The Overly Competent Junior Employee

“Manager.”

“Dokyung-ssi, you’re here early.”

The next day, Dokyung had arrived earlier than usual and was greeting Hong Se-jun.

“Is the material prepared?”

“Yes, here it is.”

“You’ve worked hard. It must have been difficult to prepare for today after yesterday’s sudden developments.”

Dokyung sighed, recalling yesterday’s events in the Part Leader’s office. The sudden breaking news had not only surprised the three of them but had shaken the entire market.

As if interrupting Dokyung’s reverie, Hong Se-jun’s voice was heard as he skimmed through the documents.

“This looks good. Let’s present it as is.”

Dokyung nodded at Hong Se-jun’s words and prepared the documents before heading to the conference room.

Employees who had arrived earlier than usual entered the conference room one by one, and as Seo Yong-won entered last, the atmosphere in the room instantly became somber.

“We’ve been coming in early quite often lately. I apologize for that.”

Seo Yong-won began with a light greeting, seemingly aware of the atmosphere.

“However, given the current situation, we needed various opinions on how to respond going forward. Well then, Manager Hong Se-jun. Shall we start?”

At Seo Yong-won’s cue, Hong Se-jun nodded towards Dokyung, who stood up front and displayed his materials.

[The Season of Politics]

This was the first line of Dokyung’s material. Everyone’s gaze alternated between Dokyung’s material and Park Hyun-jae.

It seemed like a title targeting what Park Hyun-jae had said earlier.

Park Hyun-jae stared at Dokyung with a flushed face.

“Yesterday morning, our time, the new UK government announced a new economic stimulus policy.”

Dokyung began speaking as if Park Hyun-jae’s gaze didn’t matter at all.

“First, they announced they would control inflation by providing 60 billion pounds (approximately 96 trillion won) in subsidies for energy usage fees, including recently increased electricity charges.”

Dokyung quickly moved to the next slide.

“Second, they announced they would raise the potential growth rate to 2.5%.”

They might have thought they could boost market sentiment by announcing an untimely economic stimulus package, but the market’s reaction was cold.

“Third, as part of the stimulus package, the UK government also announced tax cuts. They announced a tax cut policy worth 45 billion pounds (approximately 70 trillion won), including reducing the basic income tax rate by 1 percentage point and the highest tax rate for high-income earners by 5 percentage points.”

Sighs could be heard throughout the conference room at Dokyung’s words.

“They announced that while they’re releasing 60 billion pounds for economic stimulus, they’ll collect 45 billion pounds less through tax cut policies.”

In other words, the UK announced that they would cut taxes, which are the country’s source of revenue, while releasing money.

“When asked where the necessary funds would come from, the UK government announced they would increase the issuance of government bonds from the existing 62 billion pounds to 193.9 billion pounds.”

The UK essentially said they would reduce their earnings but borrow money from somewhere to distribute to the people.

“While the whole world is engaging in QT, the UK has announced QE, which increases the government’s fiscal deficit.”

In other words, while the whole world is implementing quantitative tightening (QT) to absorb money from circulation to curb rising inflation, the UK has declared quantitative easing (QE), doing the opposite by releasing money into circulation.

“As we all know, with interest rates rising now, if government bonds are issued to pay tens of trillions of won in subsidies, the government’s interest burden will become tens of times larger than before. The market couldn’t trust the UK’s policy with this attitude.”

Following yesterday morning’s announcement, UK stocks, bonds, and the pound all plummeted.

To put it simply, it was as if market participants were disgusted by an attitude akin to “I’m going to borrow money from you to buy luxury goods.”

“First, the value of the pound plummeted. This policy was like pouring oil on the fire of the already unfavorable pound value due to rapid U.S. interest rate hikes and the UK’s sluggish growth.”

Dokyung continued his presentation with a grim expression and tone, reflecting the bleak situation.

“The price of UK government bonds also crashed. This might be the market that felt the most betrayed by the UK government’s policy.”

If they were to collect less tax and use tens of trillions of won for economic stimulus, they would need to issue more government bonds to borrow money, which naturally meant more government bonds would be released into the market. Following the principle of supply and demand, they plummeted en masse.

Since bond prices and yields are inversely proportional, government bond yields rose sharply.

“As you know, when government bond yields rise, the UK government has to pay more interest when borrowing money. The rise in government bond yields will lead to a rise in market interest rates, which will lead to increased interest costs for businesses and households.”

It was a policy that seemed bad from any angle.

“Why do you think they made such a choice?”

Seo Yong-won asked Dokyung, as if he couldn’t understand it with his common sense.

“Of course, I’m not expecting an answer from you, Yoon Dokyung-ssi. It’s just that with my common sense, I simply can’t…”

“While my words may not be the correct answer, I think it’s because they can’t implement an economic stimulus package based on manufacturing.”

Dokyung continued his response, looking at Seo Yong-won.

“The U.S. is showing its willingness to revitalize its domestic manufacturing and stimulate the economy through the IRA (Inflation Reduction Act). Other countries are doing the same. But the UK…”

“They don’t have a significant manufacturing base, do they?”

“That’s right. They were once an industrial powerhouse that led the Industrial Revolution, but cars? Now only premium car brands remain, and even those are subsidiaries of foreign companies. Fundamentally, they lack a large-scale manufacturing base, and the UK remains a powerhouse in finance and pharmaceuticals.”

Seo Yong-won and the team members nodded, seemingly agreeing to some extent with Dokyung’s words.

“So that’s why they reduced the tax rate for high-income earners.”

“Yes. People in the finance and pharmaceutical industries, who are capable, generally fall into the high-income category. To attract talented individuals from around the world and significantly grow these industries, they need to ensure these people take home more money.”

“It’s not incomprehensible.”

“However, the timing was poor and the method was unsophisticated. Of course, this is just my speculation…”

“No, it was a good speculation that broadened my insight.”

Seo Yong-won nodded and looked around at everyone.

“We’ll consider the previously discussed investment in UK government bonds as if it never happened.”

Seo Yong-won said this while looking at Park Hyun-jae.

“Assistant Manager Park, do you have anything to say?”

“In my personal opinion, it might be good to enter when the price has fallen…”

“I’ll respect that as your personal opinion.”

Seo Yong-won spoke to Park Hyun-jae as if telling him not to bring this up again.

“But our team will not invest in UK government bonds. This is my opinion as the team leader. If you have anything more to say, come see me later.”

“…I understand.”

As Park Hyun-jae backed down, Seo Yong-won nodded and looked at Dokyung.

“It must have been difficult to analyze the data with the recent high market volatility. You’ve worked really hard these past few days.”

At Seo Yong-won’s words, Dokyung bowed in gratitude. It felt as if all the hardship of the past few days was melting away.

“A significant portion of our products are invested in Europe. Let’s each assess the situation and submit separate reports. We’ll prepare to immediately reduce our European investments depending on the atmosphere.”

“Yes, understood.”

With that, the meeting ended, and as Seo Yong-won left, everyone else started to get up.

“Good job.”

Hong Se-jun patted Dokyung on the back, and other team members leaving the conference room gave Dokyung a thumbs up.

However, one person glared at Dokyung with apparent anger before leaving the conference room.

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“What happened? You said UK government bonds would be safe.”

That evening, Park Hyun-jae, an assistant manager from Wrap Account Team 1, was having a video call with someone while looking at his computer monitor at home.

-How could I have known the Prime Minister would pull such a stunt?

The person on the monitor was Park Hyun-jae’s college classmate who worked in London’s financial district.

“So is this the end for the UK? I’m about to be finished at my company.”

-Hahaha, the always unpleasant Park Hyun-jae has finally tasted the bitterness of life.

“Stop talking nonsense. Isn’t there any way to turn this around? Does it make sense that the UK would just die like this?”

At Park Hyun-jae’s words, his friend, who had been cackling on the monitor, wiped the smile off his face and spoke.

-The BOE will step in.

“BOE?”

When his friend mentioned the name of the Bank of England, Park Hyun-jae asked as if surprised.

“How will the BOE step in? Don’t they have to raise the base rate following the U.S.?”

-If an event occurs that requires intervention, they’ll have no choice but to step in.

His friend spoke as if he had some inside information, and Park Hyun-jae started to get increasingly anxious.

“Come on, spill it. I’ll grant you one wish later.”

-Hahaha, so you know how to make a hot deal too.

His friend laughed as if pleased to have gotten one over on Park Hyun-jae, then began to speak.

-UK pension fund managers are shaking.

“Pension?”

-Do you know about LDI?

“You mean Liability Driven Investment? What insurance and pension companies do?”

Liability Driven Investment (LDI) was an investment strategy used by pension fund managers who had to pay out defined benefit pensions.

In other words, if they had promised to pay 50 million won after 20 years regardless of pension fund investment returns, they had to pay that money no matter what happened.

Pension products like our National Pension or Government Employees Pension operated in this way.

-There’s talk that some pension fund managers have received margin calls.

For pension fund managers, future pension payouts were essentially liabilities. In such cases, they often used leverage to reduce liabilities.

In other words, if they invested 10 million won, they could turn it into 40 million won using leverage.

If they achieved a 10% return on 10 million won, it would be 1 million won, but if they achieved a 10% return using leverage, they could see a return of 4 million won.

Of course, when the market went down, the investment also melted away four times as fast.

-Pensions that invested in bond derivatives are going crazy right now. As government bond yields are skyrocketing, margin calls keep coming in.

A margin call was like a demand notice to pay additional collateral.

In other words, when the original 10 million won invested with leverage had completely melted away due to investment losses, it meant they had to put in that much additional collateral.

“What? Are you saying the pension funds are facing default?”

Summarizing his friend’s words, it meant that pension fund managers who had been operating pensions with leverage were now in a situation where they couldn’t pay out pensions due to enormous losses from rising government bond yields.

This could lead to a financial crisis on par with the 2008 Lehman Brothers collapse.

-They have to step in. You think it’s just the pension fund managers who will burst? Do you know what the UK has given up to become a financial powerhouse?

A country’s leading industries were always about equivalent exchange.

To grow one sector, another had to be sacrificed.

The UK was able to stand tall as a financial powerhouse on par with the U.S. globally, at the cost of weakening its manufacturing sector.

-Anyway, as the number of places receiving margin calls increases, the BOE will buy government bonds.

“You’re saying they’ll start quantitative easing again.”

Park Hyun-jae nodded with a smile.

When a financial crisis-level situation occurred, the central bank had no choice but to intervene.

Regardless of global austerity measures, they had to save their own country.

It was a natural response in an era of every country for itself.

-That’s right. The UK won’t just die like this.

“Then if we buy now when government bond prices are miserable…”

-The market will soon stabilize and return to normal. And the courage to enter now will be rewarded with profits. And for us? It will come back as performance bonuses.

“Thanks, I’ll pay you back later if you need anything.”

Park Hyun-jae ended the video call abruptly, as if he had gotten what he needed.

“Gradually, and then suddenly?”

Park Hyun-jae chuckled, recalling Dokyung’s words.

“Information doesn’t come from sitting in front of a computer and looking at indicators.”

With that self-mutter, Park Hyun-jae began writing a report to submit to the Part Leader.