Harry Potter Morning Light.

Chapter 545 MBS&MBs
In the South Sea Bubble, the British government was the one who issued the bonds. The purpose was to reduce the interest rate to reduce the financial burden caused by the national debt.

Those who play hedge funds are Wall Street elites with high IQs, and those who can’t pay off their mortgages are those with low education, can’t find a good job, and want to live at the bottom of the life of the rich, such as plumbers. There will be no intersection, unless the water pipe in the Wall Street elite's house is broken and someone needs to repair it, but the financial crisis has made their lives intersect.

In 2000, the development of the Internet was too fast, too amazing, 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.Taking this as a trigger, the Internet bubble in the U.S. stock market burst, and the U.S. economy began to weaken. The Federal Reserve boosted the economy in order to reduce the unemployment rate.

The South Sea bubble was caused by the fact that the South Sea Company and stockholders who bought shares did not know that Britain had no actual control over South America. It was caused by poor information. 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.It is customary for them to go to the US Federal Reserve to buy short-term Treasury bonds, which are considered the safest investment.But because of the dot-com bust and 911/1, the chairman of the US Federal Reserve lowered interest rates to 1 percentage point to keep the economy growing.Investors say a [-] percent return is too low.

But put another way, it means banks can borrow from the Fed at 1%, plus trade surpluses are pouring in from Japan, China and the Middle East.So there are plenty of low-interest loans that make bank borrowing a breeze.

So they use "leverage" like crazy.

Leverage can make investment income huge, and it can also make investment losses huge. Compared with insurance companies and financial institutions, people who play hedge funds are much more likely to gamble.They give funds to investment banks. Investment banking 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. There are GM and so on. It is impossible for these famous companies to go bankrupt.

MBS is mortgaged by mortgages, or in other words, mortgaged by real houses; CDOs are mortgaged by the cash flow paid by the mortgage interest, and the house is not his mortgage. These investment banks sell CDOs to hedge fund managers and insurance companies , there are not only mortgages in CDOs, but the key point is that buyers and sellers in the CDO market are far away from participants in the real estate market. This distance is not the actual distance. The plumber who borrowed the mortgage may have even gone to the elite’s house to repair the plumbing. Wall Street elites don't even look at the "loser". He may be busy on the phone, he may be making out with his beautiful wife, but he won't spend a second on the plumber.

After the Great Depression, the Roosevelt administration promulgated a bill called "Glass Steagall", which established the global financial regulatory system for more than half a century.The most famous one is that the business of commercial banks and the securities business should be strictly separated and operated separately.Those who engage in savings and lending cannot engage in securities underwriting.So under this pressure, the Morgan consortium split its business into two, with Morgan Stanley serving as an investment bank and JP Morgan serving as a commercial bank.

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

Now the commercial bank JP Morgan holds a handful of loan contracts in its hands, and the loan contracts cannot be liquidated.In order to improve liquidity, these subprime loans need to be packaged and packaged, so MBS was born.When you go to the bank, you cannot buy other people's loan contracts, but only the bank's financial products. MBS can be considered as a financial product.Banks package and combine these loan contracts into MBS, and then split them into three levels for sale, priority, sub-prime, and sub-prime.Every time the loan is recovered, the priority income is guaranteed first, and the sub-prime level is satisfied after the priority income 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 the greatest risk.

Subprime mortgage loans are characterized by high risks, high risk premiums, and higher returns than ordinary bonds.When hedge fund managers buy CDOs from Morgan Stanley, they will buy high-yield ones. Their capital flow is large, but they are not as good as insurance companies. Insurance companies choose low-risk, low-yield CDOs, like three small waterfalls. Work, when the funds are withdrawn, the top box is filled first, then flows to the middle box, and the rest is filled to the bottom.The funds come from the mortgage repaid by the homeowner. If someone defaults on the loan, there will be less funds to return, and the bottom box will not be full.

How can hedge fund managers be so stupid?If he was really stupid, he wouldn't be able to play hedge funds. Speculation is about fast in and fast out, and he doesn't know how to hold in the medium and long term. Whoever takes over last will be unlucky, but as long as he is not the last one, the profits are considerable.

In addition to commercial banks, there are also specialized mortgage companies in the United States. They not only do mortgage business, but also real estate intermediaries. You can buy or sell a house through them. The loan company packages all the subprime loans and integrates some high-level assets and intermediate assets. ABS including MBS is formed. The underlying collateral of ABS is various, ranging from bank loans, leases, car loans, credit card loans, etc. Investment banks buy the bonds of loan companies. To stop, everything is fine when the economy is booming.

Since 2004, real estate developers and the U.S. government have slowly discovered that the new immigrants are not all rich. On the contrary, there are many poor people with poor qualifications, especially after the laundering of refugees and smugglers in the underground market. , into the ranks of new immigrants.

At this time, the native citizens of the United States have almost owned their own houses, and they are completely unable to consume the excess capacity of the real estate market.

As a result, 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 the beginning, the lending company was reluctant, but housing prices have been rising. Banks earn intermediate fees, management fees and interest rate differences. Rich investors get stable investment income, and poor people buy houses with loans.Occasionally, a few people do not repay the loan, because the house price has been rising, the bank will take the house back for auction, and the bank feels that there is no risk.As a result, commercial banks and loan companies have become more and more daring, and have been declining, so anyone can get a loan to buy a house.In the past, the down payment was 30%, and income proof was required, but now the down payment is 5% or even 0, and you can get a loan by standing on the street and taking a photo.The house bought with a loan can also be used as a mortgage to refinance to buy a second house. MBS products have always sold well, and banks have further developed MBS-based CDOs, and the real estate bubble has arisen under the background of excess liquidity.

The premise of all this is the low interest rate of the Federal Reserve. Once the interest rate increases, speculators can no longer get low-interest loans, and cannot earn the interest difference, which will cause deflation. One or two points of interest are not enough for small funds. What’s the deal, two or three extra dollars for $100 is not enough for a cup of Starbucks, but if the capital pool is large enough, even a 1-point increase in interest is a huge amount of money, speculative hedge fund managers are the first to run, But the investment bank will not let him run so easily, there are so many safe-haven currencies.

According to the law of the United States, the loan company's mortgage payment has no right of recourse.It means that if the borrower is unable to repay the mortgage, the loan company has no right to confiscate other properties other than the mortgaged property. Americans are still very open-minded about house ownership. It is different for Chinese people. Buy it, and if you lose money, you have to return the house to the real estate developer. Investment is risky, how can you only make money without losing money?

The subprime mortgage crisis was caused by the ineffective supervision of the real estate financial industry by the federal financial regulator. If it were face-to-face, the hedge fund manager would never lend money to the plumber, let him invest in buying a house, and charge meager interest. The manager would also give the money The income of customers he takes care of.

But in the subprime mortgage crisis, this wonderful thing happened.

So the Internet has really shortened the distance between people?
It also happened to be a problem of information exchange. The Order of the Phoenix always received news behind the Death Eaters. The Battle of the Ministry of Magic was an example.

The new immigrant thought that picking up a dish was a dinner plate, but what fell off was a millstone. The loan to buy a house is for the school district. The first thing the loan company finds out is that the property is overdue. The property is auctioned. The child can’t even read books, let alone Good school too.

If you admit your bet, you must admit defeat. If you lose money and go bankrupt, you can jump off the building. You can’t act foolishly. The Pacific Ocean is not covered. Just jump to where you came from. Just pay your tuition and teach yourself the most vivid lesson. Dreaming is always a dream. , Excessive packaging will deceive people's cognition, no matter how beautiful the cake is, you will never eat it, and it will not fill your stomach if you look at it.

(End of this chapter)