the causes and enlightenment of the American financial crisis
The current Wall Street financial crisis caused by the subprime mortgage problem in the United States has become the focus of attention all over the world. The financial crisis on Wall Street not only hit the fragile economy of the United States, but also caused the collapse of the American stock market, which also brought great harm to the economies of other countries. So why is there a serious financial crisis on Wall Street? What does this financial crisis bring us? This paper intends to discuss this.
1. Reasons for the financial crisis in the United States
The financial crisis caused by the subprime mortgage problem in the United States has a complicated background, and I think the main reasons are as follows:
1. The ultra-loose environment that stimulated the economy has buried hidden dangers
On April 2, 2117, New Century Financial Company, the second largest subprime lender in the United States, declared bankruptcy, marking the outbreak of the subprime mortgage crisis in the United States. The source of the subprime mortgage crisis is its loose monetary policy in the early stage. After the bursting of the new economic bubble and the "9.11" incident, in order to avoid economic recession and stimulate economic development, the US government took measures to lower bank interest rates to encourage investment and consumption. From 2111 to 2114, the Federal Reserve cut interest rates continuously, and the federal funds rate dropped from 6.5% to 1%. There was no need to guarantee or down payment for buying a house with loans, and the house price kept rising, so the real estate market became increasingly active, which also contributed to the economic prosperity in the late Greenspan era. Providing subprime mortgage is a good thing, which enables low-income people to own their own houses. For ordinary families, low interest rates and soaring property prices have created a bright future, and investment in housing has become a huge temptation, so a large number of residents have entered the mortgage market. By the end of 2116, sub-prime loans involved 5 million American families, and the known sub-prime loan scale reached 1.1 trillion to 1.2 trillion US dollars.
2. Taking real estate as collateral is the key to risk
Consumers of American subprime mortgages use real estate as collateral, and the price of real estate determines the value of collateral. If house prices keep rising and collateral prices keep increasing, it will not affect consumers' credibility and repayment ability. Once the house price falls and the collateral depreciates, the money that the same house can lend from the bank decreases. If the loan interest rate is raised, the floating interest rate will also rise with the subprime mortgage, and the money to be repaid will increase greatly. Subprime lenders are originally low-income people, and they have to give up their property rights because they have not yet made loans. Lending institutions can't recover their loans, but can only recover the lender's real estate. The recoverable real estate can't be sold, but it keeps depreciating and shrinking, so there is a loss, and even the funds can't flow. Shrinking house prices and rising interest rates are the killer of subprime mortgages.
From 2115 to 2116, in order to prevent overheating of market consumption, the Federal Reserve raised interest rates for 17 times, and the interest rate increased from 1% to 5.25%, and the market interest rate entered an upward cycle. Because the transmission of interest rates to the market often lags behind, American subprime loans still rose in 2116. However, the effect of raising interest rates gradually appeared, and the real estate bubble began to burst.
3. Securitization of sub-prime loan assets aggravated the spread of the crisis
The vast majority of mortgage lenders in the United States are regional savings banks and savings and loan associations, and local commercial banks are also involved in mortgage loans. The financial strength of these institutions is not very strong, and a large amount of funds are put on housing mortgage loans, which poses serious pressure on their capital turnover. Some financial institutions with "financial innovation" tools package these credit assets and use them as guarantees to issue negotiable bonds. Give a fairly attractive fixed income and then sell it. Many banks and financial institutions such as asset management companies, hedge funds, insurance companies and pension funds invest in these bonds. Mortgage enterprises have a steady stream of financing channels, creating a rapid growth of new subprime loans; Investment institutions get higher returns.
various financial derivatives make the cash flow of investment institutions more reasonably utilized, the benefits are decomposed and shared, and the risks are shared. However, everything has two sides. The financial innovation system will not only bring the risk dispersion mechanism, but also produce the risk amplification effect. An innovation like subprime mortgage has enabled residents in the United States who are not up to the standard of housing mortgage loan to buy houses, and at the same time, it has turned into subordinated debt through asset securitization, which has loaded high risks with high returns and spread them all over the world. In this sense, all countries that have bought American subprime debt will be forced to "pay the bill" for the American subprime crisis. When the real estate bubble burst and the subprime lenders couldn't repay the loans, not only did the mortgage companies fall into the loss dilemma and were unable to pay a fixed return to the financial institutions that bought the subprime loans, but also those investors who bought the subprime derivatives lost their high returns due to the falling bond market price, which also led to the liquidity shortage and loss. Since the third quarter of 2117, financial institutions began to report large losses, reflecting the sharp decline in the value of mortgages and other assets.
the securitization process of sub-prime loan assets is actually a process of asset portfolio and credit enhancement, and it is also a process of multiple assets and multiple credit subjects' credit superposition. After asset securitization, the information disclosure of this asset securitization portfolio and related risk information may become more opaque, resulting in few people in the market being able to clearly understand the risks, let alone make real-time risk pricing. Due to the lack of understanding of the real value and risk of assets, investors rely heavily on the reports of rating companies to make decisions. The credit rating of credit rating agencies has played an increasingly important role in the financial market, and credit rating is also a necessary and important link in the process of asset securitization. Whether the credit rating is objective and fair, whether we really understand financial instruments, whether there are conflicts of interest and moral hazard, etc., these factors will have a great impact on the global financial market. Subprime mortgage bonds were originally developed from some low-quality assets, and "financial innovation" made these low-quality assets obtain high-grade labels through the rating of credit rating companies, and the value was proved to be seriously overestimated afterwards.
due to information asymmetry and unknown risk loss, once the subprime mortgage loan has significant risks and losses, the credit enhancement and credit superposition built on these securities will "collapse instantly" like castles in the air in the desert, which will inevitably cause the panic of investors' investment confidence, and the instinct to avoid risks will accelerate investors' selling and aggravate the turmoil in the financial market, and financial disasters will be doomed. In the risk transmission chain of subprime mortgage, securitization and credit derivatives, the subprime mortgage crisis may not happen at all without the participation of credit rating companies.
second, the enlightenment of the American financial crisis
the financial crisis caused by the subprime mortgage problem in the United States has taught us profound lessons, which China should take as a warning.
1. Understanding and preventing the market risk of mortgage
Mortgage is the safest asset with real estate as collateral, but the value of real estate is constantly changing with the market. When the market is improving, rising real estate prices will increase the market value of collateral, reduce the risk of mortgage credit, and induce banks to continuously expand the scale of mortgage credit. But the price of real estate can't go up endlessly, because no enterprise or individual can ignore the cost of its production and survival. When the market reverses, house prices go down, and it is difficult for banks to dispose of collateral. Even if the collateral is auctioned, the proceeds are not enough to repay the loan. This will not only bring a lot of bad debts to the lending banks, but also endanger the security of the banking system and the healthy development of the whole economy. Therefore, banks need to make rational choices between risks and benefits, and improve their ability to identify and resist market risks.
2. Understanding and preventing credit risks
The reason for the high default rate of subprime loans is that lending institutions do not adhere to the principle of "three Cs" in lending, that is, risk assessment of borrowers' basic characteristics, repayment capability and collateral. From the experience of foreign countries, the borrower's basic characteristics (age, education level, health status, occupation), the purpose of buying a house (self-occupation or investment), marital and family status, repayment ability (mortgage-to-property ratio, monthly income ratio of house payment, income ratio of total household debt, asset-liability ratio, etc.) and collateral (property value, newly built house, second-hand house, service period, location, single-family and multi-storey).
In the East Asian crisis, Hong Kong's asset prices have shrunk dramatically, and many homebuyers are under the pressure of negative assets, but the default rate of banks has not risen sharply. It is because Hong Kong's banking industry has strong anti-risk ability and strict eligibility criteria for individual housing loans. Most borrowers buy houses for their own use, their jobs are stable, their income cash flow remains unchanged, and the use value of real estate remains unchanged, and they will still repay the loans on schedule.
in expanding personal loan business, China's commercial banks should avoid non-economic and irrational colors such as "achievement goals", reduce administrative intervention in the allocation of credit funds, strengthen the examination of borrowers' repayment ability, and implement different risk pricing and lending standards for borrowers with different credit risk levels, including their own capital, down payment ratio, interest rate and term, so as to promote the bank's transformation from service risk pricing to customer risk pricing, from extensive operation to refinement and personalization.
3. Establish and improve the information disclosure mechanism and loan specifications
The regulatory authorities should supervise banks and insurance institutions engaged in housing credit, and fully disclose product information to borrowers in the marketing of various loans and insurance products, so that borrowers can have full right to know and choose, and reduce the damage of information asymmetry to borrowers' rights and interests. Promote standardized contracts, loan review procedures and lending standards, and standardize bank lending behavior and post-lending services.
4. Establish a real estate financial early warning and monitoring system to improve the ability to resist risks
Since financial risks are ubiquitous in economic life and an objective existence independent of human will, the responsibility of the supervision department is to improve the ability to identify risks, predict, prevent, avoid and resolve risks, and improve the controllability of risks. Therefore, it is urgent to establish a real estate financial early warning and monitoring system, which will play a positive role in promoting the security of the banking system, the sustained and healthy development of the real estate market and the entire national economy.
5. Government departments should be warned from the crisis.
It is the government's duty to let the people live and work in peace and contentment, but "everyone enjoys proper housing" does not mean that everyone should buy a house, and letting low-income people who cannot afford to pay enter the housing market, which will not only backfire, but also produce many negative effects. Especially in the case that China's mortgage guarantee, mortgage insurance and other related financial infrastructure are not perfect, banks are invisibly exposed to many policy risks. Therefore, an optimized housing market structure should be the unity of new housing and stock housing, sale housing and rental housing, commercial housing and government-provided public housing diversification. The government should increase the supply of affordable housing and change the "only selling without renting" of affordable housing to "both renting and selling"; And through the credit, tax and land policies, guide real estate enterprises to increase the supply of low-priced ordinary commercial housing, and give priority to ordinary commercial housing in the approval of construction permits.
6. China should establish and improve the mortgage insurance and guarantee system
China should establish and improve the mortgage insurance and guarantee system and improve the risk prevention and sharing mechanism of housing credit. The introduction of commercial insurance and policy guarantee mechanism is conducive to promoting the standardization of mortgage marketing and contract, and restraining the impulse of commercial banks to lend blindly; Reasonable insurance risk pricing mechanism is helpful for commercial banks to avoid credit risk, moral risk and cyclical fluctuation risk of real estate market.
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I hope it helps you.