Author: September Sauce

"How cruel!"

In the office, Chen Guo said with a sad face.

Just two days ago, he was discussing with Chen Nian that the biggest difficulty in construction machinery projects is not technology, funds and resources, but the market.

As a result, now, the opponent has given us a heavy blow!

Direct price reduction of 20%!

What is this concept?

For many projects that require the use of large machinery, if this 20% cost can be saved, the profitability of the entire project may turn from negative to positive.

And, this is the impact on the desktop.

Under the table, the person in charge of the project is likely to receive millions or even tens of millions of personal benefits due to such a large price reduction.

Under this huge temptation, the direction of the entire market will undergo irreversible changes.

How easy is it to fight against it?

Even if the plan mentioned by Chen Nian can really be realized and the product's technology is 10 years ahead of similar products, it may not be able to recover from this disadvantage.

Unless, while leading the technology by 10 years, the price will be lower than theirs.

This is pure idiotic talk.

Looking at Chen Guo with a bitter face, Chen Nian sitting opposite could not help but feel a little anxious.

A long time ago, he had thought about the "butterfly effect".

He knew that with his arrival, the situation in this world would definitely change and the balance between the various forces would be broken, but he did not expect that the impact would be so great.

The economic suppression was actually more than 10 years in advance.

Of course, the measures used by the other party are not extreme. The so-called price dumping relies more on the inherent attributes of the market rather than administrative power.

But it can be seen that the other party's assessment of its own threats has actually developed by leaps and bounds.

It is very likely that in the short term in the future, their methods will be further upgraded and reach their peak quickly.

And is our side really capable of responding to them equally?

impossible.

Even 10 years from now, our equivalent means will be extremely limited, let alone now.

Now, the U.S. economy has not yet completely entered the hollowing-out stage, the first financial crisis after the 21st century has not yet arrived, and the mud of the Middle East quagmire has just reached their feet.

It can be said that the current United States is in its strongest form since the 21st century.

How easy is it to use our own undeveloped strength to collide with their strongest form?

This crisis is really beyond my ability to solve.

After thinking for a moment, Chen Nian said:

"If that doesn't work, can we raise tariffs equally and limit each other's import prices?"

"No, this goes against our commitment to join the WTO."

"Of course, in fact, they were the first to break their promises, but the problem is that other Western countries and other partners don't care about this."

"What they can see is that we are practicing trade protectionism and raising tariffs arbitrarily."

"Once such an impression is solidified, it will have an even greater impact on us."

After pausing for a few seconds, Chen Guo continued:

"One more important thing is that we are about to enter 2006, and 2008 is the Olympic Games."

"This is a critical window period. We cannot make any big diplomatic moves at this juncture."

"I think you understand what I mean."

"In many cases, this is a last resort."

Chen Nian nodded helplessly, he had nothing to say about this matter.

However, mentioning 2008

Chen Nian's heart suddenly moved.

Although the butterfly effect has occurred, it is impossible for the storm to really sweep across all corners of the world.

At least, the causes of the financial crisis in 2008 should not have been affected.

——

No, it's even possible that it will get stronger.

The reason is very simple. In the series of early confrontations, the United States lost a large amount of funds and foreign exchange. In the original soybean battle alone, the positions lost by major investment institutions reached hundreds of billions.

Not to mention the subsequent impact that the birth of the J-22 and J-20B had on several airlines, as well as the subsequent chain effects.

In a word, in the current U.S. capital market, they are short of money.

So since we are short of money, where can we get the money fastest?

real estate.

CDS.

The so-called CDS, its official name is credit default swap, is essentially a financial instrument for leveraged investment.

A very simple example, suppose that a residential house sells for $100,000, but the customer only has $5,000 on hand. However, in order to quickly withdraw funds, the real estate company decides to sell the house to the customer. What should it do?

It's very simple. Guide residents to get loans of US$100,000.

But the problem is that with a "down payment" of US$5,000, the loan's leverage is as high as 20 times. No bank dares to do such a high-risk business, and the plan cannot be implemented at all.

At this time, things took a strange turn.

The customer wants to buy a house, the real estate company wants to sell the house, and the bank wants to earn interest, but because of the element of "risk", this seemingly "tripartite mutually beneficial" transaction cannot be concluded.

I have to say that this is definitely a major loss.

So, how to make up for this loss?

At this time, a genius in the banking system stepped forward.

He suggested that a third-party institution could be found as a guarantee for the transaction.

The bank pays the institution an insurance premium of US$500 every year, and the institution pays the bank the full amount of funds when a default occurs.

If there is no default, the money belongs to the institution.

In this way, the bank's risks are transferred, and the transactions between real estate companies and customers can continue.

Upon hearing this proposal, the insurance company immediately made an actuarial calculation.

Subsequently, they discovered that the current default rate in the entire real estate market is extremely low, even less than 1%.

In other words, there is only a 1% chance that the insurance premiums they receive will require breach of contract compensation.

As long as their comprehensive insurance rate is greater than 1%, this business will be done.

So, naturally, the deal was done.

Everyone is happy and everyone gets what they want.

If things end like this, then the positive effects of CDS will undoubtedly far outweigh the negative effects.

However, capital is greedy, and it will never stop here.

After seeing how insurance companies effortlessly made huge profits, third-party investment companies became interested.

They have to get a piece of the pie.

So, they found the insurance company and obtained the ownership of the CDS by paying the full amount in one lump sum.

With this precedent set, investment banks including JPMorgan Chase and Lehman Brothers suddenly came to their senses.

Isn’t this a debt transaction?

Since it is a debt transaction, then go to the exchange!

As a result, CDS products were launched.

Its price is being speculated higher and higher, just like a stock, squeezing out the last bit of potential of the original contract.

The only support for its existence is the ever-rising room.

Because, as house prices rise, the value of the original contract will also rise.

——

But can house prices really keep rising?

Obviously not.

Most of these CDS trading contracts that have driven up housing prices actually come from subprime loans, that is to say, loans specifically provided to people with low education levels, low financial capabilities, or who have already had a record of default.
To be continued...