Reborn Industrial Tycoon

In the conference room, several financial experts have realized the seriousness of the problem.

Although the leaders of the insurance company looked ignorant, they could feel from the expressions of the experts that what Li Weidong said was a very serious matter.

If the rate of subprime loan defaults increases by only a few percent, it will be nothing more than a drizzle to the huge U.S. economy. It will only cause some losses to banks and reduce the credit of lenders.

In the United States alone, there are more than 2,000 banks with a scale of more than 300 million U.S. dollars, with assets exceeding 19 trillion U.S. dollars. The money lost from supply cuts, evenly spread over the assets of 19 trillion U.S. dollars, is just a drop in the bucket.

The default of CDS is much more serious, mainly because the nesting doll is too big, which also magnifies the financial risks caused by the default of CDS exponentially.

But even so, a CDS default will cause a local financial problem, at most similar to the Internet bubble in 2000, which the US economy can sustain.

However, if you add CDO, it will be a comprehensive financial risk. It will be a nuclear attack on the entire financial system of the United States. It is definitely not alarmist to trigger a global financial crisis.

The entire process of a CDO is a secured debt obligation, which is a certificate that packages all possible cash flows together, repackages them, and then puts them on the market in the form of a product.

This cash flow can be bonds, debt, premiums, CDS, etc., all of which are fixed income products and can predict future returns. In other words, this CDO itself is a fixed income security.

You can think of a CDO as a pile of IOUs. When the IOUs expire and the borrower repays the money, the borrower will receive benefits. However, if the borrower fails to repay the money when it is due, a loss will occur.

There is nothing wrong with CDO itself. Splitting and repackaging various cash flows is equivalent to diversifying investments and reducing risks.

But the people responsible for splitting and packaging cash flow have problems. No matter how good the financial products are, they can't stand up to the playful operations of Wall Street financial institutions!

The initial CDOs contained relatively high-quality cash flow, that is, IOUs that could be cashed.

However, there are only so many high-quality cash flows, and there is not enough to sell, so financial institutions began to mix some less high-quality cash flows into CDOs. For example, high-quality MBS and CDS generated by subprime loans.

Risky products.

This is equivalent to a combination of good and bad products. For example, if you buy a box of good apples, you have to buy a rotten pear.

Later, the financial institution discovered that I had too many rotten pears and too few good apples, so it simply increased the proportion of rotten pears. If you buy a box of good apples, you have to buy a box of rotten pears.

But customers are not fools. When I buy a box of apples, there is one rotten pear, which is acceptable. However, half of the apples in the box are rotten pears, so I will definitely stop doing this. Only a fool would buy it!

So Wall Street financial institutions carried out another wave of cunning operations, that is, when splitting and reorganizing products, they made them as complicated as possible so that customers could not understand how many good apples and how many rotten pears there were.

As mentioned before, CDS is like selling insurance to insurance companies, and then constantly making nesting dolls. This kind of nesting doll model is very suitable for performing tricks during spin-offs and reorganizations.

For example, a bank lends a subprime loan of RMB 1 million, then goes to an insurance company to buy CDS, and gets a Contract No. 1. The insurance company then goes to another insurance company, buys insurance for Contract No. 1, and gets a Contract No. 2.

By analogy, in the end, these 1 million subprime loans were made into 10 contracts, namely Contract No. 1 to Contract No. 10.

The financial institution divides Contract No. 1 to Contract No. 10 into 100 parts, then selects 10 parts and packages them together to form a CDO, and sells them on the market.

When investors saw this CDO, they had to understand what was in it, so they picked out a contract and found it was Contract No. 10.

Contract No. 10 is the insurance for Contract No. 9. If the buyer wants to know what is in Contract No. 10, he has to go to Contract No. 9, and if he wants to know what Contract No. 9 is, he has to go to Contract No. 8. So.

By analogy, when you finally find Contract No. 1, you will find that it turns out to be the insurance for the 1 million subprime loan.

Then the buyer draws out another CDS contract from the CDO, which may be contract number 10 for another matryoshka doll, and then he goes to find contract number 9 for another matryoshka doll, and so on, and goes through another troublesome process.

process.

The cunning operation of Wall Street financial institutions is to stuff a lot of matryoshka doll contract No. 10 into the CDO, so that it is impossible for the buyer to find out what is in the CDO.

Some economists liken this kind of CDO to opening a blind box, but in fact this thing is worse than opening a blind box.

The thing about a blind box is that you don't know what's inside before you open it. When you open the blind box, it's clear what's inside.

However, for a CDO that has been packaged by Wall Street, not only do you not know what is inside before you buy it, but even if you open it after buying it, you will not know what is inside.

And because there are so many nesting dolls of CDS, sometimes the financial institutions responsible for splitting and reorganizing CDS don’t even know what they are selling in my CDO!

Regardless of economics or sociology, this is something that is hard to imagine. If you are selling something, you don’t know what you are selling, and this thing has been sold for tens of trillions of dollars!

How can such a confusing financial product not have huge financial risks? Once it explodes, it will be difficult for the global economy to follow suit.

In the end, Wall Street’s shady operations made it difficult for investors to even understand what was in the CDO they sold, and this gave rise to another problem:

As an investor, I don’t even know what the company I’m investing in is, so how should I choose a product? There are so many CDOs on the market, which one should I invest in?

At this time, professional rating agencies come into play.

Although investors don't know what's in those CDOs, they can look at the credit ratings of the CDOs. Those with high ratings must be products with good credit, and those with low ratings must be products with poor credit.

This is just like when we watch movies and TV series on weekdays. If you don’t know whether the movie is good or not, and you don’t want to make mistakes, then take a look at a certain rating of the movie.

When I look at a certain category and score 9 points, it must be a good movie. I dare to go into it. I will even feel that it is a pity to miss it. Even if I don’t understand what the movie is about, I will instinctively feel that it is a movie.

Niubi's movie.

If a certain film has a score of 2, it is definitely a bad movie and you don’t want to watch it. Even if you watch it, you should watch it with a critical eye and try to find faults in the movie as much as possible.

Movie ratings help moviegoers choose movies, while American credit rating agencies help investors choose products to invest in.

An investor wants to buy a CDO product. Although he does not understand what is inside, when he sees that Standard & Poor's rated this CDO as AA, he will feel that this is a product with good credit.

The product is worth investing in.

And when he sees that Standard & Poor's has rated this product only as C, investors will know that the credit of this product is relatively average, and they will face a relatively large default risk if they invest.

In theory, there is no problem with credit ratings, but the premise of all this is based on the professionalism and fairness of the rating agency.

The problem is that both S&P and Moody’s are commercial institutions, and they rely on their ratings for their livelihood!

If a rating agency gives a CDO a lower rating, they lose that customer.

The result is that since 2007, whether it is Standard & Poor's or Moody's, the rating of US CDO products has never been lower than A grade!

In other words, a certain CDO product may contain subprime-related CDS. Not only are there a bunch of matryoshka dolls, but these dolls are about to face default. If it is rated, it may not even be rated B. As a result,

S&P and Moody's gave it an A rating.

When investors saw this A rating, they were fooled and bought it.

It's like a movie with a very high score, but after watching it, you find out what kind of crap it was! Then you suddenly realize that such a high score must have been paid for.

The same is true for investors buying CDO products, but when they wake up, they have lost all their money.

At the beginning, Li Weidong named the American rating agency's overly high ratings of CDOs. At this time, when he thought of Wall Street's cunning operations on CDOs, people with certain financial knowledge would immediately understand that this is equivalent to a rating.

Institutions and financial institutions collaborate to steal investors’ money.

For people who have never been on Wall Street, this kind of saucy operation is indeed a bit unbelievable. This is not engaging in finance, it is simply fraud!

What's more, China's financial supervision is much stricter. As an insurance company, you can not compensate for this or that, but you must definitely face up to the supervision of your superiors.

Sure enough, a leader of an insurance company immediately said: "Aren't you lying to people if you do this? Don't the U.S. regulatory agencies just care?"

"They really don't care!"

The answer this time was not Li Weidong, but Chen Aisi.

As a former Wall Street black warrior, Chen Aisi is very familiar with the strength of financial supervision in the United States. Of course, he is very aware of how ineffective the supervision of American financial regulatory agencies is.

Li Weidong followed Chen Aisi's words and said: "If the U.S. financial regulators had done something, they would have already started supervising the subprime loan market!

From an overall financial perspective, the low threshold and disorderly lending in the subprime mortgage market, the large number of MBCs for subprime mortgages, and the infinite matryoshka of subprime mortgage CDSs can only be regarded as gestating a bomb.

In the end, these high-risk financial products formed a CDO, which was equivalent to pulling a fuse to the bomb. The excessive ratings of the rating agencies ignited the fuse.

But this is not the most terrifying thing. As long as a basin of water is poured on it before the fuse burns out, the crisis can be resolved, and the person who can pour water on it is the US financial regulatory agency.

But they did nothing at all, allowing the fuse to slowly burn, and eventually it burned to the bomb, and the bomb exploded. But now, most of the fuse has been burned, and the time for the bomb to explode is not far away."

Director Sui next to him also helped and said: "Chairman Li, I almost understand it. I will narrate it from the beginning. Please listen to what I said, am I right?"

Because U.S. banks use large-scale loans in the financing process, they cannot afford a high foreclosure rate, and the subprime mortgage foreclosure rate in the United States is rising and will soon exceed what banks can bear.

Once the banks cannot bear it, the subprime loan market will collapse. At that time, MBC and CDS related to the subprime mortgage market will be linked. If MBC and CDS default, it will be linked to related CDOs.

If a CDO defaults, it will affect the entire U.S. financial system. If there is a problem in the U.S. financial system, it will affect global finance and trigger a global financial crisis. Is that what you mean?"

Li Weidong nodded: "That's what I mean at the financial level. At the same time, we must also consider the economic level. The subprime loan market collapsed, a large number of houses were cut off, the U.S. real estate market will also shrink, and real estate-related industries will also shrink.

been greatly affected.

At the same time, the suspension of housing supply will lower the credit rating of home buyers, thereby affecting normal consumption. The shrinkage of the real estate market will also affect consumption. Under the linkage of many aspects, problems will occur in the entire consumer market, which will affect the United States.

economy.

The United States is the largest consumer market in the world. If the United States is not smooth, the whole world will suffer. At that time, the global economy will experience a certain recession. Coupled with the financial crisis mentioned before, under the double blow, a crisis is likely to break out.

A global economic crisis.

The global economic crisis will also cause many chain reactions, such as debt crises in some highly indebted countries, currency depreciation caused by the economic crisis, which will push up energy prices, and supply shifts caused by costs."

When the topic of the global economic crisis was mentioned, the people present could no longer remain calm, and everyone's expressions became serious.

Finally, one of the leaders spoke: "Chairman Li, listening to you is worth ten years of studying. The lesson you taught us today has really benefited us a lot!"

"I just made a blind analysis and made a fool of myself in front of several experts." Li Weidong immediately said modestly.

The leader continued: "Chairman Li, we have to digest the content of your class today, how about we stop here today?"

"Well, all the leaders are very busy, so I am honored to spare your precious time and listen to me chatting here. Then I will take my leave first." Li Weidong said immediately,

Li Weidong also knew that what he said today would be discussed internally within the insurance company in the coming time.

"I'll see off Chairman Li." Director Sui stood up and said.

Director Sui sent Li Weidong out of the conference room, but the others still sat where they were and did not move.

Guessing that Li Weidong had gone far, the leader asked: "Director Wei, do you think what Li Weidong said is possible?"

"What he said is already happening." Director Wei nodded silently, and then said: "From a purely financial professional perspective, it is very likely that it will develop towards the situation Li Weidong said."

"Is there really a financial crisis, or even an economic crisis?" the other party asked immediately.

"There is a possibility." Director Wei continued: "But one thing is certain, all investments in U.S. real estate must be withdrawn immediately, and our other investments in the U.S. financial market should also be cautious again, so that at least we can

Avoid losses."

Professor Ye added next to him: "In addition, I also suggest that our business dealings with American investment banks should also be reduced. The leverage of 30 times is too risky. Those investment banks in the United States dare to

We can’t gamble, so we might as well get our funds back as soon as possible!”

Several insurance company leaders nodded. These people are still relatively afraid of investment risks. They are not afraid of losing money, but mainly afraid of losing their official position. If a large sum of money is lost due to the U.S. subprime mortgage crisis, those present are pointing out that

Maybe some of the scapegoats will be demoted.

However, Chen Aisi, the black warrior of Wall Street, said: "I have a different view. I think there is no need to withdraw capital at this time. Since there is going to be a problem in the U.S. subprime mortgage market, why don't we take this opportunity to go short? We will definitely do it by then."

You can make a lot of money!"

"Short the subprime mortgage market? How to do it? This is not a stock. It goes up and down. Whether it is MBS, CDS or CDO, they are all fixed income." Professor Ye asked.

"Professor Ye, I noticed that recently, there is a kind of CDS on Wall Street, specifically for credit default swaps of MBS. We can also use the same method!" Chen Aisi said.

"Is there such a thing?" Professor Ye opened his mouth in surprise, and then said angrily: "When I left Wall Street, they still had some bottom line. Why don't they even have such a bottom line now?"

There is no shortage of financial talents on Wall Street. Of course, many people have seen the hidden dangers of the subprime mortgage crisis. And with Wall Street's urinary attitude, some people will definitely make a fortune by short selling.

However, there was no short-selling product on Wall Street at that time, so a wise man thought that since there was no ready-made short-selling product, I would find a way to make one myself.

This great genius approached Goldman Sachs and said that I wanted to customize a credit default swap, also known as CDS, for the MBS bonds of subprime mortgages. If the MBS bonds defaulted, Goldman Sachs would have to pay me a sum of money.

money.

Gao Sheng thought to himself, maybe there is a fool somewhere! Since you are willing to give money, Gao Sheng readily agreed.

And this great ingenuity did not just pick the wool of Goldman Sachs, but also picked the wool of Morgan Stanley, Deutsche Bank, Citibank, etc., one by one.

This great genius is the "subprime mortgage prophet" Michael Barry, who is also the prototype in the movie "The Big Short".

…

Director Sui's voice rang from the mobile phone: "Chairman Li, our company has promised you US$1.5 billion in financing. This is a great event. You have to treat me to dinner!"

Li Weidong breathed a sigh of relief. It seemed that the information about the subprime mortgage crisis was still very valuable. At least in the eyes of the top executives of the insurance company, this news was worth US$1.5 billion in financing.

Then Li Weidong agreed: "No problem, you pick the place, the delicacies from the mountains and the sea, and you can eat whatever you want!"

Li Weidong secretly thought, with 1.5 billion U.S. dollars in financing already secured, let alone eating delicacies, he could get a giant panda for you to lick twice. Of course, it would only be two licks. After licking, the giant panda would have to be returned to the zoo.

"How about eating barbecue? I know a restaurant where the roasted kidneys are particularly delicious!" Director Sui seemed to like this kind of lively food.

The two made an appointment for the dinner. As soon as Li Weidong hung up the phone, another cell phone rang.

"Hey, Chairman, something went wrong with the acquisition of Jaguar Land Rover. Ford just sent a notice saying that workers are opposed to this acquisition!"