The financial crisis in the United States began to gradually ferment from "subprime debt". How did it spread step by step?

Exhausted! ! ! ! ! !

In the United States, loans are a very common phenomenon, from houses to cars, from credit cards to phone bills, loans are everywhere. Locals rarely buy a house with full payment, and usually take out a long-term loan. But we

also know that unemployment and re-employment are very common here. How can these people with unstable or even no income buy a house? Because their credit rating does not meet the standards, they are defined as subprime borrowers.

Starting about 10 years ago, at that time, advertisements from loan companies appeared on TV, in newspapers, on the streets, or filled your mailbox with tempting flyers:

"Do you want to live a middle-class life? Buy a house!"

"Don't have enough savings? Get a loan!"

"Have no income? Find Aniu Loan Company !”

“Can’t afford the down payment?”

“Worry about the high interest rate?”

"Still can't afford to pay every month? It doesn't matter. You only need to pay interest in the first 24 months, and the principal of the loan can be paid after two years! Think about it, you will definitely have found a job or been hired in two years. I’ve been promoted to manager, but I’m afraid I won’t be able to pay it back!”

“Are you worried that you won’t be able to pay it back after two years? The house has increased much more than it did two years ago. If you sell it to someone else, not only will you live in it for two years, but you may also make a fortune. Besides, you won’t have to pay for it. I believe you can do it, but I dare to borrow money, but you don’t dare to borrow it?”

Under such temptation, countless American citizens have chosen to take out loans to buy houses without hesitation. (Are you worried about their debt in two years? American citizens who have always felt good about themselves will tell you that anyone who acts in movies can become governor. Maybe I can run for president in two years. . )

Aniu Loan Company has achieved amazing results in just a few months, but the money has been loaned out, can it be recovered? The chairman of the company, Mr. Aniu, is also a person who is familiar with the economic history of the United States. It is impossible not to know that the real estate market also has risks, so it seems that this income cannot be taken alone. He needs to find someone. Only partners share the risk. So A Niu found the leading brother in the American economic community - investment bank. These guys are all bosses with famous names (Merrill Lynch, Goldman Sachs, Morgan). What do they do every day? Even if I am full, I am still idle, so I hired Nobel economists and Harvard professors, used the latest economic data models, and after some tinkering, I came up with several analysis reports. , so as to evaluate whether a certain stock is worth buying, and the stock market in a certain country is already a bubble.

A group of people who are cheating and drinking in the risk assessment market, you say they see this Is there any risk? You can even see it with your feet! But there is profit, so why are you hesitating? Let’s take over! So economists

and university professors used data models and other methods to evaluate, then repackaged it and came up with a new product - CDO

(Note: Collateralized Debt

Obligation, to put it bluntly, it is a bond. By issuing and selling this CDO bond, the bond holders can share the risk of the home loan.

If you just sell it like this, the risk is too high and no one will buy it. Assume that the original bond risk level is 6, which is medium to high. So the investment bank divided it into two parts: senior CDO and ordinary CDO. When a debt crisis occurs, senior CDO has the priority to pay compensation.

In this way, the risk levels of the two parts become 4 and 8 respectively. The total risk remains unchanged, but the former is a medium-low risk bond. With the investment bank's "gold" tongue, of course it was sold. A full house! But what about the remaining high-risk bonds with risk level 8?

So the investment bank found a hedge fund. Who is a hedge fund? They are the ones who buy short and sell long, and have the power to influence the financial world around the world. They live a life of licking blood from the edge of a knife. /p>

It’s a small risk! So relying on old relationships, we borrowed money from banks with the lowest interest rates around the world, and then bought these ordinary CDO bonds in large quantities. Before 2006, the Bank of Japan loan interest rate was only 1.5%

% ; Ordinary CDO interest rates may reach

12%, so hedge funds can make a lot of money just by relying on the interest difference.

As a result, something wonderful happened. At the end of 2001, real estate in the United States soared, more than doubling in just a few years. This was just like the advertisement at the beginning of Aniu Loan Company.

In this way, there will be no problem of being unable to repay the house payment. Even if you have no money to pay back, you can still make a fortune by selling the house. The result is that everyone from the people who took out loans to buy houses, to Aniu Loan Company, to major investment banks, to various banks, to hedge funds are making money, but the investment banks are not very happy! At first, I thought that the risks of ordinary CDOs were too high, so I threw them to hedge funds. I didn't expect that these guys made more than me, and their net worth rose rapidly. I knew I would keep it for fun, so Investment banks have also begun to buy hedge funds, hoping to get a piece of the pie. It's like "Old Hei" had some sour food at home. He happened to see the annoying little flowery dog ??next door. He originally planned to poison it, but he didn't expect that the little flowery dog ??would not only be okay after eating it, but would also be poisoned. As he grew stronger and stronger, "Old Hei" was confused. Could it be that sour food was more nutritious, so he started to eat it too!

This time the hedge funds are extremely happy again. Who are they? They have 1 yuan in hand and can find a way to borrow 10 yuan for fun. Now they are paying back the much-sought-after CDO. Can you be honest? So they

mortgaged their CDO bonds to banks in exchange for 10 times the loan, and then continued to chase investment banks to buy ordinary CDOs. Hey, we signed the agreement, and these CDOs belong to us! ! ! The investment banks are unhappy

In addition to continuing to buy hedge funds, they have come up with a new product called CDS

(Note: Credit Default

Swap, Credit Default Swap) Well, Wall Street is the hotbed of these genius products: Don’t everyone think that the original CDO is high risk, then I will insure it and take out part of the money from the CDO every year

As a deposit, it is given to the insurance company for free, but if there is a risk in the future, everyone will bear it together.

Insurance companies think, that’s good. CDOs are making so much money now, and they share the profits without paying even a penny. Isn’t this giving us free money every year? Done!

Hedge funds think, not bad, they have been making money for a few years, and the risks will become bigger and bigger in the future. Just share a part of the profits, and insurance companies will bear half of the risks, so do it!

So everyone was happy again, and CDS became popular! But things are not over yet: because the "smart" Wall Streeters have come up with innovative products based on CDS! Let's assume that CDS has brought us

5 billion yuan in income. Now I have launched a new "Sanmao" fund. This fund is specifically invested in buying CDS. Obviously, the risk of this fund based on a series of previous products is very high

But I invested the 5 billion yuan I had earned before as a margin. If this fund suffers a loss, then use this first 5 billion yuan is advanced. Only when the 5 billion yuan is lost, the principal of your investment will start to lose. Before that, you can redeem it in advance, and the initial offering size is 50 billion yuan.

Oh my god, is there any fund more exciting than this? If you buy a fund with a face value of 1 yuan, you will not lose your own money even if it loses 0.90 yuan, but every penny you make will be yours! When the rating agencies saw this genius idea, they did not hesitate: give it a AAA rating!

As a result, this "three cents" sold like crazy. Various pension funds, education funds, financial products, and even banks from other countries also bought it. Although the scale of the initial offering was originally 50 billion yuan, it is impossible to estimate how many billions will be subsequently issued, but the deposit of 5 billion yuan has not changed. If the current scale is 500 billion yuan, then the margin can only guarantee that you will not lose money when the net value of the fund is not less than 0.99 yuan.

When the time came to the end of 2006, American real estate, which had been prosperous for five years, finally fell from its peak, and the food chain finally began to break. Due to falling house prices, preferential loans

After the time limit for interest rates expired, ordinary people were first unable to repay their loans, then Aniu Loan Company collapsed, and hedge funds suffered heavy losses, which in turn affected insurance companies and the banks that provided the loans, including Citigroup and Morgan. Huge loss reports were released one after another. At the same time, major investment banks that invested in hedge funds also suffered losses. Then the stock market plummeted, people generally lost money, and the number of people who were unable to repay their mortgages continued to increase... In the end, the subprime mortgage crisis in the United States

The machine exploded.

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One thing that should be clarified is that not all hedge funds use large doses of leverage. In fact, most hedge funds use little or no leverage. A major category of hedge funds

So-called market-neutral hedge funds generally short and long stocks at the same time strictly in a 1:1 ratio, and their volatility is much smaller than the stock market itself. The funds I manage also strictly control net risk exposure, and the volatility is significantly lower than the stock market itself. Hedge funds that use a lot of leverage are concentrated in credit hedge funds. The long-range capital company that had an accident 10 years ago is a typical example. Their leverage ratio reached hundreds of times, and they controlled hundreds of billions of dollars in assets on a scale of billions of dollars. Their craziness was far greater than that of Bears

Stearns.

The appetite of American bankers can never be satisfied. When the real estate mortgage loan resources for most ordinary people have been exhausted,

they have set their sights on some that are simply unqualified. people. These are the 6 million poor or newly arrived immigrants in the United States who are poor or have bad credit.

The mortgage loan market in the United States can be roughly divided into three levels: the prime loan market (Prime Market), the “ALT-A” loan market, and the subprime loan market (Subprime

Market). The high-quality loan market is aimed at high-quality customers with high credit ratings (credit scores above 660), stable and reliable income, and reasonable debt burdens. These people mainly choose the most traditional 30-year or 15-year fixed-rate mortgages. loan. The subprime market refers to people with credit scores below 620, missing proof of income, and heavy debts. The "ALT-A" loan market is a huge gray area between the two. It includes both the mainstream class with credit scores between 620 and 660. It also includes a considerable number of high-credit customers with scores higher than 660.

The total size of the secondary market is approximately US$1.3 trillion.

Nearly half of the people do not have fixed income certificates, and the total loan amount of these people is between 5,000 and 6,000. between billions of dollars. Obviously, this is a high-risk market with high returns, and its mortgage interest rates are approximately 2-3% higher than the benchmark interest rate.

Loan companies in the subprime market are more "innovative" and they boldly launch a variety of new loan products.

The more famous ones are: no principal loan (Interest Only

Loan), 3-year adjustable rate loan (ARM, Adjustable Rate Mortgage), 5-year adjustable rate loan, and 7-year adjustable rate loan ,

Selective adjustable rate loans (Option

ARMs), etc. The common feature of these loans is that in the first few years of repayment, the monthly mortgage payments are low and fixed. After a certain period of time, the repayment pressure increases. There are two main reasons why these new products are so popular: First, people believe that real estate will always rise, at least within what they consider a "reasonable" period of time, as long as they can sell their house in a timely manner , the risk is "controllable"

; second, it is taken for granted that real estate will rise faster than the increase in interest burden. Especially suitable for short-term speculation - take action before interest rates increase.

The full name of "ALT-A" loan is "Alternative

A" loan, which generally refers to those who have a good or good credit record, but lack or no regular income. , deposits, assets and other legal certification documents. This type of loan is generally considered to be "safer" than subprime loans

and profitable. After all, the lender has no "record" of bad credit, and its interest rate is generally 1 to 2 higher than that of high-quality loan products.

Are “ALT-A” loans really safer than subprime loans?

That’s not the case. Since 2003, "ALT-A" lending institutions have lost their basic rationality in chasing high profits in the hot real estate bubble. Many lenders do not have normal proof of income at all. As long as they Just report a number, and these numbers are often exaggerated, so "ALT-A" loans are called "liar loans" by industry insiders.

Lending institutions have also vigorously launched various loan products with higher risks. For example, no-principal loan products are based on a 30-year Amortization

Schedule to amortize the monthly payment amount, but in the first year It can provide ultra-low interest rates of 1 to 3, and only pay interest, without repaying the principal, and then the interest will float according to the interest rate market starting from the second year.

Generally, it is also guaranteed that the annual monthly payment amount will not increase by more than 7.5 from the previous year.

Selective adjustable-rate loans allow borrowers to pay monthly payments that are even lower than normal interest, and the difference is automatically included in the principal part of the loan. This is called "Negative

Amortization". Therefore, the borrower will owe the bank more money after each monthly payment. The interest rate of this type of loan will also follow the market after a certain period.

Many "good credit" people who speculate in real estate in the short term believe that house prices will only rise in the short term, and they have no time to cash out. There are also many people with "average credit" who use this type of loans

The affordability of a house far exceeds one's actual ability to pay. Everyone holds the idea that as long as housing prices continue to rise, if there is a problem with their ability to repay debts, they can sell the house immediately to repay the loan

and still make a fortune, or make another loan. Loan (Re-

finance) takes out the increased value for emergencies and consumption. Even if the interest rate rises rapidly, there is still the last line of defense that the annual repayment increase must not exceed 7.5, so the risk is small. Why not invest with high potential returns

.

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According to statistics, in 2006, more than 40% of the total real estate mortgage loans in the United States were "ALT-

A" and subprime loan products, totaling more than 400 billion US dollars. The ratio is even higher. Since 2003, high-risk mortgage loans such as "ALT-A" and subprime loans have totaled more than $2 trillion

.

Currently, the delinquency rate for subprime loans that exceeds 60 days has exceeded 15, and is rapidly approaching the latest historical record of 20. 2.2 million subprime people will be kicked out by banks. The delinquency rate of "ALT-A" is around

3.7, but its rate has doubled in the past 14 months.

Mainstream economists have ignored the dangers of "ALT-A" because, until now, its delinquency rates have been less pronounced than those of the already smoldering subprime market, but its potential dangers Even bigger than

the secondary market. The reason is that two major timed BoBs are generally "buried" in the loan agreements of "ALT-A"!!! Once the mortgage loan interest rate market continues to rise and housing prices continue to decline, it will automatically

Triggering the implosion of this market. In the Interest

Only loan mentioned earlier, when the interest rate changes with the market, the monthly payment increase will not exceed 7.5. This last line of defense gives many people an "illusive" sense of security. But there are two exceptions, and they are also two blockbuster BoB!!!, the first BoB!!! is called "Timed Reset"

(5 year/ 10 years

Recast). Every 5 or 10 years, the repayment amount of "ALT-A" lenders will be automatically reset, the lender will recalculate the monthly payment amount based on the new total loan amount, and the lender will find their monthly payment amount

The payment amount has increased significantly, which is called "Payment Shock" (Payment

Shock). Due to the role of Negative

Amortization, the total loan debt of many people is constantly rising. Their only hope is that real estate prices continue to rise before they can sell their houses to relieve themselves. Otherwise, they will lose their properties or vomit blood

Sale. The second BoB!!! is the "maximum loan limit". Of course, people can temporarily ignore the scheduled reset in a few years, but

"Negative Amortization"

One limitation is that the accumulated debt must not exceed 110 to 125 of the original loan total. Once this limit is reached, the loan reset is automatically triggered. This is a timed BoB that can kill people

!!! Due to the temptation of low interest rates and the advantage of less pressure to repay in the first year, most people choose the lowest possible monthly payment. For example, if you pay a normal interest of US$1,000 per month, you can choose to pay only US$500, and the interest difference of the other US$500 will be automatically included in the loan principal. This accumulation speed will make the lender Before reaching the 5-year reset loan BoB!!!, the "maximum loan limit" will be blown to pieces.

Since these loans are so dangerous, why doesn’t the Fed step in to take control?

Ge Lao did come forward, twice. The first time was in 2004. Mr. Ge felt that the institutions that provided loans and the people who bought houses were too timid because they did not particularly like high-risk adjustable rate loan products (Option

ARMs).

Gelao complained: "If lenders can provide more flexible options than traditional fixed-rate loan products, the American people will benefit greatly. For those who can and are willing to afford For consumers at risk from interest rate changes, traditional 30-year and 15-year fixed-rate loans may be too expensive. ”

So Fannie Mae, New Century, and As expected, ordinary home buyers have become increasingly bold, the situation has become increasingly outrageous, and housing prices have become increasingly crazier.

So, 17 months later, Gerard appeared at the Senate hearing again. This time, he frowned and said: "American consumers are using these new loan methods (referring to Option

It is a bad idea to use ARM, etc.) to shoulder the mortgage burden that they could not otherwise afford.

People may never really understand what Ge Lao thinks.

Yes, what Greg said is misleading. He said that if the American people can bear the interest rate risk and can control this risk, they may as well use high-risk loans. The implication is that if you don't have the ability, don't join in the fun. Maybe Greg really doesn’t know the “financial IQ” of the American people.

Subprime loan CDOs: Condensed asset junk

The total amount of junk assets in subprime mortgages and ALT-A loans is $2 trillion. These assets are junk It must be stripped off the balance sheet of the US banking system, otherwise there will be endless troubles

How to strip it off? It is through the asset securitization we often talk about. There is a famous saying on Wall Street, if you want to increase future cash flow, make it a security.

If you want to manage risk, make it a security. In fact, the essence of financial innovation is that as long as you can overdraft, you can find a way to realize it today. Americans speculate in everything, not only real estate, but also real estate bonds, and these bonds are leveraged, amplifying the risk hundreds of times.

That's why Bear Stearns' hyped real estate-backed securities suddenly became junk.

Originally, MBS bonds with subprime mortgages as collateral are easy to generate and difficult to sell, because large American investment institutions such as pension funds, insurance funds, and go-vern-ment funds The investment must meet certain investment conditions, that is, the invested product must reach the AAA rating of Moody's or S&P.

Subprime mortgage MBS obviously does not even have the minimum investment grade of BBB. In this way,

Many large investment institutions cannot buy it. However, the fact that formal institutions cannot buy it does not mean that no one will buy it. On the contrary, precisely because of its high risk, the return is relatively high.

Some Wall Street investment banks that engage in high risk - such as Goldman Sachs, etc. At a glance, I was attracted by the potential high return on investment of these asset-toxic garbage.

As a result, some investment banks began to intervene in this high-risk asset field.

Investment bankers first cut the "toxic junk" MBS bonds into different pieces (tranche) according to the probability of default.

This is the so-called CDO ( Collateralized Debt Obligations). Among them, the one with the lowest risk is called "Senior CDO" (approximately 80%), which are packaged by investment banks in exquisite gift boxes and tied with gold ribbons. The medium-risk CDOs (Mezzanine, accounting for about 10%) were also placed in gift boxes and tied with silver ribbons. The riskiest one is called "Common CDO" (Equity, accounting for about 10), which was placed in a gift box with a copper ribbon.

After being dressed up like this by Wall Street investment banks, the originally ugly assets The toxic waste immediately becomes shiny and radiant.

When the investment bankers knocked on the door of the asset rating company again with exquisite gift boxes in hand, even Moody's and S&P were dumbfounded. Silver-tongued investment banks talk a lot about how reliable and insured "high-end products" are.

They use data from recent years to prove the phenomenon of defaults on "high-end products" How low the ratio is, and then show the mathematical model designed by world-class mathematicians to prove that the probability of future default is also extremely low,

Even in the event of a default, it will be First, lose all the "ordinary products" and "mid-level products". Guarded by these two lines of defense, the "high-end products" are simply impregnable. Finally, let's talk about the form of real estate development.

How gratifying,

Mortgage lenders can "refinance" at any time to withdraw a large amount of cash, or they can easily sell a property and make a large profit. There are many real-life examples at your fingertips.

Moody's and S&P took a closer look at the past numbers and found no flaws. They repeatedly scrutinized the mathematical models representing future trends and found no flaws. Everyone knows how prosperous real estate is

Yes, of course,

With decades of experience in this industry and experience in many economic recessions, Moody’s understands the traps behind these fancy articles,

But we are also well aware of the interests involved. If the gift box seems "impeccable" on the surface, Moody's and S&P are happy to do favors. After all, everyone is involved in the financial world.

Moody's and S&P also rely on investment banking business. Only then can we have food to eat, and Moody's, S&P and others are also competing with each other. If you don't do what others do, others will do it. If you offend others, you will lose business. So Moody's, S&P's

with a stroke of a pen,

"Premium CDO" received the highest rating of AAA.

The investment banks left happily. To put it figuratively speaking, this process is similar to the unscrupulous traders collecting the waste oil dumped by McDonald's, and then through simple filtration and separation, "turning waste into treasure",

p>

Repackage and sell to restaurant owners for cooking or frying fried dough sticks.

After receiving the CDO rating, the investment banks who were the underwriters of toxic waste went to law firms non-stop to establish a "Special Purpose" (SPV, Special Purpose)

Legal Vehicle), this "entity" is registered in the Cayman Islands (Cayman Island) according to the rules to avoid government supervision and tax avoidance. Then,

this "entity" buys the assets and garbage And issue CDOs, so that investment banks can legally avoid "entity" risks. Who are these smart investment banks? They are:

Lehman Brothers, Bear Stearns, Merrill Lynch , Citigroup, Wachovia, Deutsche Bank, Bank of America (BOA) and other big-name investment banks.

Of course, investment banks never want to hold this toxic garbage for a long time. Their strategy is to cash out quickly. Promoting "high-end CDO" is naturally a piece of cake because of the highest AAA rating and the investment banker's sales talent. The buyers are all large investment funds and foreign investment institutions, including many retirement funds, insurance funds, education funds and various funds managed by government-vern-ment. But "mid-level CDO" and "ordinary CDO" are not so easy to sell. Although investment banks have tried their best, Moody's and S&P are unwilling to endorse these two types of "condensed toxic garbage". After all, there is a bottom line of "professional ethics."

How to peel off the hot "concentrated toxic waste"? Investment banks have painstakingly come up with a clever trick to set up a hedge fund!

The "asset toxic waste" production chain

Investment banks used part of their own money to set up independent hedge funds, and then "stripped" the "concentrated toxic waste" from their balance sheets to independent hedges

Funds,

Hedge funds purchased “condensed toxic garbage” CDO assets from investment banks that were “originally of the same origin” at a “high price”. This “high price” was recorded in the hedge fund’s assets as the "Enter Price" (Enter

Price). As a result, investment banks legally completed the work of drawing a line from "concentrated toxic waste".

Fortunately, the ultra-low interest rate financial environment created by the Federal Reserve since 2002 has fostered a wave of rapid credit expansion. Under such a good situation, real estate prices have doubled in five years

.

Subprime lenders had easy access to funds to keep their monthly payments. As a result, subprime loan delinquency rates were much lower than originally estimated.

High risk corresponds to high return. Since the high risk did not appear as expected, the high return immediately attracted people's attention. Compared with other securities markets, the trading volume of the CDO market is much deserted.

"Poison "Junk" rarely changes hands on the market, so there isn't any reliable price information to go by. In this case, regulatory authorities allow hedge funds to use internal mathematical model calculations as asset evaluation standards. For hedge funds, this is great news. After each company's own "calculation", a return rate of 20% is embarrassing to say, 30% is difficult to boast to other funds, and 50% is difficult to achieve. Ranking list, 100 may not necessarily have a popularity rate.

For a time, hedge funds that owned “condensed asset toxic garbage” CDOs became popular on Wall Street.

Investment banks are also overjoyed. Unexpectedly, hedge funds holding large amounts of "concentrated toxic garbage" have become hot commodities. Due to the eye-catching returns, more and more investors are requesting

to join hedge funds.

With the influx of large amounts of money, hedge funds have turned out to be money-making machines for investment banks.