Federal Reserve System (Fed)

The central banking system of the United States.

However... the Federal Reserve System, the central bank of the United States, is structured very differently from the central banks of most other countries.

Even # Nоvеlight # its name reflects that. For example, the United Kingdom has the Bank of England, Korea has the Bank of Korea—with the country name included—but the U.S. central bank uses the distinct title “Federal Reserve.” Meanwhile, “Bank of America” is simply a well-known commercial bank.

The Fed’s structure is also unusual. That vast land is divided into twelve districts, each with a Federal Reserve Bank that shares in the central bank’s responsibilities. It’s very much in line with how the U.S., often likened to a collection of individual nations, operates.

Because it’s an older system, the Eastern Federal Reserve Banks are subdivided into smaller units, whereas the entire Western U.S. is lumped into one. This occasionally causes minor inconveniences, prompting discussions about increasing the number of branches—though those proposals are always dismissed.

Anyway, the Federal Reserve is composed of three major bodies:

The Board of Governors, which establishes core policies;

The twelve regional Federal Reserve Banks, which handle regional economics and operations;

And the Federal Open Market Committee (FOMC), which sets interest rates and monetary policy.

These bodies have distinct roles but are closely interconnected. For instance, regional Reserve Banks physically issue the currency, but decisions on monetary issuance and interest rates come from the Board and the FOMC.

Some people mistakenly believe the Board—or specifically the Fed Chair—makes all interest rate decisions. But in reality, those decisions are made by the FOMC, which functions slightly differently. The FOMC’s voting rights are held by the seven members of the Board of Governors, the President of the New York Fed, and four other regional Reserve Bank presidents chosen on a rotating basis—twelve votes in total. That means the Board still needs to account for regional voices.

Most importantly, the Chair of the FOMC is the Fed Chair, and the Vice Chair is the President of the New York Federal Reserve Bank.

...Isn’t that strange?

There are twelve regional Reserve Banks, and New York is only one among them. Yet of the twelve presidents, only five get voting rights. This clearly shows the Board outranks the Reserve Banks.

And yet... the New York Fed is guaranteed a voting seat by federal law. That crucial vote in determining U.S. interest rates.

Being the Vice Chair of the FOMC is a bonus.

‘Honestly, it makes perfect sense.’

– Munch.

On the breezy rooftop, I stared into the distance as I munched on a chocolate. From here, I could vaguely see “33 Liberty Street,” the address of the New York Fed.

Meaning it was just five minutes away. Only one block.

So for those here on Wall Street, it’s only natural that the New York Fed carries that much authority.

Even within the same “city,” Seoul, for instance, is different from some rural outskirt. The mayor of Seoul could be a serious presidential contender, while the mayor of a provincial city is just a local powerbroker at best.

The Fed was originally established to keep Wall Street in check (back when the U.S. nearly collapsed and had to beg J.P. Morgan to bail it out), so of course, the New York Fed—being closest—ended up the most powerful.

Even today, the New York Fed serves as the executor of U.S. monetary policy, the sole fiscal agent for the U.S. Treasury, the Fed’s market operator, and even as the repository for America’s gold.

“To defy... the Fed? I don’t really understand what that means.”

One of the MDs, who had been briefed on my plan, cautiously asked from the side. He was one of those long-time Alpha Fund employees who practically revered me.

“It’s exactly what it sounds like, Director Kang Cheon. Just a little bit... I plan to choose a path the Fed wouldn’t like.”

– Thunk.

[LTCM Acquisition Plan]

This plan—devised in partnership with Goldman Sachs—is clearly a position the Fed would hate.

The Fed is the steward and manager of the U.S. economy. Driving a hard bargain to acquire LTCM in the middle of this wobbling market... would put a massive strain on the economy.

If they learn the full truth, they’re not going to be happy.

“Don’t defy the Fed”—it’s an unwritten rule you absorb naturally after working on Wall Street for a while.

Just one block away, the New York Fed houses thousands of employees. They don’t all monitor Wall Street—but even a handful could control the entire Street with ease.

For instance, sometimes when foreign exchange dealers on Wall Street buy dollars, they get a call from a New York Fed trader:

– “Why is the dollar rising?”

At that point, the dealers just laugh awkwardly... and sell.

Because that’s what the Fed wants.

It might seem humiliating, but it’s essentially insider information. “Don’t go against the Fed” means this.

When the central bank wants something, you comply. It’s lunacy to defy the most powerful institution in the world—an entity that openly manipulates markets.

Unless you’re completely clueless... the Fed can call you directly and tell you not to sell something—or to buy it.

If the President of the New York Fed called me directly, of course I’d comply. Charging into them head-on would be suicidal.

A hundred billion dollars? If I rubbed the Fed the wrong way, they could simply say, “Why do you think that’s your money?” Even titans like Rockefeller and the J.P. Morgan empire got carved up. Alpha Fund? It’d be sliced like a soft birthday cake.

Still... as long as I don’t say anything directly, I can maneuver to serve my own interests. As long as the Fed dislikes it but doesn’t explicitly forbid it.

“I still don’t get it. Isn’t this something we reported to the Fed?”

“Yes, that’s true. Goldman Sachs probably did. Told them we’re preparing to acquire LTCM.”

You know how some of America’s allies notify the U.S. before launching a war or coup? It’s kind of like that.

“...But then how is this going against the Fed’s wishes? Didn’t they approve it?”

– Crackle.

I pulled out another chocolate from my pocket and slowly shook my head.

“Not anymore. They haven’t seen LTCM’s portfolio yet.”

LTCM’s leverage ranged from 15x to 30x... even up to 50x at times. Leverage of 50? That means even a 2% dip would trigger liquidation—a complete gamble.

The acquisition process naturally involves undercutting LTCM’s valuation, and the losses will balloon like an avalanche.

At first, the Fed probably thought, “This is fine.” But once they see the projected losses, they’ll be shocked.

My plan is to walk the tightrope and extract the best result. Ideally, I’ll acquire LTCM and make the Fed pay for it.

– Fwoo.

“That’s why I’m worried. If the Fed summons us, they’re not going to drag in someone under twenty—they’ll call the others. And while I trust my own abilities, I can’t say the same for everyone else.”

I lightly patted Director Kang Cheon on the shoulder and smiled sweetly.

“But I’m trusting you.”

“...I won’t disappoint you, Miss.”

Most of the original directors had left Alpha Fund to pursue their own dreams, and to reduce the Korean staff ratio, I had made a point of hiring more internationally. So few of the originals remained.

“Oh, call in the CEO too. There’s a high chance he’ll be summoned. He’s a born actor, so I’m sure he’ll manage, but we still need perfect information sharing.”

“Yes, understood.”

***

Four days after Russia’s moratorium declaration.

U.S. Treasury bonds continued to rise, while all other bonds had collapsed. In this horrific scenario, with hundreds of millions evaporating daily...

Peter Fisher, Deputy President of the New York Fed, received a report.

“LTCM might go bankrupt... huh.”

His first reaction wasn’t interest—but dread.

The Russian moratorium had been an utterly insane move, and thanks to the chain reaction of neighboring countries defaulting, the ripple effects had reached the U.S.

The rising U.S. bond prices meant the Fed could print money and earn massive profits—but aside from the Fed’s quasi-private shareholders, no one would be happy about that.

– Thud.

So, at just 41 years old and already second-in-command at the massive New York Fed, he went straight to LTCM’s office in Connecticut the moment he heard the news.

Nervous staff lined the office halls, and LTCM employees hovered around with their heads bowed like guilty criminals.

‘Wait, hold on a sec.’

He spotted a familiar face. In the gloomy atmosphere, he’d assumed the person was an LTCM employee—but it was a Fed staffer.

“Hey, did you find the books?”

A trembling hand held the documents. It was clear—they were LTCM’s ledgers.

“Uh, Deputy President, wh-what do we do?”

“...”

The back of his neck went cold.

Those gloomy faces, like people attending a funeral... were Fed employees, not LTCM staff.

– Ruffle, snap!

The documents were flipped through urgently, and his eyes rapidly scanned the portfolio.

With a brilliant mind befitting the young deputy of the New York Fed, he quickly calculated LTCM’s debt.

...At minimum, 100 billion dollars.

“You... crazy sons of bitches...”

It really felt like America was on the verge of collapse.