Rebirth of the Industrial Tycoon

While Li Weidong was expressing his own views, Director Wei was explaining some professional terms to several leaders of insurance companies in a low voice.

In 2007, China's credit field was not as exciting as it is in later times. In that era when Alipay and WeChat Pay had not yet emerged, things such as p2p online loans, Internet small loans, consumer finance loans, cash loans, various loan assistance, etc. were still in a blank field.

Even the approval of credit cards was strictly regulated at the time, not to mention other credit consumption. Ordinary people have no concept of subprime loans, let alone the subprime mortgage market.

The subprime mortgage market in the United States is flooded. Those financial experts who have worked on Wall Street are naturally familiar with the subprime mortgage market in the United States. However, several leaders of insurance companies only know a little bit about it.

Li Weidong knew very well that the key to getting 1.5 billion US dollars in financing still depends on the attitude of these leaders, so Li Weidong decided to start from the source.

"Leaders, let me start from the beginning. The financial crisis that is about to break out in the United States has to start with mortgage loans..." Li Weidong cleared his throat and began to talk: "People don't have enough money to buy a house, so they mortgage the house they bought and get a mortgage loan from the bank. You all understand this and don't need to explain it too much. Although the return rate of mortgage loans is very objective, the interest paid for a 30-year loan may be higher than the principal, but the return cycle of mortgage loans is too long. It takes 20 to 30 years to pay off a mortgage. Banks in the United States feel that Thirty years is too long, I only have time! So in the 1960s, an economist named Lewis invented something called mortgage-backed securities, or MBS for short.

This MBS packages the customer's loan into securities and sells it at a price lower than the mortgage rate but higher than the principal. The principal and interest repaid by the homebuyer in the future belong to the bond holder. It is equivalent to the bond subscriber indirectly lending money to the homebuyer. Therefore, MBS is also called mortgage bonds.

Simply put, this MBS turns the bank from a lender to a second-hand dealer. The bank While lending the money of rich people to homebuyers to buy houses and providing repayment risk experts to bondholders, they also get a wave of interest rate spreads.

Moreover, by selling MBS, banks can quickly recover funds, and then lend the recovered funds to homebuyers, and then package MBS and sell them to recover funds, and then lend again, and so on.

Therefore, after MBS, the mortgages accepted by banks are like snowballs, which are getting bigger and bigger. In theory, they can be rolled down indefinitely, and banks can continue to earn interest rate spreads in this process.

It is MBS that has brought the US real estate industry from capitalization to securitization. This initiative has brought unprecedented prosperity to the US banking industry, but it has also buried hidden dangers for the US financial industry. This hidden danger is the subprime mortgage crisis in the future. "

Director Sui immediately followed suit and said; "Yes, this MBS is really a good thing for the banking industry. When I was still in the bank, I went abroad with a group to investigate this MBS. But considering the financial risks involved, our country does not have this thing yet. "

"I remember that a pilot method seemed to have been introduced in the country two years ago?" A leader asked.

"In 2005, a "Pilot Management Measures for Credit Asset Securitization" was issued, but in the end, it was just a lot of noise but little action. After all, the scale of credit in our country is still relatively small, and the specific application is not mature, so it is impossible to take such a big step." Director Sui also answered.

MBS in Asia began to develop gradually after the Asian financial crisis. Hong Kong Island was the first to introduce MBS, and then South Korea, Japan, Thailand and other countries also began to try MBS.

China's financial market is relatively conservative and the supervision is more stringent. It was not until 2015 that the central bank and the China Banking Regulatory Commission issued the "Information Disclosure Guidelines for Personal Housing Mortgage Asset-backed Securities (Trial)".

By 2020, the issuance of MBS nationwide was only 424.3 billion yuan, and the housing provident fund loans alone issued 1.3 trillion yuan that year, which was less than 1% of the nearly 50 trillion yuan in real estate loan balances in the same period.

For the banking industry, recovering 1% of the funds is just a drizzle, not enough to pay the one-year fixed interest.

However, as a financial institution, it is definitely hoped that the country will open up MBS. This thing is completely free to earn interest rate difference. Domestic financial institutions have been crying with envy when they visit the United States and see their MBS.

The leader who spoke before continued: "Chairman Li, we know something about MBS in the United States, but what does this have to do with the subprime mortgage crisis you mentioned?"

"Subprime loans are also loans, and they can also be sold as MBS, but the risk of this kind of MBS is much greater!" Li Weidong smiled and continued:

"We all know that Americans are used to pre-consumption, eating up tomorrow's food in the current year, and spending tomorrow's money today, so swiping credit cards is a daily lifestyle for Americans, and this process will naturally produce many people with poor credit.

For example, if I pay my credit card a little late, my credit will be reduced. For example, if I only pay the minimum amount each period, although my credit rating will not be reduced, the bank will not improve my rating, so I can't borrow more money.

In addition, people who are often unemployed, have unstable incomes, or even have no income at all will not have very high credit ratings. Their ability to repay debts is low, so they are defined as subprime credit borrowers. , can only apply for subprime loans.

Subprime credit borrowers can only apply for a subprime mortgage loan to buy a house. Although the interest rate of this kind of loan is high, the risk is also very high, and the borrower is at risk of being cut off at any time.

As housing prices in the United States have been rising in recent years, many Americans are willing to invest in real estate. At the same time, it is precisely because housing prices continue to rise that banks are also willing to issue subprime mortgages.

Anyway, house prices are rising. Even if the borrower cannot repay the loan, the bank can take the house and sell it, and he can get the loan back and maybe make a profit.

If house prices keep rising, everyone will make money, but if house prices fall, the subprime loans issued will not be recovered and will eventually become a bad debt. "

"Lending is always risky. As long as the risk is within control, there should be no problem. What's more, the yield on subprime loans is already high, which can make up for the losses caused by the risk." Someone said immediately.

Li Weidong said: "I just went to the United States not long ago. At that time, the suspension rate of the U.S. subprime loan market exceeded 5%, and it is definitely higher now. I think the 5% suspension rate has reached the risk level. The bottom line is controllable.

Brother is so cheating. Home loans in the United States are different from ours. Their banks have no recourse, which will increase the rate of home loan defaults. Now the U.S. subprime loan bomb could explode at any time. "

When it comes to numbers, everyone's attention turns to several financial experts.

Director Wei was the first to speak: "A 5% supply interruption rate is indeed very high. However, as long as effective policies are introduced in a timely manner, the risk should be controllable."

Chen Aisi said: "If you put it in the financial market, this number is indeed quite dangerous. A bolder trader can already short-sell in the subprime mortgage market."

Li Weidong secretly thought, this guy is worthy of being the Black Warrior of Wall Street, he is full of short selling.

After the Clinton administration came to power, the U.S. economy began to regain prosperity, and housing prices have been on an upward trend. Especially after the Internet bubble, a large amount of money flowed into the housing market, causing a certain bubble in U.S. real estate.

At that time, buying a house in the United States was just like buying a house in China. You would definitely make a profit without losing money. Therefore, many real estate speculators were born in the United States. Since the threshold for subprime loans is so low that even a dog can get a loan, many real estate speculators use subprime loans to speculate on real estate.

It is worth mentioning that banks have no recourse for home loans in the United States. In the United States, house slaves who have not yet paid their mortgage do not have to bear unlimited joint and several liability.

For example, if you buy a house in China with a loan, the house payment plus interest is 10 million, your down payment is 3 million, and the loan is 7 million. Later, the economy is not good, house prices have fallen, and your house is only worth 5 million. At this time, you say I No more.

So the bank took the house away and auctioned it for 5 million. At this time, since you still have a loan of 7 million, you still owe the bank 2 million, and you have to repay the 2 million.

This model is common in Asian countries. When Japan's real estate bubble burst, many Japanese knew that their houses were worthless, but they still insisted on repaying their loans. This is also the reason.

In the United States, in the same case, since the bank has no right of recourse, the 2 million does not need to be returned to the bank. It is counted as the bank's own loss, and the house slave does not need to worry about the bank pursuing recourse every day.

Due to the existence of MBS, the risk of loans has already been passed on to the bondholders of MBS, so the actual losses of 2 million are those investors who purchased MBS.

Of course, if you cut off the payment, nothing will happen. Your personal credit will be affected, you will be blacklisted by the bank, and you may even be forced to file for bankruptcy.

But if you use subprime loans to speculate in real estate, congratulations, your personal credit will not have much impact on you. Anyway, you already belong to the category with a relatively low credit rating, which is on the same level as a dog. You will always You can't expect a dog to be trustworthy.

Therefore, people who use subprime loans to speculate in real estate are more likely to have their mortgage payments cut off. As long as housing prices fall, there will be a massive wave of supply cuts.

At the end of 2006, the U.S. subprime mortgage loan outage rate was already sprinting towards 5%. At that time, experts in the financial field had already issued early warnings. However, American banks turned a blind eye to this and continued to promote subprime loans. Anyway, it is MBS investors who lose in the end, and the bank's commission is a penny earned.

The U.S. regulatory authorities also turned a blind eye to this and thoroughly implemented the free economy without introducing any measures, allowing the flames of the crisis to grow stronger and stronger, and eventually turned into a raging fire that burned the world's economy.

…

In the conference room, someone else said: "I used to work at the Securities Regulatory Commission and was also responsible for fund work. For some high-yield investments, let alone a 5% loss, even a 10% loss , is also acceptable.

What's more, the real estate market is not a financial market after all. Real estate has entities. There is a saying that a monk who can run away can't run away from the temple. Even if the lender cuts off the payment, the house will still be there. When the time comes, the bank will take the house away and auction it directly. Can you get some money back?

Therefore, I think that although the U.S. subprime mortgage loan has experienced a relatively high suspension rate, it will only affect certain areas at most and will not have a fatal impact on the overall finance, let alone a financial crisis. "

Li Weidong immediately replied: "If all you use to invest is your own money, then losing 5% is 10%, there is no problem, but if the money you use to invest is originally borrowed, it will be lost in the future." If you pay it back, can you still afford to lose?

Investment banks in the United States do not just use their own money to provide mortgage loans. They use leverage, usually as high as 20 to 30 times. In other words, almost all the money they invest in the subprime market is borrowed. of.

For example, if an investment bank has 3 billion U.S. dollars, it can use 30 times leverage to invest 90 billion U.S. dollars.

If he makes a profit of 5%, he will make a profit of 4.5 billion US dollars, which is equivalent to using 3 billion to earn 4.5 billion. This is a huge profit of 150%.

But if he loses 5%, then he loses 4.5 billion US dollars, but his principal is only 3 billion US dollars, so in the end he still owes 1.5 billion US dollars.

According to this calculation, those using 20 times leverage can only bear a 5% loss, otherwise they will be liquidated, while those using 30 times leverage can only bear a 3.33% loss. "

The man nodded suddenly, but a person next to him said: "I know that the American financial system is relatively free, but 20 to 30 times leverage is too much! Do banks dare to carry out such high-insurance operations? What’s more, the United States also has mandatory requirements for credit risk reserves, right?”

Li Weidong nodded: "That's true, so the Americans invented something called credit default swaps, abbreviated as CDS in English. Leaders are all familiar with the insurance industry, so they should know a lot about CDS, right? Investment banks Through CDS, risk issues can be avoided and high-risk operations can be carried out naturally.”

CDS is the most common credit derivative product in foreign debt markets. This kind of thing is a contract between buyers and sellers to exchange risks for credit events.

For example, a bank issued a subprime loan of RMB 90 billion and could earn 20%, which is RMB 18 billion. However, the bank was worried that the loan would not be recovered, so it went to another financial institution and said, I will give you a premium of RMB 3 billion. , if a lender cannot exchange the money, you will have to pay the money. In this way, the bank does not need to bear risks and earns 15 billion in vain.

And this financial institution has the opportunity to investigate and calculate how many people still have money. After investigation, it was found that only 1% of the loans were not repaid, that is, 900 million of the 90 billion loans were not repaid.

Calculated this way, the bank gives me 3 billion in insurance premiums, I pay 900 million in compensation, and still earn 2.1 billion. This is a good deal! So the financial institution took over the transaction and formed a CDS contract.

Of course, the actual operation is not that simple, because the term of the mortgage is relatively long, and the bank cannot buy insurance for only one year and not buy it next year. Therefore, the final CDS contract has a relatively long time limit of ten years. period, twenty years ago, and thirty years ago.

But for American financial institutions, thirty years is too long, so they still have to seize the day!

So the financial institution that signed the CDS will resell the CDS contract.

Still in the example just now, the bank gave me 3 billion in insurance premiums, but I couldn’t get it until the contract expired. I was impatient and didn’t want to wait, so I wanted to get the money right away, so I found another financial institution and said I would give it. You use 2.5 billion to buy a CDS contract for my CDS contract.

This is equivalent to the insurance company looking for another insurance company to buy another insurance for the policy it underwrites. When it comes time to make a claim, you don't have to pay for it. The other insurance company will bear the liability for compensation.

Another financial institution calculated the balance and found that only 900 million of the 90 billion loan was not covered, so for the 2.5 billion premium, I could earn 1.4 billion. This was a good deal! So I signed the cds contract.

The first financial institution made a profit of 500 million just by selling it.

However, the second financial institution also felt that thirty years was too long, so I was seizing the day.

So I went to a third financial institution to sign a CDS, which is equivalent to insurance. I bought an insurance and made a fortune. At the same time, I also transferred the compensation risk to the third financial institution.

Thirty years was too long for the third financial institution, and they were seizing the day, so they went to the fourth financial institution to sign CDS, and the fourth to the fifth, and so on.

It's like a nesting doll. In the end, the first CDS was nested in many layers, and CDS also formed a huge market.

Therefore, many economists believe that the U.S. GDP is artificially high, which makes sense. At least the GDP accounted for by the U.S. financial services industry is really high.

Just like CDS, it was originally an insurance, but after the operation of a financial institution, it turned into an insurance doll!

It is equivalent to a bone. If it is licked by every dog, every dog ​​has eaten the bone. But the bone is still the same bone and has not become two bones. However, every time a dog licks these bones, GDP is calculated. Is there any moisture in them?

The essence of a CDS contract is the same as that of insurance, and everyone present is from an insurance company, so naturally they all know what CDS is.

So Li Weidong did not explain CDS, but continued: "According to the data I collected, the current CDS market size in the United States has reached 60 trillion US dollars. If 10% of the market defaults, it will be 6 trillion US dollars!"

The figure of 6 trillion US dollars really shocked everyone present.

Some people couldn't help but exclaimed: "A loss of 6 trillion U.S. dollars is too exaggerated! What was our country's GDP last year? It seems to be 2.75 trillion U.S. dollars. 6 trillion U.S. dollars is equivalent to 2.2 Chinese GDP! If this is lost, a financial crisis will break out!”

"Not necessarily!" Someone said, and it was Professor Ye who spoke.

Everyone's eyes immediately turned to Professor Ye, and they heard him say: "I have a data here, which was released by the Federal Reserve. There are more than 2,000 banks in the United States with total assets of more than 300 million U.S. dollars, and their assets The total amount exceeds 19 trillion US dollars.

These are only banks of a certain size, plus securities companies, insurance companies, and financial companies. Investment companies and so on, the number is unimaginable.

Six trillion U.S. dollars is an astronomical figure for other countries, but for the entire U.S. financial system, a default on the $6 trillion CDS market will severely damage its vitality, but it is not unbearable.

In my opinion, Chairman Li’s thinking is very clear and his analysis is in place. Problems in the U.S. subprime mortgage market are inevitable. I agree with Chairman Li on this point. However, it is still too early to conclude that a systemic financial crisis will occur! "

"Professor Ye is right. But when it comes to problems in the CDS market, it is not accurate enough to say there is a financial crisis." Li Weidong smiled slightly and continued: "But what if CDOs are added? What's more, one criticism is that the rating is too high. cdo!”

Li Weidong's topic returned to the cdo mentioned before.

At this time, both Professor Ye and Director Wei seemed to have thought of something and frowned at the same time.

Only the mixed-race Chen Aisi looked eager to try.

This Wall Street black warrior is thinking about short selling again.