Manhattan Reborn 1978

Central and eastern United States.

Glendale Township, Kentucky.

afternoon.

Bob Rockefeller, who came all the way from New York to conduct an in-depth inspection and research on a fructose syrup manufacturer in the town, walked out of the best restaurant in the town with his briefcase full of gains. Got into the car and got ready to rush to the next stop!

Terre Haute, Indiana, just north of Kentucky.

. . .

on the way.

While holding the steering wheel, Bob was thinking about the operating conditions of several fructose syrup manufacturers he visited in recent days after coming out of New York.

Fructose syrup is not a new thing. After the production process has been greatly upgraded, it seems that as David said, it is a good business with huge returns.

Not only is its sweetness almost the same as traditional sucrose at room temperature, but its sweetness can also increase slightly under low temperature conditions. .

Moreover, it can effectively prevent the juice from flowing out of the fruit in canned fruits, thereby maintaining the flavor of the fruit; it also has good heat preservation properties, allowing sandwich foods or cake-like desserts to maintain their softness and texture for a longer period of time. .

Therefore, if it can pass the safety review of the FDA (Food and Drug Administration), it will completely change the monopoly situation of the existing sucrose industry chain.

but!

That's right!

Bob soon thought of the question that he had been wondering and puzzling about in the past few days.

Now that the industrial production technology for fructose syrup production has been upgraded, the output, cost and quality have all surpassed the traditional food additive, sucrose!

But the major domestic food companies and beverage manufacturers seem to turn a blind eye to it?

----

Feeling that he couldn't figure it out, Bob slowly drove the car towards New Albany, Indiana.

When he parked his car to refuel at a gas station, two young men in very "eye-catching" clothes walked out of the gas station shop.

Bob was holding an oil gun in his hand, and his eyes kept following the figures of the two young men.

In the end, he turned off the oil gun directly, and still felt a little "unbelievable" as he watched the car carrying the two young men disappear into the distance~

Could it be that I saw it wrong? ?

"No!"

Bob patted his forehead several times with his hand to make sure that it was not his eyesight or that he was dreaming.

He hung up the oil gun again, took out a few coins from his pocket, quickly walked to the gas station's public phone, picked up the phone and made a call.

----

new York.

Wildfire Bar, 42nd Street, Manhattan.

David stood at the bar, put down the phone, frowned and thought for a while, then slowly walked back to a table by the wall and sat down, and said to Malkin Sr. and Meyer Lansky.

"Sorry! Where did we just talk?"

Old Malkin glanced at his old friend with a smile and replied: "Why would banks be willing to buy liquid assets (LiquidAsset) such as treasury bonds, corporate bonds or MBS, as..."

"Oh~ yes!"

David picked up the cup in front of him, reorganized the relevant knowledge points in his mind, and said.

"The main businesses of domestic small and medium-sized banks can be roughly divided into several major categories such as regional, industry and exclusive based on the characteristics of customers' business needs~"

"Regional, we have skipped it~each region has its own city bank."

"Industry refers to those small and medium-sized banks that specialize in housing mortgage loans for low- and middle-income people, etc.~"

"Exclusiveness generally refers to small and medium-sized banks that serve a certain group or industry in a specific area."

"For example: In California's Silicon Valley, many small and medium-sized banks have been established in recent years that specialize in providing financing, loans, deposits and other financial services to high-tech companies."

David picked up the Coke bottle in front of him, took a big sip, and continued.

"The banks we are familiar with can be roughly divided into... in terms of profit methods."

"Most of the funds that banks can use for investment come from savers' deposits or funds retained in various companies' bank accounts."

“The bank’s own funds are not very large~”

"In the final analysis, it is an intermediary service provider in the financial system that serves customers."

“As financial service institutions with huge capital pools, banks, like insurance companies, definitely need government supervision in terms of investment.”

"They have absorbed a large amount of deposits from depositors, so they must pay corresponding interest as agreed."

“The greater the number of deposits in a bank, the greater the total debt~”

"Banks must find more profitable ways and means within the scope of federal government supervision."

"Corporate bonds, national bonds, and MBS (home loan-backed securities), which have just been recognized by the market, have naturally become the first choice for banks to obtain low-risk returns!"

"So, before the federal government has completely relaxed its control over small and medium-sized commercial banks~"

“Small and medium-sized commercial banks with a large number + generally small scale + weak profitability + weak ability to resist risks have always been areas where major economic cases frequently occur~”

"If they cannot proactively improve their lending risk management and control capabilities, strengthen their internal organizational structure and personnel management, actively expand new businesses that adapt to the development of the times, and change themselves to better meet customer needs..."

"They will all be destined to be eliminated by the times!"

David stared at old Malkin and gave his advice carefully~

"Generally speaking, the main business of small and medium-sized banks is still deposits and loans + an appropriate increase in intermediary business."

"If you want to add more profitable businesses, judging from the current development of the domestic economic environment, short- and medium-term corporate bonds issued by large companies with good operating conditions and stable earnings are very good low-risk investments."

"Don't touch long-term treasury bonds and MBS for the time being!"

"..Why?"

"Didn't you just say..."

"Yes!"

David clenched his hands into fists, rested his elbows on the table, and nodded slowly: "As I just said, the conventional way for a bank to make money, in the simplest terms, is investing and lending."

"You will definitely know the specific conditions and risks of the loan business better than I do~"

"Banks will not and cannot lend out all the money and earn high returns~"

“Therefore, investing in low-risk + low-yield bonds is an investment strategy currently adopted by all domestic banks to balance risks and returns~”

"but!"

"Whether you're lending money or investing in bonds, they're going to be deeply affected by interest rate adjustments."

"InterestRate is an extremely complex and important research object in economics."

"The rise and fall of interest rates, to put it more generally, will directly affect inflation, exchange rates, bond, commodity prices, and even real estate price trends, etc."

"For more than a year, the Federal Reserve has intended to control inflation through continuous interest rate hikes, which means it is using interest rates to influence the future direction of the economic market and give people more confidence."

"However, judging from the current situation, a little bit of moderate interest rate hikes have not been able to curb the rising inflation. Instead, those enterprises and companies in the growth stage are facing a crisis due to the rise in loan costs and bond issuance costs. The risk of the capital chain breaking."

David glanced at the empty Coke bottle, turned to the little Zach at the bar, snapped his fingers, and asked for another bottle of Coke.

The little Zach grabbed a few bottles of Coke directly from Old Red's hand, ran to David's side with quick hands and feet, and said with a smile.

"Boss, your Coke!"

"Thanks, buddy!"

"Hehe~"

The little Zach nodded cheerfully and turned back to the bar without stopping too much.

Old Malkin, who was trying to digest the "new knowledge", pushed away the wine glass in front of him, reached out to David for a bottle of Coke, took a big sip, exhaled a long breath, and asked.

"You just said you wanted to buy short-term bonds of large companies? Why?"

"Uh! Oh~"

After David raised his neck and drank half the bottle of Coke, he burped and smiled at Old Malkin.

"It's very simple, it's because the Federal Reserve keeps adjusting interest rates!"

"...What do you mean?"

"Forehead.."

"Let me think about it, how should I explain it to you?"

David glanced at Meyer Lansky who was smiling and "watching the show", and after thinking for a moment, he explained.

"I will help you sort out the important knowledge points from the beginning according to my own ideas."

"I just mentioned a word, LiquidAsset!"

"Liquid assets, before the Great Depression in the 30s, basically represented assets with good liquidity such as short-term Treasury bills, corporate stocks, bonds and credit businesses."

"But in 1929, when everyone invested their money in the stock market and an unprecedented stock market bubble formed, the risks of these liquid assets became higher and higher as the bubble grew!"

"In the end, the bubble burst, risks exploded, banks collapsed, and savers' deposits were reduced to nothing."

"So in 1933, the U.S. government established an independent financial institution, the Federal Deposit Insurance Corporation (Federal Deposit Insurance Corporation) headquartered in Washington, referred to as fdic!"

"Effective January 1934, 1, the FDI has implemented a deposit insurance system with statutory limits for all member banks of the Federal Reserve System, as well as state banks that apply to participate in Federal Reserve insurance and meet the conditions."

“The company’s funds come from insurance premiums paid annually by investment banks based on 1/3000 of its total deposits, as well as interest earned from government bond investments, and it has the right to borrow no more than 30 billion yuan from the Ministry of Finance at any time. funds."

"The FDIC's primary responsibility is to insure deposits held by banks and thrifts."

"As an independent insurance institution, it must continuously assess and effectively manage the impact of changes in the economy, financial markets and banking system on the adequacy and volatility of the deposit insurance fund."

"In the simplest terms, it is to supervise the operating conditions of banks and protect the legitimate rights and interests of ordinary depositors."

"So, the FDIC is the primary regulator of banks that are chartered by states and are not members of the Federal Reserve System."

"In addition, another important mission of the FDIC is to protect depositors of insured banks and thrift institutions."

"It will provide deposit insurance with a certain upper limit for most accounts. For some retirement accounts, this upper limit will be increased depending on the situation."

"And once a bank that has paid premiums with the FDIC is on the verge of bankruptcy, it becomes the receiver responsible for dealing with the failed bank or thrift institution."

“The FDIC collects information about the problem institution, assesses the potential losses to insurance funds caused by different solutions, evaluates offers from potential acquirers, and submits the lowest-cost solution to the FDIC Board of Directors for approval.”

"It has several options for dealing with failing banks~"

“The most commonly used method is to sell the deposits and loans of a failed bank to another bank or financial institution.”

"A customer of a failed bank also automatically becomes a customer of another bank or financial institution."

"So most of the time, from a customer's perspective, the switch doesn't have a big impact on them."

. . .

David paused, twirling the Coke bottle in his hand, and asked Old Malkin.

"The small bank you mentioned, bought for [-] yuan, should have been resold after passing the FDIC takeover, evaluation, accounting and other procedures."

"Understood!"

Old Malkin reached into his pocket and felt empty. .

Meyer Lansky, who was beside him, smiled and threw a cigarette to David, and said to David: "You continue!"

"Ok!"

David smiled as he leaned back and avoided the oncoming smoke.

"I like to think about the worst-case outcomes and be mentally prepared before making big decisions."

"So I was mentally prepared for the dire situation of this small bank."

"I have just said that the money we invest in the bank will be included in the bank's asset list."

"If there are excessive loan defaults, dead or bad debts, malicious runs, or major investment mistakes, leading to insolvency, our banks will fall into bankruptcy crisis."

"Let's put aside the loan business~"

"Simply say that the bank lost money because of investment mistakes made by the bank management; or some people broke negative news in the media, which caused a crazy run by depositors, causing the bank to quickly go bankrupt."

"There are too many examples of this in history!"

"Therefore, most small and medium-sized banks will control the proportion of low-risk liquid assets invested at least around 35% to 50% to prevent runs."

"And now among the circulating assets, the only option is bonds."

"The long-term Treasury bond futures contract launched by the Chicago Exchange in 74 marked a revolution in the futures market!"

“But the negative correlation between long-term government bonds and interest rates is not well known to the public~”

“Rising interest rates are a huge negative signal for the bond market!”

"On Wall Street, those who specialize in studying mathematical models of arbitrage in the bond market are interested in the relationship between the value of bond convexity and interest rate fluctuations, the impact of bond convexity on the interest rate curve, the relationship between Macaulay duration and bond prices, and the relationship between bond convexity and bond prices. The relationship between sex and Macaulay duration..."

"Forehead.."

David looked at the old Malkin and Meyer Lansky who were in a "confused" state, and couldn't help laughing and scratching his head.

"Feel sorry!"

"The convexity I just mentioned refers to the change in duration caused by a 1% change in bond yield~"

"Convexity is generally used to measure the curvature of the price-return curve."

"And duration means..."

"stop!"

"Speak in human language that we can understand!" Old Malkin waved his hand, interrupting David's explanation. .

David was speechless for a few seconds, watching the expressions of the two old men slowly getting worse, he smiled bitterly and shook his head.

"Okay~"

"I'll try to explain it in the most straightforward terms."

"In order to ensure that banks do not encounter a run, they will allocate part of the deposits deposited by depositors to purchase low-risk circulating assets, that is, to buy bonds."

"And bond returns are negatively correlated with interest rates!"

"In other words, if the Federal Reserve continues to raise interest rates in the next few years, the long-term Treasury bonds or MBS products held by banks will not only fail to bring returns to the bank's investment, but will actually lose money every year!"

"So, when the bank's own assets and lending profits are not enough to offset the bond losses, if there is no inflow of more depositors' funds, the bank's capital chain will be at risk of breaking, until... bankruptcy!"

"Oh...1"

David saw that Malkin Sr. and Meyer Lansky both nodded to express their understanding, and continued with a wry smile.

"Let's look at it from another angle~"

"Being able to control a private commercial bank in your own hands naturally has many benefits!"

"For example: the right to operate independently!"

"It allows us to obtain a large amount of the lowest-cost funds for flexible and efficient investment, earn us higher returns, expand our personal wealth, and achieve rapid wealth appreciation."

"Also, if we can successfully run this bank, it will increase the influence and credibility of individuals and the bank."

“And as we become successful, we continue to expand our network of contacts and increase our social status.”

"And its last benefit, I think is what you care about and value the most."

“It provides us with certain privacy and security features of the property.”

David looked at the two old men sitting opposite, nodded with satisfaction, and sighed.

"However, I still have to remind you."

"Private commercial banks have extremely high requirements for the professionalism and professional ethics of managers!"

"If investment risks cannot be controlled in a timely and effective manner, banks will face huge book losses and credit crisis."

"Although the federal government has been gradually relaxing its investment supervision on commercial banks in recent years."

"But in today's era of great inflation, if there are no reliable low-risk + high-yield investment projects, banks may not even be able to pay interest to depositors."

"Besides, if you are serious... and really want to enter the banking world, you might as well consider how to make a profit first!"

David picked up the Coke bottle, drank it all, and exhaled.

"I haven't talked about the bank's lending business just now."

"The fund company I opened on Wall Street is to obtain lower-cost funds from banks or investors and invest in the market~"

“So in my opinion, risk = benefit!”

"If you take over this bank and you don't have a good investment project... you might as well leave your money with me~"

"In terms of interest, as long as it's not too outrageous..."

“I’ll take them and invest them!”

"You want a loan!?"

"Not a loan!"

"Instead, in the insurance company, we will develop a new low-risk private customization + fixed income investment project for you~"

"Um...can it still be done like this?"

"Yes~"

David opened his hands to old Malkin and smiled bitterly: "We are a family~"

"As long as I can do...what you want..."

“No matter how hard it is, I’ll find a way to make it happen!”

Old Malkin raised the Coke bottle in front of him and joked with a smile: "Then, you can be the hands-off shopkeeper! Right?"

"..."

"Hahahaha~"

Ps:

In the past ten days, the collapse of Silicon Valley Bank has been all over the domestic and foreign financial news. To put it simply: it was because it purchased excessive amounts of long-term government bonds and MBS-related products during the quantitative easing period of the Federal Reserve in the past few years.

Last year, the Federal Reserve began to continuously raise interest rates to control inflation.

It hardly uses any hedging methods to control investment risks~

That's why it suffered huge investment losses on its books last year. .

Later, at the beginning of this month, the management of Silicon Valley Bank did not know what they were thinking. .

It directly disclosed its loss situation and publicly announced the issuance of additional stocks and preferred shares, intending to get through this year by raising funds from the market. .

hehe~

The managers of high-tech companies in Silicon Valley are famous for their high IQ and teamwork. .

How could they possibly listen to nonsense like Silicon Valley Bank that confuses laypeople?

two days!

In just two days, Silicon Valley Bank was overwhelmed by the frenzy of bank runs and declared bankruptcy!

Its series of stupid operations before bankruptcy will definitely be written into textbooks and regarded as a classic case in the banking industry!