Chapter 545 MBS&MBs

During the South Sea Bubble, the British government issued bonds in order to reduce interest rates and reduce the financial burden caused by national debt.

Those who play hedge funds are Wall Street elites with high IQs, while those who cannot afford to pay off their mortgages are those at the bottom who are poorly educated, cannot find a good job, and want to live as rich people, such as plumbers. These two groups of people are not originally

There would be no intersection, unless the water pipes in the homes of Wall Street elites broke and they needed someone to repair them, but the financial crisis made their lives intersect.

In 2000, the development of the Internet was too fast, too magical, and too exciting, beyond the scope of human understanding, resulting in a bubble. The federal government sued Microsoft for monopoly, and Microsoft lost the case. Using this as a trigger, the Internet bubble burst in the U.S. stock market.

, the U.S. economy began to weaken, and the Federal Reserve sought to lower the unemployment rate and boost the economy.

The South Sea Bubble was caused by the fact that the South Sea Company and the investors who bought stocks did not know that Britain had no actual control over South America. It was caused by the information gap. The rapid exchange of information on the Internet prevented the same problem from happening again.

Many years ago, investors were sitting on piles of money, looking for good investment opportunities to make more money. Traditionally, they would go to the U.S. Federal Reserve to buy short-term Treasury bonds, which were considered the safest investment. But thanks to the Internet

After the bubble burst and 9/11, the U.S. Federal Reserve chairman lowered interest rates to 1 percentage point to maintain economic growth. Investors said a 1 percentage point return was too low.

But on the other hand, it means that banks can borrow from the Fed at 1% interest rate, plus trade surpluses are pouring in from Japan, China and the Middle East. So there are a lot of low-interest loans making it easy for banks to borrow.

So they used "leverage" crazily.

Leverage can make investment returns huge, and it can also make investment losses huge. Compared with insurance companies and financial institutions, people who play hedge funds are much more willing to gamble. They give their funds to investment banks, and investment banking business includes many parts.

When it comes to issuance and underwriting, Morgan Stanley comes to mind. When it comes to mergers and acquisitions, it is easy to think of Goldman Sachs. When it comes to retail brokerage, it must be Merrill Lynch, General Motors, etc. It is impossible for these famous companies to go bankrupt.

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MBS is mortgaged by the mortgage, or the physical property of the house; CDO is mortgaged by the cash flow from interest payments on the mortgage. The house is not his mortgage. These investment banks sell the CDO to hedge fund managers and insurance companies.

, there are not only mortgages in CDO, but the key thing is that the buyers and sellers in the CDO market are far away from the participants in the real estate market. This distance is not the actual distance. The plumber who borrowed the mortgage loan may have even gone to the elite's home to repair the water pipes. He is so superior.

The Wall Street elite will not even look at the "loser". He may be busy talking on the phone or having sex with his beautiful wife, but in short they will not spend one more second on the plumber.

After the Great Depression, the Roosevelt administration promulgated a bill called the Glass-Steagall Act, which established the global financial regulatory system for more than half a century. The most famous one is that the business of commercial banks

It must be strictly separated from the securities business and implement separate operations. Those who engage in savings and lending cannot engage in securities underwriting. Therefore, under this pressure, the Morgan consortium divided its business into two, with Morgan Stanley as investment bank and the other

J.P. Morgan is a commercial bank.

Hedge fund managers would give money to Morgan Stanley and get CDOs from Morgan.

Now the commercial bank JP Morgan holds a handful of loan contracts, which cannot be liquidated. In order to improve liquidity, these subprime loans need to be packaged and packaged, so MBS was born. You can't buy other people's loans at the bank.

Loan contracts can only be purchased from banks' financial products, and MBS can be considered a financial product. Banks package these loan contracts into MBS, and then split them into three levels for sale: priority, sub-prime, and sub-prime

.Every time a loan is recovered, the income of the priority level is guaranteed first. After the income of the priority level is satisfied, the income of the sub-prime level is satisfied, and finally the secondary level. Therefore, the priority level has the lowest expected rate of return and the lowest risk, and the secondary level has the highest expected rate of return and risk.

Also the largest.

Subprime mortgages are characterized by high risks, high risk premiums, and higher returns than ordinary bonds. Hedge fund managers who buy CDOs from Morgan Stanley will buy such high-yield loans. Their capital flows are large, but they are not as good as

Insurance companies choose those with lower risks and lower returns. CDOs work like three small waterfalls. When funds are withdrawn, the top box is filled first, then flows to the middle box, and the rest is filled to the bottom.

The bottom layer. The funds come from the mortgage repayments of the homeowners. If someone defaults on the loan, less funds will be withdrawn, and the bottom box will not be full.

Why is a hedge fund manager so stupid? If he is really stupid, he will not play hedge funds. Speculation is about fast in and fast out, not medium and long-term holdings. Whoever takes over last will be unlucky, but as long as he is not the last, the profit will be

All are quite considerable.

In addition to commercial banks, there are also specialized mortgage companies in the United States. They not only do mortgage business, but also act as real estate agencies. You can buy and sell houses through them. The loan companies package all subprime loans and integrate them into some senior assets and intermediate assets.

ABS is formed including MBS. The subject collateral of ABS is diverse, ranging from bank loans, leases, car loans, credit card loans, etc. Investment banks buy bonds from loan companies. If the borrower cannot repay the money, the capital flow will be

If you want to stop it, everything will be fine when the economy is booming.

Starting in 2004, real estate developers and the U.S. government slowly discovered that the new immigrants were not all wealthy people. On the contrary, there were many poor people with poor qualifications, especially Latin American refugees and stowaways who had been laundered in the underground market.

, and entered the ranks of new immigrants.

At this time, the indigenous citizens of the United States almost all had their own homes, and were completely unable to consume the excess capacity in the real estate market.

Therefore, the U.S. federal government put pressure on major lending institutions, hoping that they would relax their loan requirements and give money to low-income people to buy houses.

At first, loan companies were reluctant, but house prices have been rising. Banks earn intermediary fees, management fees and interest rate differences. Rich investors receive stable investment income, and poor people buy houses with loans. Occasionally, a few people do not repay their loans.

Because house prices have been rising, banks can just take back the house and auction it off. The bank feels there is no risk. So commercial banks and loan companies are becoming more and more courageous and keep falling, so anyone can get a loan to buy a house. Originally, the down payment was 30

%, and proof of income is required. Nowadays, with a down payment of 5% or even 0, you can get a loan by standing on the street and taking a photo. The house bought with the loan can also be used as a mortgage and then borrowed to buy a second house. The sales of MBS products are always considerable.

, and banks further developed CDOs based on MBS, and the real estate bubble started under the background of excess liquidity.

All this is predicated on the Federal Reserve's low interest rates. Once interest rates increase, speculators will no longer be able to obtain low-interest loans and earn interest differences, which will cause deflation. One or two points of interest is not enough for small funds.

Nothing, two or three dollars more for 100 US dollars is not enough to pay for a cup of Starbucks, but if the capital pool is large enough, even a 1-point increase in interest will be a huge sum of money. Speculative hedge fund managers will be the first to run away.

But investment banks will not let him run away so easily, and there are only a few safe-haven currencies.

According to U.S. law, mortgage companies issue mortgages without recourse. This means that if the borrower is unable to repay the mortgage, the lending company has no right to confiscate other properties other than the mortgaged property. Americans are still very open-minded about home ownership.

Yes, it would be different if it were a Chinese. When the price goes up, everyone buys together. If you lose money, you have to return the house to the real estate developer. Investment is risky. How can you just make a profit without losing money?

The subprime mortgage crisis was caused by the federal financial regulator's ineffective supervision of the real estate financial industry. If faced face to face, a hedge fund manager would never lend money to a plumber and let him invest in buying a house, charging meager interest, and the manager would still have to give the money back.

Profit from the clients he handles.

But something weird like this happened during the subprime mortgage crisis.

So the Internet has really narrowed the distance between people?

It just happens to be a matter of information exchange. The Order of the Phoenix always receives news after the Death Eaters. The Battle of the Ministry of Magic is an example.

The new immigrants thought they were picking up a dinner plate, but in fact what fell was a millstone. The loan to buy a house was for the school district. The first thing the loan company did when it found out there was an overdue property was to auction the property. The children could not even read, let alone

A good school.

If you accept a gamble, you must admit defeat. You can jump off a building if you lose money, but you can't cheat. The Pacific Ocean is not covered, so jump there. Go back where you came from. Just treat it as paying tuition and taught yourself the most vivid lesson. Dreaming is always a dream.

, Excessive packaging will deceive people’s perception. No matter how beautiful the cake is, you will never be able to eat it, and looking at it will not fill your stomach.
Chapter completed!