Chapter 319 Soros' Crisis

As a world-class hedge fund manager, Soros almost never had nightmares in his life. Although he had seen many storms in the financial market over the past decades, he could survive it with ease. Even when he challenged the pound alone in 1992, he fought against the former empire of the sun and the sun was unfavorable by the outside world, he could fall asleep peacefully every day because he was full of confidence in himself and believed that he would win. He always believed that he was different from ordinary people and could see things that others could not see. At that time, he judged that Britain had long lost the glory of the world's largest power. After two world wars, Britain's national strength had long been reduced to a second-rate position. The former world currency, the British pound, was a toothless tiger with a strong appearance but weak inside. As long as he pushed it, it would fall down. The facts proved that he was right.

Many people regard him as the culprit in this Asian financial crisis, which made him very proud. But this actually overestimated his role and amplified the ability of a single individual to influence the current international financial market. The daily liquidity in the international financial market is as high as 2 trillion US dollars, and even the United States, the world's largest economic power, would not be able to digest so much hot money at once. If Southeast Asian countries had not had many economic problems themselves, they were carelessly opening their doors and allowing all kinds of "hot money" to come and go, emptiing the country's foundation, flies would not have bite a seamless egg.

Soros and others won't succeed so easily. Soros' quantum fund is actually not the hedge fund with the strongest funds in this storm, but he himself is contrary to the style of fund managers being cautious and low-key, and frequently accuses Asian countries of problems very high-profile. While he makes a lot of hard-earned money from the people of Asian countries, he also publicly criticizes the governments of various countries that he humiliated. Of course, this is not likable, making him the number one person in the hearts of these countries' politicians. The Chinese saying "If you don't have a reputation for a lifetime, you will be infamous for thousands of years." Soros successfully did this.

Now that the Asian financial crisis has broken out for a whole year, Soros, who has already made a fortune, has a premonition that the high-speed train he is riding on seems to have lost control and is heading towards a bottomless abyss! He has never had nightmares and has not been asleep for several consecutive nights. He is now in a hotel in Moscow, the capital of Russia, waiting for the Russian government and the state bank to negotiate debt restructuring with creditors holding Russian state bonds. In fact, it is waiting for the Russian government to announce that it will not repay the borrowed foreign debt immediately. He will discuss with the creditors whether to postpone the repayment of the debt or pay less and let the creditors suffer losses!

There are only two foreign creditors in negotiations, one is Deutsche Bank, representing Europe, and the other is JP Morgan Bank, representing the United States. The Russians are rude and stubborn. Even if Soros is famous, they are still blocked by the tough Russians from the negotiation gate. He can only grasp the negotiation process through the inside line of the JP Morgan negotiation team. However, the leaked news made him feel uncomfortable. At the same time, the news from Hong Kong has even worsened. After the three sovereign funds of the Hong Kong Special Administrative Region Government entered the market on August 5, major economic groups in Hong Kong have also joined forces to snipe international speculators. Although international speculators are unwilling to fail and have repeatedly counterattacked, the trend has passed. As the current situation continues, before the 28th futures futures delivery date, international speculators will have to make up for short stocks and futures at a higher price, and eventually suffer very heavy losses.

Soros came to Russia to make money from the Russian bond market to fill in loopholes in Hong Kong, but when he arrived here he realized that he was afraid that Russia would have more trouble than Hong Kong, which means that the quantum funds he managed would suffer unprecedented losses on both ends, and his credit and reputation were likely to be ruined. As a hedge fund manager, Soros himself has only a few billion US dollars, but by manipulating investments from all over the world, he can use financial leverage to complete transactions of up to tens of billions and billions of dollars, and he can also raise his arms and gather others to join his subordinates to fight against opponents. This is the fundamental reason why he can defeat governments in one country. If there is a problem with his quantum fund, the benefits he gained from the financial storm will be shattered.

This fact is even more terrifying than killing him, so he stayed in Moscow just to see if there is a chance to turn the world around. But the cold reality made him realize that Russia's problems are even more serious than those of Southeast Asian countries. The Russian financial crisis was actually a credit crisis, which deteriorated step by step in three stages. Last July, the Asian financial crisis broke out, which led to damage to the global financial system. Russia was affected by this. A large number of funds fleeing in September and October, and the financial market fluctuated violently. In May and June 1998, because the Russian government was in trouble.

The crisis caused the fiscal policy under the medium- and long-term cover of the Russian economy, and the sudden outbreak of the debt crisis caused investors' psychological panic. In addition, the parliament revised the privatization policy pursued by Russia after the collapse of the Soviet Union, which intensified the panic withdrawal of funds from a large number of foreign investors due to fear of changes in Russia's economic policies. As a result, a second financial crisis broke out, seriously damaging the confidence of investors and consumers at home and abroad. The trust in the Russian local currency ruble dropped to a freezing point. Many Russian people tried every means to withdraw their own deposits and exchange them for foreign currencies such as the US dollar to avoid danger.

Although the Russian government realized this danger, it took the initiative to raise interest rates and levy rubles to borrow domestic debts and borrow foreign debts. In mid-July, it obtained a loan of US$22.6 billion from international financial institutions headed by IF, and adopted measures such as negotiating with domestic and foreign creditors to extend the repayment period, barely stabilizing the situation. But anyone with discerning eyes could see that Russia's broken ship was flooding everywhere, and the government was busy plugging loopholes everywhere and could no longer stop it from sinking. If you don't jump the ship quickly to escape, you will sink with it. Soros and Robertson invested too much money in Russia's foreign debt, and it was too late to cash out, so they could only grit their teeth and hold on.

However, the deterioration rate far exceeds Soros' forecast. On August 1, 1998, the Russian government announced an economic program to stabilize finance, but investors generally reported coldness, and risk aversion in the market became increasingly strong. Foreign capital in the bond market is no longer willing to continue to buy Russian securities and began to sell the securities in its hands. August 10 is Monday, which is the "Black Monday" that made the Russians unforgettable. On this day, the price of old bonds owed by the former Soviet Union to foreign banks plummeted to 36%, and the newly issued European bonds of Russia were only worth half the price. The next day, the yield of short-term government bonds in the Russian domestic securities market surged to 100%! In order to regain investors' confidence, the Russian government still paid off the due government bonds at this price. The Ministry of Finance announced that it would allocate US$1 billion from the loans obtained from IMF in July for repayment, and the rest were used to increase foreign exchange reserves.

The Russian government originally planned to use this money to stabilize the market, believing that part of the 5.3 billion rubles he paid that day would buy bonds and recover. However, he did not know that the scared investors not only did not buy new bonds, but also exchanged most of the repayment funds for US dollars, and the rest directly withdrawn from the market. Soros, who was shrouded in panic on this day, made a fool of himself. He publicly urged the Russian government to depreciate the ruble by 25% to deal with the difficulties! Under the fuel of various panic factors, the price index of 100 Russian industrial stocks fell sharply that day, falling to only 26% at the beginning of the year, and a 74% drop in one day, becoming a wonder in the history of the world stock market!

Foreign banks expect the ruble to depreciate and immediately asked Russian banks to repay their loans in advance. Moody's and Fitch, the three major rating agencies in the United States, announced that they would reduce the credibility levels of Russian foreign debt, as well as major Russian banks and large industrial groups. At the same time, the Russian government found that the income and expenditure gap in August was as high as 8 billion rubles. Under this internal and external pressure, the Russian government was completely panicked. At this time, Russia's national debts matured one after another, and the Russian government would have to repay $24 billion in domestic and foreign debts by the end of the year. At that time, Russia's foreign exchange reserves were only $17 billion, and it was impossible to even keep the ruble exchange rate, let alone repay the debt.

In the situation of internal and external difficulties, the Russian government rashly introduced three tough emergency measures on August 17. The first item expanded the floating range of the ruble exchange rate, which was actually allowed to depreciate against the US dollar, allowing the maximum depreciation of more than 50%. As a result, the market reaction became even more intense. The ruble exchange rate fell below this range within 10 days, and destroyed the ruble exchange rate that Russia had worked hard to stabilize for more than three years. The second item was to postpone the repayment period of about US$15 billion of maturing foreign debts, and the third item was to convert the domestic debt repayment period, converting the treasury bonds worth US$20 billion that expired before December 31, 1999 into medium-term government bonds with a maturity of up to 4 or 5 years, and announced that the treasury bond market would suspend trading before the end of the conversion.

As soon as these three measures were announced, public opinion was in a big uproar, Russian stocks fell sharply and the ruble exchange rate plummeted. The Russian Central Bank had to announce that it would allow the ruble to float freely. People rushed into Russian banks to squeeze rubles for US dollars, or rush to buy and hoard consumer goods in large quantities. By August 28, the market price of 100 Russian stocks had fallen to US$15.92 billion, down 85% from the beginning of the year. Later, the stock market simply closed down and the stocks became worthless waste paper.

After the crisis, Soros collapsed. Unlike his previous life, this time, Quantum Fund was leaked in advance by those who were interested in the failures in Hong Kong and Russia. Many forces took the opportunity to take advantage of the situation and short-selling stocks and futures contracts held by Soros and others, which made them deeply trapped. This news hit international speculators who were in a tug-of-war with the Hong Kong government, and fled and left Hong Kong with pain.

Soros's fund also received a request from investors to dismiss. He remembered that he made billions of dollars a year ago and made money from Asia. Who would have thought that his old quantum fund would not be able to save it in the blink of an eye! After talking to Robertson, he agreed that the mastermind behind these things was Yang Xing, the former ally and now his opponent. But he didn't expect that their old world would eventually fall into this fledgling "magic boy"!
Chapter completed!