However, sometimes he shared inside information or stock market rumors from so-called "tattle sheets."

One such story was about an event that would soon shake the Bank of England.

"Actually, the one who sank the Bank of England wasn't Soros, but the German Bundesbank."

As Seok-won skillfully applied brown shoe polish with a cloth-covered hand, he responded with a chuckle,

"Didn't you say last time that George Soros was the one who brought down the Bank of England?"

The man, now resting one leg on the opposite knee, answered in a lively tone,

"That's right. But without Germany's selfish actions, not even Soros would have dared to challenge the Bank of England."

"What did Germany do?"

Seeing Seok-won's interest, the man eagerly continued,

"Even now, Germany is the most powerful of the European Community countries. Of course, proud nations like the UK and France would never admit it, though."

As Seok-won continued polishing the shoes on his workbench, he listened intently.

"So naturally, the exchange rates of Western European countries were fixed based on the Deutsche Mark."

"If Germany is the wealthiest, then that makes sense."

"Exactly. But when the Berlin Wall fell, and Germany was reunited, the ERM, which had been working fairly well, started to falter."

Seok-won, diligently applying polish, tilted his head in confusion.

"What does German reunification have to do with the British pound?"

"It has everything to do with it. Unlike West Germany, which achieved the Miracle on the Rhine, East Germany was a near-collapse wreck. Although reunification was a long-cherished dream, the West German government and its people found themselves burdened with a massive load."

By now, Seok-won had stopped polishing the shoes and was fully focused on the story.

"Once reunification happened, they couldn't just leave things as they were."

"Of course not."

"So, the German government began pouring astronomical amounts of money into developing almost the entire East German region from the ground up."

"..."

"But no matter how wealthy Germany was, it was difficult for the government to cover the entire budget on its own. Do you know what the German government did?"

After a moment of thought, Seok-won blinked his round eyes,

"If the government is short on money, it would issue bonds to borrow funds, right?"

"Ding-dong-dang! Exactly."

The man clapped and made a fuss,

"They say even a dog at a Confucian academy will chant poems after three years. You're not bad at this!"

Instead of answering, Seok-won just grinned.

"Just as you said, the German government issued a large number of bonds to raise the necessary funds, but this led to another problem—inflation."

Taking a cigarette pack from his pocket, the man sat back down and lit a cigarette.

Back then, it was still common to smoke inside buildings or on the street, so it was a natural action.

"When the government prints bonds like crazy and floods the market with money, it would be more surprising if inflation didn't happen."

Even Seok-won could understand this, so he nodded his head.

"So, the German central bank, the Bundesbank, raised interest rates sharply to control inflation, which ended up being a fatal blow to the British pound."

"Why?"

"Remember, the ERM was set up to maintain fixed exchange rates among European Community countries, with the Deutsche Mark at the center."

"Yes."

"So, when Germany raised its interest rates, what would the other countries have to do?"

"To match the exchange rate, they'd have to raise their rates as well."

"Correct. But unlike Germany, other countries like the UK were in a recession and needed to lower, not raise, their interest rates."

Blowing out a puff of smoke, the man flashed a white-toothed grin.

"Despite the circumstances, the British government raised interest rates to keep the pound aligned with the Deutsche Mark."

"Really?"

"Yes. It was like putting a patient on a starvation diet instead of giving them the nutrition they needed to recover."

"Ah..."

"So, when the smell of blood became thick, hedge funds led by Soros didn't hesitate to pounce."

Wasn't that an interesting story?

The man's voice faded in Seok-won's memory.

He, too, had planned to jump into the massive storm that would soon engulf the UK.

Returning from his recollections, Seok-won glanced back at the newspaper article in his hand.

In this context, today's article was like the dinner bell inviting hedge funds from around the world to a feast.

"At one time, it might have been a lion that ruled the wild plains, but now, weakened and aged, it's nothing more than prey for greedy hyenas."

TL/n - 

The "Miracle on the Rhine," also known as the Wirtschaftswunder, refers to the rapid economic recovery and development of West Germany and Austria after World War II. This period saw these countries transform from wartime devastation to economic powerhouses in Europe.

***

The German central bank, Bundesbank, played a significant role during the financial events surrounding George Soros, particularly during the 1992 "Black Wednesday" incident. At that time, the Bundesbank raised its prime rate to combat inflation, which indirectly influenced the British pound's value. Soros capitalized on this by betting against the pound, leading to its devaluation and Britain's exit from the European Exchange Rate Mechanism.

***

The European Exchange Rate Mechanism (ERM) was introduced to reduce exchange rate variability and achieve monetary stability in Europe. It was part of the European Monetary System (EMS) and aimed to prepare European countries for the adoption of a single currency, the euro.

How ERM Works:

-> Central Rate: Each participating country's currency had a central exchange rate against the European Currency Unit (ECU), which was a weighted average of the participating currencies.

-> Fluctuation Bands: Currencies were allowed to fluctuate within a set margin around the central rate. Initially, this margin was ±2.25%, but some currencies had wider bands.

-> Intervention: Central banks intervened in the forex market to maintain their currency within the agreed bands by buying or selling their currency.

----

Example:

Let's consider the British pound (GBP) in the ERM:

Central Rate: Suppose the central rate was set at 1 ECU = 0.70 GBP.

Fluctuation Band: With a ±2.25% band, the GBP could fluctuate between 0.68425 and 0.71575 per ECU.

Intervention: If the GBP approached the upper limit (0.71575), the Bank of England would sell GBP and buy foreign currencies to bring it back within the band.

(GBP reaches the upper limit because the demand is high so the Bank of England sells GBP to fulfill the demand and stabilize the fluctuation. In the finance field the most basic thing you have to understand to the concept of Demand & Supply because they will decide the value.)

(For example, the demand for Gold is high but supply is less so the gold price is high but if the market is flooded with gold then it will fall.)

Real-World Example=> Of ERM

George Soros is famously known for his role in the 1992 currency crisis, often referred to as "Black Wednesday."

(To summarize => he short the British Pound and made 1 Billion dollars)

(By now you should already know what short and long mean as I'm trying to explain all the financial concepts as they come in An Investor Who See Future novel.) 

Here's a summary of how he managed to "break the Bank of England":

Background: In 1990, the UK joined the European Exchange Rate Mechanism (ERM), which aimed to stabilize exchange rates by tying them to the German mark. However, the UK economy was weaker compared to Germany's, leading to high interest rates and economic strain.

Soros' Strategy: Soros believed that the pound was overvalued and that the UK would eventually have to devalue it or withdraw from the ERM. He began shorting the pound, which means he borrowed pounds and sold them, planning to buy them back at a lower price later.

Market Pressure: On September 15, 1992, Soros and other speculators aggressively sold pounds, causing its value to plummet. The Bank of England tried to defend the currency by buying pounds and raising interest rates, but these measures failed to stabilize the currency.

Outcome: On September 16, 1992, the UK government withdrew the pound from the ERM and devalued it. This led to a significant drop in the pound's value, and Soros made an estimated $1 billion profit from his short positions.