Chapter 703 30 years are too long, let's just fight for the day!

Li Weidong expressed his views here, while Director Wei explained some professional terms to the leaders of several insurance companies in a low voice.

In 2007, China's credit field was not as exciting as later generations. In that era when Alipay and WeChat payment did not emerge, such as P2P online loans, Internet small loans, consumer finance loans, cash loans, various loan assistance, etc., Still in the blank field.

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

The sub-prime mortgage market in the United States is flooded. Those financial experts who have worked on Wall Street are naturally familiar with the sub-prime mortgage market in the United States. However, several leaders of insurance companies know nothing about it at most.

Li Weidong is very clear that the key to obtaining financing of 1.5 billion US dollars 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 taking out a loan to buy a house... Li Weidong cleared his throat and began to talk eloquently:

The common people don't have enough money to buy a house, so they mortgage the house they buy and take a mortgage loan from the bank. You understand this, and you don't need to explain too much.

Although the rate of return of a home loan is very objective, the interest repayment for a 30-year loan may be higher than the principal, but the return period of a home loan is too long, and a home loan can take twenty or thirty years to pay off the loan.

Banks in the United States feel that thirty years is too long, and I'm just fighting for the day! So in the 1960s, an economist named Lewis invented something called mortgage-backed securities, or MBS for short.

This kind of MBS is to package the customer's loan into securities and sell it at a price lower than the mortgage interest rate but higher than the principal. The principal and interest repaid by the buyer in the future will belong to the bondholder. It is equivalent to the bond subscriber indirectly lending the money to the home buyer. Therefore, MBS is also called a mortgage bond.

To put it simply, this kind of MBS turns the bank from the one who paid the money into a second-order dealer. The bank lends money from the rich to homebuyers to buy a home, and gives repayment risk experts to bondholders, while also eating from it. A wave of spreads.

Moreover, by selling MBS, the bank can quickly withdraw the funds, and then loan the withdrawn funds to the homebuyers, then package the MBS and sell them to withdraw the funds, and then lend again, and so on.

Therefore, with MBS, the mortgages accepted by the bank are like snowballs, the more they roll, the bigger they are.

In theory, it can be rolled down without limit, and in the process, the bank can continue to earn interest margins.

It is also 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 buried hidden dangers in the US financial industry. This hidden danger is future subprime mortgage crisis.

Director Sui immediately followed the trend 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 delegation to inspect this MBS. But considering the financial risks involved, let's The country doesn't have that yet.

I remember that there seems to be a pilot method introduced in China in the past two years? A leader asked.

In 2005, a Administrative Measures for the Pilot Securitization of Credit Assets was issued, but in the end it was a lot of thunder and little rain. 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 make such a big progress. the pace. Director Sui also replied.

MBS in Asia started 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 in the field of MBS.

China's financial market is relatively conservative and its supervision is stricter. It was not until 2015 that the central bank and the China Banking Regulatory Commission issued the Guidelines for Information Disclosure of Asset-Backed Securities of Personal Housing Mortgage Loans (for Trial Implementation).

By 2020, the issuance of MBS nationwide will only be 424.3 billion yuan, while the provident fund loans alone amounted to 1.3 trillion yuan. Compared with the real estate loan balance of nearly 50 trillion yuan in the same period, less than 1%.

For the banking industry, the return of 1% of the funds is just a drizzle, and it is not enough to pay the one-year regular interest.

But as a financial institution, I definitely hope that the country will open up MBS. This thing is nothing but profit margins. When domestic financial institutions visit the United States and see other people's MBS, they will cry long ago.

The leader who spoke before continued: Chairman Li, MBS in the United States, we know something, 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 such MBS is much greater! Li Weidong smiled and continued:

We all know that Americans are accustomed to over-consumption, eating their food and spending tomorrow's money today, so using credit cards is a way of life for Americans, and this process will naturally produce a lot of people with poor credit.

For example, if I pay my credit card a little late, my credit will decrease. Another example is that I only pay the minimum amount in each installment. Although the credit rating will not be lowered, the bank will not give me a higher rating, so I will not be able to borrow more. money.

In addition, people who are often unemployed, people with unstable income, or even people with no income at all, these people's credit ratings will not be very high, and their debt repayment ability is low, so they are defined as subprime credit lenders , only to apply for subprime loans.

Subprime credit lenders can only apply for subprime mortgages when they buy a house. Although the interest rate of this kind of loan is high, it is also very risky.

Because the 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 of the rising housing prices that banks are also happy to issue subprime mortgages.

Anyway, the house price is rising, even if the borrower can't repay the money, and the bank takes away the house and sells it, he can get the loan back, and maybe he can make a fortune.

If house prices keep rising, then everyone has to make a profit, but if house prices fall, the subprime loan issued will not be recovered, and it will eventually become a bad debt.

Lending is always risky. As long as the risk is within the controllable range, there should be no problem. What's more, the sub-prime loan's return is already high, which can make up for the loss caused by the risk. Someone said immediately.

Li Weidong said: I just went to the United States not long ago. At that time, the supply failure rate of the subprime loan market in the United States had exceeded 5%, and it must be higher now. I think the supply failure rate of 5% has reached the risk. Controlled bottom line.

My elder brother is very different from our own housing loans in the United States. Their banks have no right of recourse, which will increase the mortgage loan rate. Now the bomb on US subprime loans could go off at any moment.

When it comes to numbers, everyone's eyes turn to several financial experts.

Director Wei took the lead and said: The 5% supply cut-off rate is indeed very high. However, as long as effective policies are introduced in time, the risk should be controllable.

Chen Aisi said: If it is placed in the financial market, this figure is indeed quite dangerous. The more courageous traders can already short the subprime mortgage market.

Li Weidong thought to himself, this fellow is worthy of being a black warrior of Wall Street, and his mind is full of shorts.

After the Clinton administration came to power, the U.S. economy began to prosper, and housing prices have been on an upward trend. Especially after the Internet bubble, a lot 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 like buying a house in China, and it was sure to make a profit without losing money. Therefore, many real estate speculators were born in the United States. And because the threshold for subprime loans is very low, even a dog can get a loan, so many real estate speculators use subprime loans to speculate on real estate.

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

For example, if you take out a loan to buy a house in China, the house price plus interest is 10 million yuan, your down payment is 3 million yuan, and the loan is 7 million yuan. Later, the economy is not good, the house price falls, and your house is only worth 5 million yuan. At this time, you say me Not yet.

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

This pattern is common in Asian countries. When the Japanese 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 yuan does not need to be returned to the bank, and it is counted as the bank's own loss.

Due to the existence of MBS, the risk of loan has already been transferred to the bondholders of MBS, so the actual loss of the 2 million is those investors who bought MBS.

Of course, if you cut off your confession, there is nothing wrong. 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 on real estate, then congratulations, this trick of personal credit has little effect on you, anyway, you belong to the category with a relatively low credit rating, and you are on the same level as a dog. You can't expect a dog to have credit.

Therefore, people who use subprime loans to speculate on real estate are also more likely to cut off their supply. As long as house prices fall, there will be a lot of outages.

At the end of 2006, the outage rate of subprime mortgages in the United States had already sprinted towards 5%, and experts in the financial field had already warned. Yet U.S. banks turned a blind eye to this and continued to sell subprime loans. Anyway, it is MBS investors who lose in the end, and the bank's commission is a lot of money.

The U.S. regulators also turned a blind eye to this, thoroughly implemented the free economy, and did not introduce any measures, which made the flames of the crisis burn more and more, and eventually turned into a raging fire, burning the world's economy.

...

In the conference room, someone else said, I have worked in the China Securities Regulatory Commission before and have also been in charge of funds. 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 is a real estate. There is a saying that if you can run away from the temple, you can't run away from the temple. Even if the lender cuts off the loan, the house will still be there. When the bank takes it away, it will be auctioned directly. Get some money back!

Therefore, I think that although the U.S. subprime mortgage has a relatively high rate of supply interruptions, at most it affects individual areas, and it will not have a fatal impact on the overall finance, let alone a financial crisis.

Li Weidong replied immediately: If all you use to invest is your own money, then there is no problem with losing 5% or 10%, but if you use the money for investment, it was originally borrowed, and it will be required in the future. Well, are you still worth it?

Investment banks in the United States will not only use their own money to make mortgage loans, they will use leverage, and usually it is as high as 20 to 30 times leverage, which means that the money they invest in the subprime market is almost all borrowed. of.

For example, if an investment bank has 3 billion US dollars, he can have 90 billion US dollars to invest with a leverage of 30 times.

If he makes a profit of 5%, then he can make a profit of 4.5 billion US dollars, which is equivalent to making 4.5 billion with 3 billion, which is a huge profit of 150%.

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

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

The man nodded suddenly, but someone next to him said, I know that the US financial system is relatively free, but 20 to 30 times the leverage is too much! Do banks dare to carry out such high-insurance operations? What's more, the United States will also have hard requirements for credit risk reserves?

Li Weidong nodded: That's true, so Americans have invented something called credit default swap, which is abbreviated as CDS in English. All leaders are familiar with the insurance industry, so they should be familiar with CDS, right? Investment Banking Through CDS, risk problems are avoided, and high-risk operations can naturally be carried out.”

CDS is the most common credit derivative product in the foreign debt market. This kind of thing is a contract between buyers and sellers for risk conversion of credit events.

For example, the bank issued a subprime loan of 90 billion yuan, and it can earn 20%, which is 18 billion yuan, but the bank was worried that the loan would not be recovered, so it went to another financial institution and said that I will give you 3 billion yuan in premiums. , if there is a lender who cannot exchange the money, the money will be compensated by you. In this way, the bank does not have to take risks and earns 15 billion in vain.

And the financial institution has the opportunity to investigate and count the number of people who still don't have the money. After investigation, it was found that only 1% of the 90 billion loans were not paid, and 900 million were not paid.

With this calculation, the bank gave me 3 billion insurance premiums, I lost 900 million, and I could still earn 2.1 billion. This transaction is a good deal! So the financial institution took over the deal and formed a CDS contract.

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

But for U.S. financial institutions, thirty years is too long, and they still have to fight for the day!

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

Just like the example just now, the bank gave me 3 billion insurance premiums, but I can only get it after the contract expires. I was in a hurry and didn’t want to wait, so I wanted to get the money right away, so I found another financial institution and said You 2.5 billion, buy a CDS contract for this CDS contract of Curcuma.

This is equivalent to an insurance company looking for another insurance company to buy another insurance policy for its own insurance policy. When it comes time to settle a claim, you don’t have to pay for it yourself, and another insurance company is responsible for the payment.

When another financial institution settles the accounts, the 90 billion loan is only 900 million, so for the 2.5 billion premium, I can earn 1.4 billion. This transaction is a good deal! So I signed a CDS contract.

And the first financial institution made a profit of 500 million.

However, the second financial institution also felt that 30 years was too long, and I was just fighting for the day.

So I went to a third financial institution to sign a CDS, which is equivalent to insurance for insurance. I bought an insurance and made a profit myself, and at the same time passed the risk of compensation to the third financial institution.

Thirty years are too long for the third financial institution, and it is just a matter of time, so I went to a fourth financial institution to sign a CDS, and the fourth found a fifth one, and so on.

This is like a nesting doll. In the end, the first CDS was covered with many layers of dolls, and CDS also formed a huge market.

Therefore, many economists believe that the US GDP is artificially high, which is justified. At least the GDP occupied by the US financial services industry is really watery.

For example, CDS, which was originally an insurance policy, has become a condom doll through the operation of financial institutions!

It is equivalent to a bone that is licked by every dog, that is, every dog ​​has eaten the bone. But the bone is still the same bone, not two bones. However, every dog ​​who has licked this bone will calculate the GDP. Can there be no water in it!

The essence of the CDS contract is the same as that of insurance, and the people present are all insurance companies, and naturally they all know what CDS is.

So Li Weidong did not explain CDS, but continued: According to the data I have collected, the current size of the CDS market 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.

Someone couldn't help exclaiming: The loss of 6 trillion US dollars is too exaggerated! What was our country's GDP last year? It seems to be 2.75 trillion US dollars, and 6 trillion US dollars is equivalent to 2.2 China's. GDP! If this is lost, there will be a financial crisis!

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

Everyone's eyes immediately turned to Professor Ye, only to hear him say: I have a data here, published by the Federal Reserve, there are more than 2,000 banks with total assets of more than 300 million US dollars in the United States, and their assets The sum exceeds $19 trillion.

This is only for banks with a certain scale, and then includes securities companies, insurance companies, and financial companies. Investment companies, etc., the number is unimaginable.

$6 trillion is an astronomical figure for other countries, but for the entire U.S. financial system, a default of $6 trillion in the CDS market will hurt its strength, but it is not unbearable.

In my opinion, Chairman Li's thinking is very clear and his analysis is in place. It is inevitable that there will be problems in the subprime mortgage market in the United States. I agree with Chairman Li very much. But it is still too early to conclude that there will be a systemic financial crisis!

Professor Ye said yes. But when it comes to the problems of the CDS market, it is not accurate enough to say that there is a financial crisis. Li Weidong smiled slightly and continued: But what if you add CDOs? Not to mention a large number of overrated ratings. CDO!

Li Weidong's topic returned to the CDO we talked about earlier.

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

Only the half-breed, Chen Aisi, was eager to try.

This black warrior of Wall Street is thinking about going short again.