Chapter 703 Thirty years is too long, seize the day!

Li Weidong was expressing his point of view, while Director Wei explained some technical terms to the leaders of several insurance companies in a low voice.

In 2007, China's credit sector was not as exciting as the later generations. In the era when Alipay and WeChat Pay did not rise, such as p2p online loans, Internet small loans, consumer finance loans, cash loans, various loan assistance, etc., Still in a blank field.

Even for the approval of credit cards, the supervision at that time was relatively strict, let alone 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, the leaders of insurance companies only know a little bit about it.

Li Weidong is very clear that the key to obtaining financing of 1.5 billion US dollars still depends on the attitudes 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 buying a house with a loan... Li Weidong cleared his throat and began to talk eloquently:

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. Everyone understands this, so there is no need to explain too much.

Although the rate of return on housing loans is very objective, the interest repayment for a 30-year loan may be higher than the principal, but the return period of the housing loan is too long, and it takes 20 to 30 years to pay off the loan.

Bank of America thinks that thirty years is too long, I'm 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 home buyer in the future will belong to the bond holder. It is equivalent to bond subscribers indirectly lending money to house buyers. Therefore mbs are also called mortgage bonds.

To put it simply, this kind of mbs turns the bank from the party that paid the money into a second-hand dealer. The bank lends the money of the rich to the house buyer to buy a house, and at the same time gives the repayment risk expert to the bond holder, and also eats from it. A wave of spreads.

Moreover, by selling mbs, banks can quickly withdraw funds, and then loan the recovered funds to home buyers, then package mbs and sell them to recover funds, and then make loans, and repeat this cycle.

Therefore, after having mbs, the mortgage accepted by the bank is like a snowball, getting bigger and bigger,

Theoretically, it can be rolled down without limit, and in the process, the bank can continue to earn the interest rate difference.

It is also mbs that brought the real estate industry in the United States from capitalization to securitization. This pioneering work brought unprecedented prosperity to the banking industry in the United States, but it planted hidden dangers in the financial industry in the United States. This hidden danger is The subprime mortgage crisis that will happen 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 delegation to investigate this mbs. But considering the financial risks involved, we The country doesn't have that.

I remember that there seemed to be a pilot method introduced in China two years ago? a leader asked.

In 2005, a Credit Asset Securitization Pilot Management Measures was introduced, but in the end there was a lot of noise and little rain. After all, the scale of credit in our country is still relatively small, and the specific application is not yet mature. It is impossible to make such a big step. pace. Director Sui also replied.

Asia's MBS gradually began to develop 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 MBS field.

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

By 2020, the national MBS issuance will only be 424.3 billion yuan, and the provident fund loans alone will be 1.3 trillion yuan, which is less than 1% compared with the nearly 50 trillion real estate loan balance in the same period.

As far as the banking industry is concerned, withdrawing 1% of funds is just a drizzle, and it is not enough to pay regular interest for one year.

However, as a financial institution, I definitely hope that the country will open MBS. This thing is completely a profit margin. When domestic financial institutions visit the United States and see other people's MBS, they have been crying for a long time.

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 this kind of mbs is much more risky! Li Weidong continued with a slight smile:

We all know that Americans are used to spending ahead of time, living beyond their means, and spending tomorrow's money today, so credit card use is the daily life of Americans, and this process will naturally produce many people with poor credit.

For example, if I am a little late in repaying my credit card, my credit will decrease. For example, if I only pay the minimum amount each installment, although my credit rating will not be lowered, the bank will not raise my credit rating, so I will not be able to get more loans. money.

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

Subprime credit loan borrowers can only apply for subprime mortgage loans to buy houses. Although the interest rate of this kind of loan is high, the risk is also very high, and the borrower will have the risk of cutting off the supply 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 of rising housing prices that banks are also willing to issue subprime mortgages.

Anyway, housing prices are rising. Even if the borrower can't pay back the money, the bank takes the house and sells it, and they can get the loan back, and maybe make a fortune.

If housing prices keep rising, then everyone will earn money, but if housing prices fall, the subprime loans issued will not be recovered, and eventually it will 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 income of subprime loans is already high, which can make up for the losses caused by risks. Someone said immediately.

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

My brother is so cheating. The housing loans in the United States are different from ours. Their banks have no recourse, which will increase the foreclosure rate of housing loans. Now the US subprime loan bomb may explode at any time.

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

Director Wei took the lead and said, A 5% withdrawal 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 more courageous trader can already short the subprime mortgage market.

Li Weidong thought to himself, this guy is indeed a Wall Street warrior, and his mind is full of shorting.

After the Clinton administration came to power, the U.S. economy began to resume prosperity, and house prices have also been on the rise. Especially after the Internet bubble, a large amount of funds all flowed into the housing market, making the U.S. real estate bubble to a certain extent.

At that time, buying a house in the United States was the same as buying a house in China. It was sure to make a steady profit without losing money, so 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 in real estate.

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

For example, you buy a house in China with a loan, the house payment plus interest is 10 million, you make a down payment of 3 million, and the loan is 7 million. Later, the economy is not good, the house price has fallen, and your house is only worth 5 million. At this time, you say I Not yet.

So the bank took the house away and auctioned off 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 pay back the 2 million.

This model 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 the loan has already been passed on to the bondholders of mbs, so the investors who actually lost the 2 million are those investors who bought mbs.

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

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

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

At the end of 2006, the foreclosure rate of subprime mortgages in the United States was sprinting towards 5%. At that time, experts in the financial field had already issued warnings. However, American banks completely ignored this and continued to sell subprime loans. Anyway, it is the mbs investors who lose money in the end, and the bank commissions are worth a penny.

The U.S. regulatory authorities also turned a blind eye to this, and thoroughly implemented the free economic system without introducing any measures, which made the flames of the crisis more and more intense, and eventually turned into a raging fire, burning up the world's economy.

...

In the conference room, someone said again: I have worked in the China Securities Regulatory Commission before, and I have also been in charge of fund work. For some high-yield investments, let alone a 5% loss, even if it is 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 can't run away from a temple if he can escape. Can get some money back!

So I think that although the US subprime mortgages have a relatively high foreclosure rate, 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 immediately replied: If you use your own money to invest, then it is no problem to lose 5% or 10%. Pay it back, so can you still afford it?

American investment banks don’t just use their own money to make mortgages, they all use leverage, usually as high as 20 to 30 times the leverage, which means that almost all of the money they invest in the subprime mortgage market is borrowed. of.

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

If he makes a profit of 5%, 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 150% profit.

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

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

The man nodded suddenly, but the person next to him said: I know that the financial system in the United States is relatively free, but the leverage of 20 to 30 times is too much! Do banks dare to conduct such high-insurance operations? What's more, the United States will have strict requirements for credit risk reserves, right?

Li Weidong nodded: That's true, so the Americans invented another thing called credit default swap, which is called CDS for short in English. Leaders are familiar with the insurance industry, so they should be familiar with CDS, right? Investment banks Through CDS, the risk problem is 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 could earn 20%, which is 18 billion yuan. However, the bank was worried that the loan would not be recovered, so it went to another financial institution and said that I would give you 3 billion yuan in insurance premiums. , If there is a lender who cannot exchange the money, you will pay for the money. In this way, the bank does not need to take risks, but also earns 15 billion in vain.

And this financial institution has the opportunity to investigate and calculate how many people have not yet paid. 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.

In this way, the bank will give me 3 billion premiums, and I will lose 900 million, and still earn 2.1 billion. This is a good deal! So the financial institution took over the sale and formed a CDS contract.

Of course, the actual operation is not so simple, because the term of the mortgage is relatively long, and it is impossible for the bank to buy insurance for only one year and not buy it next year. Therefore, the final CDS contract has a relatively long time limit, ten years period, 20 years ago, and 30 years ago.

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

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

Still the example just now, the bank gave me 3 billion premiums, but I could only get them after 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 that I would pay for it. You 2.5 billion, buy a cds contract for my cds contract.

This is equivalent to an insurance company looking for another insurance company to buy another insurance policy for the policy it underwrites. When it comes time to settle a claim, you don't have to pay for it, and another insurance company is responsible for paying the compensation.

After another financial institution settled the accounts, only 900 million of the 90 billion loan could not be repaid, so I can earn 1.4 billion for the 2.5 billion premium, which is a good deal! So I signed the CDS contract.

And the first financial institution made 500 million in just one handover.

However, the second financial institution also felt that thirty years was too long, and I was 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 fortune for myself, and at the same time passed the risk of compensation to the third financial institution.

Thirty years is too long for the third financial institution, so I seized the day and night, so I went to the fourth financial institution to sign CDS, the fourth to the fifth, and so on.

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

Therefore, many economists believe that the inflated GDP of the United States is justified. At least the GDP occupied by the financial services industry in the United States is really watery.

For example, CDS, originally an insurance, has become an insurance doll through the operation of financial institutions!

It is equivalent to a bone, which is licked by every dog, that is, every dog ​​has eaten the bone. But the bone is still the same bone, it has not become two bones. However, every dog ​​has licked this heel bone and calculated its GDP. Could there be no water in it?

The essence of a cds contract is the same as that of insurance, and all the people present are from the insurance company, so they all know what a cds is.

So Li Weidong did not explain CDS, but went on to say: According to the data I have collected, the current 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 the GDP of our country last year? It seems to be 2.75 trillion US dollars, and 6 trillion US dollars is equivalent to 2.2 times the size of China. gdp! If this is lost, a financial crisis will really break out!

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, 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 exceeds 19 trillion US dollars.

This is only a certain scale of banks, and then count securities companies, insurance companies, and financial companies. Investment companies, etc., the number is unimaginably large.

6 trillion US dollars is an astronomical figure for other countries, but for the entire financial system of the United States, a default of 6 trillion in the CDS market will hurt its vitality, but it is not unbearable.

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

Professor Ye is right. But it is not accurate enough to say that there is a financial crisis in the CDS market. Li Weidong smiled slightly, and then said: But what if CDO is added? What's more, a large number of ratings are too high cdo!

The topic of Li Weidong returned to the cdo mentioned earlier.

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

Only the mixed-race Chen Aisi had an expression eager to try.

This Wall Street warrior is thinking about shorting again.