Chapter 520 The first signs appear
It is not uncommon for an entire company to suffer massive losses due to the mistakes of one trader.
Some of this is caused by operational errors, and some are because they conceal losses from the headquarters. In order to make up for the losses, they use various means to secretly misappropriate funds for increasingly large-scale speculation.
For example, one of the largest fraud cases so far, Societe Generale, will be discovered in January next year. The huge loss case caused the bank to lose 4.9 billion euros (equivalent to 7.1 billion U.S. dollars). The reason is just because of a trader. illegal operations.
Well, that's probably happening.
Beginning in 2007, 31-year-old futures trader Jerome Kevière anticipated a rise in European stock markets and invested more than his personal authorization allowed in trading.
Of course, everyone knew what would happen to him next... so naturally, his actions caused huge losses.
After the losses occurred, he covered them up by modifying data on the bank's computer system.
Finally, Societe Generale discovered the fraud in January 2008.
In the end, his operations brought huge losses to Industrial Bank.
This incident clearly showed that there were huge loopholes in Industrial Bank's internal management, and Barron certainly did not want this kind of thing to happen in his own company.
In fact, compared with most investment banks, DS Group's funds account for a very small proportion of the "investment on behalf of clients" business. Most of the funds are based on the investment direction instructed by Barron.
Of course, some traders also have a certain amount of capital and can invest based on their own analysis results, but their proportion in the overall capital scale is not high.
Even so, as the size of the DS Group's funds increases, there will be hidden dangers. Moreover, the DS Group has not been established for a long time, and the corresponding risk management also needs to be improved.
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On February 13, 2007, New Century Financial Corporation issued a fourth-quarter profit warning.
New Century Financial Company is the second largest subprime loan company in the United States. It turns out that from the end of 2006, a large number of New Century Financial Company's customers began to have their loans cut off...
After discovering this, Wall Street capital, the source of their mortgage loan funds, forced New Century Financial Company to take back the subprime loans corresponding to the relevant subprime mortgage bonds.
New Century Financial Corporation is different from commercial banks such as Citigroup and Goldman Sachs in that it does not have the ability to absorb deposits. The money it provides for mortgage loans to customers is obtained from Wall Street financing.
As mentioned before, they previously issued subprime mortgage loans, then sold the subprime mortgages to Wall Street investment banks, and were "made" into subprime mortgage bonds by those investment banks. After recovering the funds, they continued to lend... and so on.
Now at New Century Financial Company, the subprime mortgages cannot be sold and the loans have been cut off. They have no income and have to repay debts. So they suffered a huge loss in the fourth quarter of 2006, almost eating up the profits for the whole year of 2006.
The next day, New Century Financial's stock fell 36%. At the same time, the subprime loan index ABX fell 5 points in response.
For the first time, the market felt the chill of subprime mortgages.
You know, the CDS currently held by the Black Swan Fund and the short-selling assets on the CDO and ABX index exceed US$150 billion!
The subprime loan index ABX fell 5%, which means that the Black Swan Fund made more than 7.5 billion US dollars in one morning!
So scary!
As mentioned earlier, subprime mortgage bond CDOs are often packaged as A-grade high-quality "investment products" by Wall Street investment banks.
In the early days of mortgage bond sales, there were always some of the lowest-rated, high-risk bonds that couldn't be sold. Investment banks didn't want to hold these high-risk bonds, so they reinvested those high-risk bonds and a small number of safe bonds. Packaged to form a new investment product, this is the collateralized debt obligation CDO - it packages a large number of B-class junk bonds into AAA-class gold.
The CDO after the first package will also be graded from 3A to B, so the investment banks carried out the second package, packaging the 3A and B-rated bonds of the CDO into the quadratic power of the CDO for sale. After this cycle, the market There are not only CDOs in circulation, but also CDOs raised to the Nth power.
A large number of B-class bonds have been packaged again and again, packaged as gold and sold externally, but their essence is actually garbage.
In 2006, Merrill Lynch sold CDOs all over the world. They charged a handling fee of 1% to 1.5% for each CDO, and collected a total of US$700 million in commissions. Other investment banks have also followed suit.
At the end of 2006, there were US$1.2 trillion in subprime loans on the market, out of which US$5 trillion in CDOs were born!
Soon, subprime mortgages were no longer enough for CDOs, so investment banks created synthetic CDOs. They used the cash flow generated from CDS sold to short-sellers such as Black Swan Fund and Paulson Hedge Fund to create CDOs. It became the mainstream of CDO at the end of 2006.
Therefore, in fact, the strong participation of black swan funds has actually increased the continued "prosperity" of CDOs.
The falsification of bond ratings by rating agencies, the falsification of real estate data by research institutions, and the investment craze of CDOs all combined to cover up the decline of the real estate market and caused little attention to the rising default rate.
This is good news for short sellers such as Black Swan Fund - the market has forced the remaining heat of real estate to make CDS very cheap.
This will also help black swan funds increase their short-selling operations on all short-selling financial products such as subprime mortgage bonds, ABX indexes, CDOs, and synthetic CDOs.
Let them successfully ambush all the short-selling chips when real estate reaches the top.
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"Thank you so much, Barron, I owe you a favor."
"Your Highness, we are friends, this is what I should do."
After spending Valentine's Day with his wife Bonnie, Barron met the Duke of Westminston.
As soon as they met, he expressed his gratitude to Barron.
The whole story was that a reporter dug up some shocking information about the Duke of Westminster - they discovered that he had solicited prostitutes four times in six months starting from December 28 last year.
Moreover, the specific time when he performed these behaviors, as well as the photos of the girls entering and leaving the Duke of Westminster's house, were all known to the other party...
They even interviewed two of the girls - to whom they said the Duke of Westminster revealed his name and position.
After Barron discovered the incident, he privately "reconciled" with the reporter, spent money to obtain the photos and materials from the other party, and obtained the other party's promise not to make the matter public again.
It is conceivable that after knowing these things, the Duke of Westminster was filled with fear. Once such things were announced, as his deputy chief of staff, at a time when the Iraq War is highly controversial, it would definitely bring him big trouble.
It is true that in Barron's previous life, this matter was a big deal. Under reports and public opinion, the then Duke of Westminster suffered from mental illness because of it, which also led to his later behavior to a certain extent. died of illness.
In addition, it is worth mentioning that the reporter following this scandal this time is from the News of the World.
It was also when Barron sent people to "pay attention" to the other party's movements, an "unexpected gain."
Of course, because Barron detonated News Corporation's "eavesdropping scandal" in advance, it is not ruled out that the other party will use this to try to use the Duke of Westminster for public relations, but now all this has been killed by Barron. .
