The Son of Finance of the Great Age

  Chapter 605 "Two Houses" Crisis

  The stock market crashed in 1929, and the entire U.S. economy fell into a depression. The real estate market also entered a severe winter. The average house price in the United States fell by 31%, and it took the United States 19 years to return to the level before the depression.

  Before the Great Depression, the main source of housing loans was banks, usually with a term of thirty years. But compared with the allocation of bank liabilities (usually short-term), this period is too high. Therefore, general commercial banks require home loan borrowers to start repaying in about five to seven years, and this practice still exists today.

  If the world is good, the economy grows, and the income rises, this kind of loan will not bring much pressure to people. But in a bad world and a sluggish economy, lenders can only forego prepayments, which makes the loans default. Once a default occurs, these properties will be taken back by the bank for auction, resulting in an oversupply in the entire market, which in turn will lead to a further decline in housing prices, forming an endless loop.

  Because of this characteristic of commercial banks, they cannot really become the main force in the mortgage market. Under such circumstances, the U.S. government passed the National Housing Act in 1934 and established the Federal Housing Administration (FHA) to provide housing loan guarantees for eligible borrowers in the name of the government, that is, FHA provides housing loans to those who have a job and self-sufficiency. Home loan guarantees are offered to live-in, low-down-payment lenders, allowing them to borrow home loans from banks.

  However, even if it is guaranteed in the name of the country, the problem of time mismatch between inter-bank assets and liabilities still cannot be effectively resolved. So in 1938, the U.S. government made another move and established Fannie Mae.

  Fannie Mae was originally established to acquire FHA-guaranteed loans from banks, because in this way, banks can obtain liquidity from Fannie Mae. In this way, the liquidity problem that plagued the bank is easily solved. Homebuyers get loans, banks get liquidity, and everyone is happy.

  Because Fannie Mae is a federal government agency (at this time), the funds obtained come from the federal government revenue, and there is no financing cost from commercial banks, so it is very competitive in terms of interest rates. Soon, Fannie Mae and the FHA teamed up to create a major innovation: the 30-year fixed-rate loan.

Although the interest rate of this part of the loan is slightly higher than the interest rate of the general loan, the great advantage for the lender is that they no longer have to worry about the interest rate risk from the market, and they don't have to worry about the rise or fall of the house price, because only With a fixed payment, they can get the house they want. Therefore, from 1938 to 1968, the U.S. real estate market boomed, and the home ownership rate rose from 44% to 64.3%, among which Fannie Mae and FHA contributed greatly.

   However, the history of Fannie Mae as a federal government agency came to an abrupt end in 1968, because the Vietnam War reached its climax in this year, and the anti-war voices in the United States also became louder and louder. The American people don't want to see their young man go to the other side of the world and lose his life for no reason, and naturally they don't want to pay for the military. In order to continue to raise huge military expenditures and maintain military expenditures in South Asia, the US government at that time chose to sell Fannie Mae.

  In order to prevent Fannie Mae from becoming bigger, two years later, the US government established another company specializing in the acquisition of FHA-guaranteed loans, namely Freddie Mac. Since then, the two ultimate giants in the real estate market have started to expand almost uncontrollably. Because they have an invisible guarantee from the government and their financing costs are far lower than their competitors, they have developed extremely rapidly.

  In 1970, the business of "F&F" was no longer limited to the acquisition of FHA-guaranteed loans, but began to enter those unsecured bank housing mortgage loans.

  In 1971, Freddie Mac took the lead in issuing mortgage-backed securities, and in 1981, Fannie Mae followed up.

  In 1992, Fannie Mae became the largest issuer of mortgage-backed securities in the United States. In the same year, the U.S. Congress required the two companies to increase support for low- and middle-income earners.

  In 1999, the "two rooms" began to gradually reduce loan requirements and set foot in the high-risk loan market.

  In 2003, the “F&F” issued a total of nearly 2 trillion US dollars of mortgage-backed securities, equivalent to 10% of the total US bond market that year.

  In 2004, the "two rooms" were found to have major accounting violations, and both concealed billions of dollars in profits, which caused an uproar for a while. At that time, the management of the two companies suffered a major purge, but this move did not make the two companies fully vigilant.

  Beginning in 2005, the “F&F” began to accelerate their entry into the high-risk market and purchased a large number of subprime mortgage bonds in the market. Until August 2007, the bomb of subprime mortgage bonds broke out.

  …

  As two giant companies, “F&F” provides the market with the liquidity of housing mortgage loans, and then packages the acquired mortgage loans into its own bonds for sale or holding, taking the interest rate difference between the two as the profit point. The home loans they hold or guarantee account for 42% of the entire US mortgage market, reaching a whopping $5 trillion. On the other hand, the "two houses" issued more than 4.5 trillion US dollars of bonds, making them involved in a total of close to 10 trillion US dollars in terms of liabilities and assets.

  Starting from August 2007, with the outbreak of the subprime mortgage bond crisis, the prices of a large number of subprime mortgage bonds held by "F&F" fell, and the operating conditions turned from profit to loss. By the second quarter, the "two rooms" announced a loss of 6.5 billion US dollars and 2.7 billion US dollars.

Under such circumstances, from March 24, 2008, FHA began to inject capital into the "Two Fantastic" and increased its holdings of more than 100 billion US dollars of mortgage bonds, trying to help the "Two Fannie" restore liquidity, thereby contributing to the US real estate market. Injected new energy and confidence, but the situation did not get better.

   With the power of Fannie Mae, in the financial statement released on May 6, they announced a loss of 2.19 billion US dollars in the first quarter, and predicted that the loss may continue to deteriorate next year.

   But what the world doesn't know is that even this number has been consciously shrunk by their higher-ups.

   "Damn, how dare they do that?"

In this office, Henry Paulson, who has always been very refined and very refined, got really angry on a rare occasion. He slammed the documents in his hand on the desk and roared, "Have they forgotten what happened four years ago?" ?"

   Sitting opposite him is Federal Reserve Chairman Bernanke. Regarding Paulson's gaffe, he turned his head slightly, lowered his eyes, and said, "Now is not a good time to pursue it. We should think about how to solve these problems."

"These sons of bitches, they dare to do this because they have friends in Congress!" Hearing Bernanke's words, Paulson became even more angry, his face instantly became gloomy, and he said He even gritted his teeth, "Do you really think we dare not let it go?"

  Because he was too angry, Paulson rarely uttered dirty words. But Bernanke didn't pay attention to these details. He was startled by Paulson's last words, and the double ocean suddenly opened, and the light burst out, "What? Henry, do you know what you are talking about? Let it go ? God, how... how is this possible?"

Before Paulson could answer, he hurriedly stood up and said, "God, you can't count on this matter. I want to report to Mr. President, and I want him to know the seriousness of the matter. Damn, this matter Absolutely can't ignore it."

Henry Paulson, the U.S. Secretary of the Treasury, is in charge of fiscal policy; Ben Bernanke, the chairman of the Federal Reserve, is in charge of monetary policy. These two can be called the helm of the U.S. economy and even the world economy, but they can’t decide something. This shows that the nature of the problem is very serious.

"no need!"

  Paulson finally calmed down, "The president must be informed of this matter, but before that, the two of us should draw up a plan for the president's reference."

   "That's fine!" Bernanke stopped his steps, turned his head and took a deep look at the other party, "We must formulate a comprehensive plan to ensure that the adverse effects are completely eliminated before the market responds!"

  Henry Paulson didn't say anything more, but nodded emphatically.

  The "two rooms" accounting scandal in 2004 did not make their management change their minds. On the contrary, they remained the same in falsely reporting profits. Just this afternoon, Bernanke got news from within Fannie Mae that in order to be consistent with Wall Street's expectations, Fannie Mae CEO David Glenn instructed his subordinates to lie about US$5 billion in false income.

  In this anonymous report material, it records in detail how the top management of Fannie Mae distorted the internal accounting system and made the whole process of beautifying the entire financial situation. Most egregiously, Fannie Mae executives did this because under the current compensation system, they were able to get paid more for inflating earnings.

  Although the news came from within Fannie Mae, the source asserted that similar accounting fraud also occurred within Freddie Mac. In the end, he also said that the news could not be concealed for long, and he hoped that Bernanke and his colleagues would take measures as soon as possible.

Since a similar thing happened once, Bernanke was also shocked after getting the relevant inside information, but he couldn't solve this matter alone, so he could only appear in Henry Paulson's office as quickly as possible Inside.

   Naturally, Paulson was furious after learning such a thing. Four years ago, Fannie Mae's CEO and chief financial officer had already left, but now they don't know how to restrain themselves. This behavior of repeated admonition made Paulson very angry. But after being annoyed, Paulson quickly calmed down, because Fannie Mae and Freddie Mac are not ordinary companies after all.

Moreover, at this time, if the news spreads, the entire market will definitely fluctuate violently, and the situation that has just stabilized will be broken again. What's more serious is that the "two rooms" may go bankrupt, and if " If the two companies really go bankrupt, then the entire real estate industry in the United States may also be finished.

Until now, Paulson and Bernanke are not clear about the true internal financial situation of the "F&F", but according to their rough estimates and published figures, it is believed that the two rooms have lost more than US$15 billion from at least 2007 to now, This number is much larger than the number disclosed.

  Be sure to take countermeasures before the market!

   "What do you think of our proposal to publicly endorse the 'two rooms'?" Paulson frowned and thought for a while before giving such an opinion.

  Generally speaking, the market will usually give face to the Minister of Finance's speech. But Bernanke didn't take this opinion seriously, because he was actually on the front line of the financial crisis during this period, and he was more aware of the current market situation. He shook his head and said: "I don't think this is a feasible solution." , I think hosting is more suitable for the current processing."

   "Hosting?" Paulson's expression changed drastically, "Ben, are you kidding me? So serious?"

  Custody, naturally, temporarily entrusts the management rights of the "two rooms" under the name of the federal government, which is an endorsement guaranteed by government credit. If it is to be managed, it means that the debts generated by the "two rooms" will be borne by the government.

  Paulson can't decide on such a big matter.

"Well, let's draw up our respective plans and send them to the president for him to make a decision!" Finally, Bernanke backed away and said worriedly, "but hurry up, and hope that Mr. President can make a decision as soon as possible. "

   Thanks to the book friend Kalm, God, Secret, it wasn’t me last night, Bingzhou 109, 8112268536, Zhe Xingsun, little me! Vote for the monthly ticket! In addition, special thanks to Xiaoqi Civilization Miracle for the Children's Day lollipop! It's the last day of this month, friends who still have monthly tickets, try to support it, thank you~

  (end of this chapter)