Chapter 4: The Tragedy of Leverage

An unfamiliar number appeared on the screen. "Hello, President Jia, do you remember me?"

Old Jia hesitated for a long moment before replying, "I'm sorry, I don't recall. Who is this?"

"It's Xiao Pei. We haven't been in touch for over ten years. Are you still working in securities?"

"Oh, Xiao Pei! Pei Zi, I remember you now. Yes, I'm still in the same old business. Where else would I go? This industry has been stagnant for over a decade; just scraping by, really. How about you?" Old Jia sighed.

"As for me, it's a long story," Xiao Pei sighed. "Ever since the entire margin trading market collapsed back at the 6,000-point mark, I took some time off. But now that the market is looking good again, we’re back in business. I’m calling you to see if you’re looking for margin financing again."

"What!?" Old Jia felt a jolt. "You’re back in the game? What’s the market like right now? How large is the scale?"

"The market is red hot, even more so than back at 6,000 points. Honestly, any capital I get my hands on is gone in seconds. If you need some, I’ll set aside a portion for you next time. Another batch of funds is arriving tonight. As for the market scale, well, it’s hard to estimate," Xiao Pei replied, sounding incredibly excited on the other end of the line.

"I see," Old Jia murmured, a lingering fear gripping his heart. "Alright, let’s keep in touch."

After hanging up, Old Jia immediately issued a "Red Alert No. 1" to the seven frontier forces under his jurisdiction: "Margin financing is strictly prohibited. Violators will be dealt with without mercy!"

A dull ache throbbed in Old Jia's chest. The thing he feared most had finally happened. He could almost see the gruesome scene from ten years ago, when the margin trading accounts at the 6,000-point peak were liquidated in a bloodbath.

Back then, the madness of the 6,000-point market was fueled not just by private margin financing, but by a major financial innovation: the HOMS account, developed by Changsheng, a top-tier domestic financial IT service provider. This tool was a nuclear-level financial innovation; it was equivalent to saying that as long as you had money and an ID card, you could open your own stock exchange, clearing house, brokerage, and asset management firm. It was essentially setting up a parallel system that bypassed the Capital Regulatory Commission entirely.

Jack Ma once challenged the banks, saying, "If you don't change, I will change you."

The HOMS account could have just as righteously told the Capital Regulatory Commission, "You have too many restrictions. We will lift all your regulatory hurdles for you; we want financial liberalization!"

The HOMS account shredded the regulatory bottom line of the real-name stock account system. Under its cover, all sorts of grey funds of unknown origin used massive leverage to trade stocks without any restrictions, even enabling T+0 intraday trading. A novice sitting in control of the capital allocation and risk management permissions of a HOMS account was like the "Singer" from *The Three-Body Problem*—a single flick of a two-dimensional foil could change the world.

Old Jia was a seasoned securities professional who loved to learn and experiment; he never let any financial innovation pass him by. Back then, he had also set up a small HOMS account. However, when the market was over 5,000 points, his years of combat instinct told him a storm was coming. He decisively liquidated his position. As a result, he was mocked by his clients for being an "old warrior" (Lian Po), because the market surged another 1,000 points in the days after he pulled out.

Old Jia didn't bother to argue at the time. He simply said, "There are many of my former colleagues still locked up in Hanjin Prison. They were financial geniuses back in the day, and now they serve as instructors for finance and computer classes in prison. Twenty years have passed; with sentence reductions, they’ll be out soon."

Everyone knows what happened next: the Capital Regulatory Commission struck with thunderous force, completely banning and crushing the HOMS accounts. It was viewed as using financial technology to challenge national financial security, with a nature so malicious and a harm so severe it was akin to Bitcoin seizing the currency issuance power from the Central Bank. Consequently, many brokerages, margin financing firms, and professionals were severely punished, went bankrupt, or ended up in prison. A trillion-yuan private margin market vanished overnight, and the stock market plummeted. Many familiar faces disappeared, never to be seen in the industry again.

There is nothing new under the sun; history always repeats itself, though the participants change. Predictably, on the 10th and 11th trading days, the market continued its freefall. Leveraged positions were liquidated one after another, and daily trading volume remained around 2 trillion yuan.

Total devastation! By Friday's close, the internet was a scene of mourning. Some had achieved "financial freedom" in three days, only to be reduced to nothing in the next three.

Then, the Gen Z retail investors outed their "arms dealers." This "bull market" was specially sponsored by well-known companies like Alipay, JD Finance, Douyin, Du Xiaoman, Anyi Hua, Tencent, Meituan, Baidu, and 360! One wonders if these consumer finance companies, beloved by Gen Z, are trembling, because the Gen Z investors unleashed their ultimate move—the "Destroyer’s Palm." They collectively declared: "We don't plan on getting married, having kids, buying houses, or paying social security anyway. Our credit scores are essentially free money from the state. If we lose it all in the stock market, we just won't pay it back!"

Meanwhile, the Gen X and Millennial investors, who had just joyfully returned from the battlefield with their profits, suddenly realized that their Gen Z children had charged in—and they had used leverage!

Late that weekend, Old Jia’s phone rang again. It was President Pan, a friend from the catering industry born in the 80s. He asked anxiously, "Brother, I have a younger friend who's a teacher; he dove into the market these past three days and lost everything. What should he do? Can you help him out so he can at least make his money back tomorrow and get out? This market is killing people."

Old Jia's heart sank. He asked, "Did he borrow money?"

"He's a teacher, surely he wouldn't borrow money, right?" Pan stammered.

"Then tell him to hold onto his stocks. No one has the ability to make him profitable by tomorrow. The market will get better," Old Jia comforted him.

"Human nature should not be tested," Old Jia thought, suspecting the truth behind Pan's situation but unwilling to shatter his illusion. *If he didn't borrow money, why insist on getting out tomorrow? It’s obvious he’s being pressured by loan sharks. Only loan sharks operate on a daily interest basis.* Old Jia felt he had saved another soul from the rooftop today.

According to historical experience, the market won't hit bottom until leveraged positions are cleared, because the bottom is always paved with blood; that is the cruelty of the stock market. The biggest problem now is that no one knows exactly how much credit capital has entered the market. The unknown is the most terrifying risk and the greatest variable.

Just as the market was filled with anxiety, on Saturday the 12th, another press conference was held. This time, it was the "Fiscal Father" everyone had been eagerly waiting for. A snippet from the conference went viral online:

One official asked another high-ranking leader, "Should we disclose the scale figures?"

The leader replied, "Don't say it. Just say it's a very large scale!"