Jamie Dimon wasn’t buying any more of the Russia story. The Salomon Smith Barney co-CEO held his hand up in the air, his thumb and forefinger nearly touching. “By our next meeting,” he ordered, leaning toward Mark Franklin, “I want our Russia exposure down to this.”

Franklin, relatively new to the arb group, had a portfolio loaded with hundreds of millions of dollars of Russian bond exposure. And Russia was heading toward default. The rule of law was absent in Russia; conducting ordinary business could be life-threatening. Even the most rudimentary analysis showed that the Russians were spending money and not taking any in. The country had become politically unstable, a kleptocracy with rampant corruption. While many saw the writing on the wall, the arbitrage group was still holding on. They and a number of other trading desks remained enamored with the huge yields on Russian bonds and kept their positions with the hope the country was “too big to fail.” And not just “too big”; the Russians had nuclear weapons. So, some argued, the West would have to bail them out. Dimon was not going to take that bet; he had pushed for months to get positions down, but got little cooperation. Finally, in late spring of 1998, after having listened to Franklin’s optimistic assessment yet one more time, Dimon simply presented the decree. I was the one who ultimately had to track the arb group’s positions, so to make the message ...

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