Chapter I "Fannie and Freddie" and Mortgage Bonds
During 1938, the shadow of the Great Depression still lingered, and Roosevelt led the establishment of the Federal National Mortgage Association, which was later renamed Fannie Mae. Americans want to buy a house, they need to prepare a 50% down payment, and then apply for a loan from the savings and loan association composed of local banks and deposit institutions. The loan interest rate is around 8%, and the service life is only 5- 10 years. As we all know, banks make money through the interest difference between loans and deposits, and so do savings and loan associations. In the context of the Great Depression, deposits absorbed funds very slowly, and they could only lend when the principal and interest of the mortgage recovered were enough for the next loan. People who want to buy a house can only wait in line for places. Fannie Mae solved this problem. When the savings and loan association issued a loan, it immediately sold the loan to Fannie Mae. When the savings and loan agency gets the same amount of money, it immediately puts down a loan, and the speed of people buying a house is greatly improved. The savings and loan association changed from making money from mortgage interest to charging fees for mortgage loans, and the interest income from mortgage loans belongs to Fannie Mae. Fannie Mae is a nationalized enterprise, and the loans it buys will be reflected in the federal balance sheet. It can be considered that the federal government has been brushing its own credit, standing behind the savings and loan association and providing housing funds for the people. With the promotion of the New Deal, the 5- 10-year mortgage has gradually withdrawn, and the 30-year fixed-rate mortgage has entered the historical stage, reducing the pressure on people's monthly payment and making more and more Americans realize their housing dreams. But Roosevelt didn't have a chance to see that Fannie Mae, established according to his New Deal, became the storm center of another global economic crisis 70 years later.
From 65438 to 0977, Lewis Ranieri came up with a brilliant idea-packaging mortgage loans into bonds for sale. The traditional mortgage business chain is that buyers apply for a mortgage, and the bank finally pays the mortgage to the developer, and the buyers begin to repay the principal and interest of the mortgage for a period of 30 years. In such a long time, banks always face the risk that buyers will default and the principal will not be recovered. This risk is ultimately borne by Fannie Mae in the United States. Lewis solved the problem. Banks collect thousands of mortgages into a pool of funds and sell them in different grades according to the repayment risk of buyers. The higher the risk, the higher the bond yield. For example, banks package a total of 50 million mortgages into five bonds with different risk levels, and low-risk mortgages into bonds with a yield of 5%. It is possible to package the suspended loans into bonds with a yield of 10%. After these bonds were sold to investors, the bank immediately recovered the principal of 50 million yuan, and the mortgaged creditor changed from a bank to an investor, so the buyer's default risk shifted from the bank to the investor, and the bank would also charge a handling fee in the sales process to make a profit. This is a profitable business for banks.
From 1970 to 1983, the average GDP growth rate in the United States is only 2.9%, but the average inflation rate is as high as 10.46%. This phenomenon is called stagflation in the field of economics. Now the American people are also suffering from inflation, but the highest is 9. 1% in June 2022. At that time, the means to fight inflation was the same as now: raising interest rates. 1979, a giant with a height of two meters took the position of chairman of the Federal Reserve. After raising interest rates continuously, the highest interest rate was raised to 22.36%, which is about 10 times of the current level. At the expense of the recession of 2 1 month, the American economy finally controlled the inflation from the peak of 13.6% to 2.9% in June 1983. The chairman of the Federal Reserve, who is two meters tall, is named Paul Volcker. Severe interest rate hikes and 2 1 month economic recession are called "Volcker shock". But this shock is precisely the first gift that the goddess of fortune gave Lewis.
On September 30th, 198 1, the National Assembly passed a tax exemption bill, stipulating that if the savings and loan bank sells the mortgage loan, the Ministry of Finance will return the tax paid in the previous 10 year as a loss subsidy, and the more it sells, the more subsidies it will get. This gives savings and loan banks enough incentive to sell their mortgages. At this time, Fannie Mae, which had already been privatized, was on the verge of bankruptcy because of the high financing pressure and could not afford the mortgage. Only one Wall Street investment bank in the United States has the ability and demand to buy mortgages, and that is Lewis's salomon brothers Company.
1968, in order to make the federal government debt during the Vietnam War less ugly, Fannie Mae was privatized. Since then, the mortgage for American people to buy a house is only Fannie Mae's private debt, which will not be reflected in the federal government's balance sheet. At the same time, the business of providing mortgage for civil servants and veterans will be split up and "Geely Beauty" will be established. After the split, Fannie Mae completely lost its government functions, but it also lost its bondage and could buy all eligible mortgages in the United States. In order to prevent Fannie Mae from monopolizing the whole country, Congress established the third organization-Freddie Mac in 1970. Since then, Fannie Mae and Freddie Mac have entered the historical stage. Through competition, the American people can own mortgages with lower interest rates. However, under the impact of Volcker, Fannie Mae and Freddie Mac are also on the verge of bankruptcy. Lewis extended an olive branch to them. Under Lewis's lobbying, Fannie Mae and Freddie Mac provided mortgage loans to salomon brothers Company, and salomon brothers Company packaged them into bonds, and then Fannie Mae and Freddie Mac provided guarantees for them. Although Fannie Mae and Freddie Mac are private organizations at this time, they are still regarded as government-funded enterprises with government support and cannot fail in the market. With the cooperation of Fannie Mae, Freddie Mac and investment banks, mortgage-backed securities (MBS) were born.
Chapter II Crazy
From 2000 to 20001year, the internet bubble burst, 9 1 1, and Enron's financial fraud hit the American economy one after another. In order to stimulate the economy, Greenspan led the Federal Reserve to cut interest rates 65,438+03 times from 200/KLOC-0 to June 26, 2003, and the federal funds rate was reduced from 6.5% to 65,438+0%, and the interest rate of 65,438+0% was maintained for one year. At the same time, George W. Bush introduced the tax reduction bill, and American enterprises ushered in the most relaxed business environment, with cheaper financing costs and huge profits saved tax-free. Under the influence of interest rate reduction, the interest rate of 30-year fixed mortgage loan decreased from 8. 1% at the end of 2000 to 5.8% in 2003. The profitable boss took the opportunity to buy a house and change houses, and American house prices began to rise. To make matters worse, Greenspan also lifted the restrictions on refinancing.
For example, at the end of 2000, Jack bought a house with a total price of 1 10,000 at a mortgage interest rate of 8 1%, with a total loan of 700,000. In July 2003, the mortgage interest rate was already 5.8%, and the total price of his house doubled to 2 million. Jack wants to change his mortgage into a cheap loan, and the intermediary will pay the remaining mortgage for him, and then mortgage the settled house to get a mortgage loan of 70% of the total house price, that is, 654.38+0.4 million. After Jack got 1.4 million, he paid back the principal and interest of the amount paid by the intermediary, leaving more than 700,000 mortgage loans with the interest rate of 1%. Complete the operation of converting high-interest loans into low-interest loans. Jack can spend more than 700,000 yuan, or he can pay a down payment for a suite first, and then apply for a mortgage. This process is refinancing.
As an important part of Roosevelt's New Deal, the banking law of 1933 strictly divides the business of investment banks and commercial banks. Investment banks can only invest in securities and funds, but can't absorb deposits, which is equivalent to domestic securities companies. Commercial banks can absorb deposits, but they can only make deposits and loans. The Volcker shock caused the savings and loan banks to lose almost all their mortgages, and they could only watch the investment banks make huge profits by selling mortgage bonds with mortgage as the core. Investment banks need to obtain loans from savings and loan banks as raw materials for mortgage bonds. Under the two-way urging, some banks started their business with each other. 1998, the commercial bank Citigroup merged the traveler group with the nature of investment bank, and the banking law of 1933 existed in name only. 1999 Clinton passed the Financial Services Modernization Act, which completely lifted the shackles on commercial banks. Commercial banks represented by Citigroup can engage in investment banking aboveboard. Therefore, Citi can handle mortgage loans, package and securitize mortgage loans, sell, hold and trade mortgage bonds, and make huge profits by charging handling fees for each link. Some investment banks, such as Lehman Brothers and Bear Stearns, bought savings and loan banks and turned themselves into universal banks. These universal banks on Wall Street made a fortune by taking advantage of the east wind of the American real estate market in the early 20th century. Richard fuld, CEO of Lehman Brothers, received a total of $484.8 billion in salary and dividends from 2000 to 2008. In 2006, new york's financial practitioners received a dividend of 60 billion dollars, which means that senior staff of investment banks can get tens of millions of dollars.
On June 65438+February 65438+June 2003, George W. Bush signed the American Down Payment Act, and launched an annual down payment assistance plan of 200 million US dollars, which will provide low-and middle-income families with down payment assistance of 1 10,000 US dollars or 6% of the house purchase price, which basically means that many low-and middle-income families have zero down payment. Later, Congress enacted two laws and regulations on Fannie Mae and Freddie Mac. First of all, Fannie Mae and Freddie Mac should extend the scope of mortgage payment to low-and middle-income people and ethnic minorities. Second, they should limit the assets and liabilities of Fannie Mae and Freddie Mac, which also limits the scale of mortgage payment, and hand over the potential mortgage customers of Fannie Mae and Freddie Mac to private banks. After the high-quality mortgage market of private banks was saturated, they turned their attention to subprime loans. It is a loan for people with low income and poor qualifications, and the repayment risk of this loan is extremely high. Seeing this, you may have questions. Why do banks handle subprime loans with high repayment risks?
In 2006, 29% of subprime mortgage bonds were bought by European investors, which laid the groundwork for a more destructive crisis. Sub-prime mortgage buyers have also joined the team of refinancing. They have no income at all, and they own these 2,345 houses empty-handed. Their refinancing made subprime mortgage companies and investment banks earn huge fees, and investors all over the world bought high-return bonds. When you are good, I am good, and everyone is good, the real estate bubble and the financial bubble form an organic whole and begin to spiral to heaven.
In 2004, Federal Reserve Chairman Ben alan greenspan attended a luncheon of the Banking Association. At the luncheon, some people expressed their concerns about loan inflation and housing prices. Greenspan replied: Floating rate loans (balloon loans) are very beneficial to borrowers. I don't think the real estate market will collapse, because there is no sign that house prices will fall. Greenspan's answer represents that the American government, Wall Street and the American people are immersed in the economic prosperity brought by the real estate speculation feast and financial carnival. None of these people are worried about balloon loans. Once the mortgage interest rate rises several times, will these low-income or even non-income buyers continue to repay the mortgage?
The third chapter empty god arrival
At the beginning of 2004, stockbroker michael berry discovered the truth about subprime mortgage. He saw that the interest rate of some subprime loans was only 5.85% at the beginning of 2004, and it will rise to 17.84% by the end of 2004 and 25.34% by the end of 2005. Michael continued to dig deeper, and he discovered the subprime mortgage bond market and the mechanism of mortgage-backed securities. He instantly understood that if these sub-prime buyers did not repay their mortgages when the interest rate rose to 25%, then the risk part of the sub-prime mortgage bonds would have problems and the sub-prime mortgage market would collapse. Michael began to make up his mind to short the housing market, but the problem was that subprime mortgage bonds could only be bought, so he found a customized credit default swap-Deutsche Bank's CDS.
CDS can be understood as a kind of insurance. On May 19, 2005, Michael bought 60 million USD CDS of six subprime mortgage bonds. If the mortgage default causes the value of subprime mortgage bonds to decrease, the bank will pay Michael huge compensation. If there is no problem with the subprime mortgage bonds, Michael needs to pay the insurance premium every year. His insurance rates are 3A 0.2%, A 0.5% and 3B 2% respectively. You will find that CDS is a good short selling tool. Traditional short selling requires you to buy short selling objects, while CDS does not. If you buy a stock to short him, but he goes up by 50%, then you lose 50%, but CDS won't. No matter how much the short object rises, the premium will not change. You may think that this transaction is certain for Michael. Why is Deutsche Bank stupid enough to sign with Michael? However, in the era of soaring housing prices in the United States, most people do not believe that housing prices and subprime loans will go wrong. They just think Michael is crazy and give them a free insurance premium every year. As Michael customized CDs from one bank to another, the joke that "a madman is betting on falling house prices" spread on Wall Street.
Michael's CDS is good, but not perfect, because it is not tradable. The person who solved this problem is Greg Lipman. Lippmann is a top subordinated bond salesman at Deutsche Bank. In 2005, mortgage bonds were in short supply, and investors all over the world were scrambling for these bonds. The United States has completed almost all the subprime loans it can make, and it can't meet the buying needs of investors. Lippmann wanted to develop another bond to satisfy investors, so his team developed a tradable CDS. The difference between this CDS and Michael's CDS is that the price of this CDS changes with the price of subordinated bonds. If the value of subprime mortgage bonds rises, the value of CDS will decline, and those who are bullish on the housing market will sell and those who are bearish on the housing market will buy. If house prices fall and subprime loans default, many people will rush to buy such CDS in order to get a huge premium, and the price of such CDS will skyrocket. Lippmann didn't know that the CDS he designed became the last straw to crush American finance.
Michael's story caught lippman's attention. He didn't expect that someone was shorting the real estate market. He asked the team to study the real estate market, and then they got an amazing result: since 2000, the default probability of people whose house value has increased by 1%-5% is four times that of people whose house value has increased by more than 10%. This means that house prices don't even need to fall. As long as it does not keep rising at a high speed, a large number of Americans will stop repaying loans. He also found that from August 2006 to August 2009, the interest rate of $738 billion balloon loan will rise from 5% to 10%- 10.5%. The Federal Reserve has started to raise interest rates at this time, and these interest rates will become higher. Lippmann was idle, and he also joined the empty god camp and began to buy his own CD to short the housing market. When colleagues laughed at him for being crazy, Lipman calmly replied, I will short your house.
In the process of selling mortgage bonds, there are always some high-risk bonds with the lowest rating that cannot be sold. Investment banks don't want to hold these high-risk bonds, so they repackage these high-risk bonds and a small amount of safe bonds to form a new investment product, which is debt-backed bonds-CDO, which packages a large number of B-level junk bonds into 3A-level gold. After the first packaging, CDO will be graded from 3A to B, so the investment bank will package the bonds of 3A and B of CDO for the second time, and then package them into the quadratic of CDO for sale. After this cycle, not only CDO, but also the N power of CDO will circulate in the market. A large number of B-grade bonds are packaged again and again and sold as gold, but their essence is actually garbage. The interest rate of intermediate CDO is set at 50%- 100%, the investment cycle is only 30 days, and the annual return rate can reach 880%, which is simply the dream debt of investment banks such as Bear Stearns. In 2006, the circulation of CDO was $560 billion, about three times that of 2004. In 2006, Merrill Lynch sold CDOs all over the world, and they charged 65,438+0%-65,438+0.5% commission for each CDO, with a total commission of 700 million dollars. The upsurge of subprime mortgage bonds is fueled by CDO, which forcibly supports subprime mortgage loans and financial markets. At the end of 2006, there were 1.2 trillion dollars of subprime loans in the market, and on this basis, a 5 trillion dollar CDO was born. Soon, subprime loans were not enough for CDO, so investment banks created synthetic CDO. They turned the cash flow of CDs sold to John Paulson into CDO, which became the mainstream of CDO at the end of 2006. John Paulson know in distress situation.
The falsification of bond rating by rating agencies, the falsification of real estate data by research institutions and the enthusiasm of CDO investment have covered up the decline of the real estate market, so that the rise of default rate has not attracted much attention. This is good news for John. The market has forced out the residual temperature of real estate, making CDS very cheap. He immediately raised a large sum of money and bought CDs of all financial products that can be shorted, such as subprime mortgage bonds, ABX index, CDO and synthetic CDO. When the real estate reached its peak, John Paulson ambushed all the short chips.
Chapter IV Collapse
On June 30, 2004, in response to inflation, the Federal Reserve raised the interest rate from 65,438+0% to 5.25% on June 29, 2006, which directly punctured the bubble. A few years ago, some subprime customers who bought houses with balloon loans found that their mortgage interest rate suddenly rose to more than 15%. With the advance of raising interest rates, interest rates have rapidly increased. Through refinancing, those people with low income or even no income originally used the refinancing money to spend and repay the loan. After the refinancing money was quickly used up, they decisively stopped repaying the loan. Some customers began to sell their houses in exchange for cash, and American house prices, which have risen by 1.26% since 2000, finally began to fall in July 2006. The first domino fell.
At the end of 2006, a large number of customer loans of New Century Company, the second largest subprime mortgage company in the United States, were cut off. Wall Street forced the new century to recover these subprime loans after discovering the defects in the "raw materials" of bonds. The new century is different from Citigroup, which is a commercial bank and has no ability to absorb deposits. All the money he gave his clients for mortgage loans was raised from Wall Street. Sub-prime loans can't be sold, can't be broken, and have no income and debt repayment. The sudden loss in the fourth quarter of the new century almost ate up the profits for the whole year of 2006. On February 13, 2007, the new century issued the fourth quarter profit warning. The next day, the stock of New Century Company fell by 36%. The ABX sub-prime loan index dropped by 5 points. The market felt the chill of subprime mortgage for the first time. On the other hand, John Paulson holds $25 billion in subprime CDS, and ABX has dropped by 5 points, making him earn $65.438+$25 million in one morning. John Paulson's record in one morning was $250 million more than Soros's short pound.
When the house price rises, the secondary customers refinance the original house with the help of the intermediary, and get new loans for consumption and re-purchase. When the house price fell, the loan obtained by this refinancing was not even on the previous mortgage, and the interest rate rose a lot because of the interest rate hike, and the original positive feedback became negative feedback. More and more people have joined the tide of selling real estate, and when the selling swept across the States like a flood, a vicious circle appeared in the property market. The lower the price, the fewer people buy, the more people default, and the subprime bonds depreciate rapidly. However, Bear Stearns still insisted. He led other institutions to buy the ABX index, which made ABX ignore the collapse of the new century and rebound to 77 points in mid-May, but it was only a flash in the pan.
With the deterioration of the real estate market, rating agencies couldn't sit still, and finally began to re-rate the financial market with their only remaining integrity and professional ethics. In July 2007, Standard & Poor's downgraded the rating of 6 12 mortgage bonds issued in 2005-2006 with a total price of1200 million US dollars. Subsequently, Standard & Poor's downgraded the bond ratings of Lehman Brothers and Bear Stearns.
This hit bear Stearns at the heart. Two hedge funds of Bear Stearns suffered losses. The downgrade and the loss of Bear Stearns made the market see the reality: the collapse of the real estate market is inevitable. Rich people began to frantically customize or buy CDS contracts. The price of CDs in John Paulson's hands soared. He sold some CDs and saved $2 billion in profits. Some people who are not financially strong enough to buy CDS in the subprime mortgage market began to use CDS to short their houses in order to get a compensation for hedging risks after the house price fell. Some renters began to use CDS to short the landlord's or neighbor's house. At this time, there was a big reversal in the market. Investors who speculated on the real estate bubble began to join the short-selling camp, and the craze for buying MBS and CDO was replaced by the craze for buying CDS. The ABX index plunged to 37 points in a sad market atmosphere, and Bear Stearns could do nothing about it.
In August 2007, the subprime mortgage crisis has spread to Europe, the big customer of the American subprime mortgage market. On August 2nd, Deutsche Industrial Bank lost 8.2 billion euros due to subprime investment. On August 9, BNP Paribas, France's largest bank, announced that it would freeze three funds because of the investment losses of subordinated bonds. In September 2007, Northern Rock Bank of England turned to the Bank of England for help because of the liquidity crisis caused by the investment loss of subprime bonds. On September 13, the BBC exposed the news that Northern Rock Bank was seeking help, which caused public panic. People rushed to the counter of Northern Rock Bank to withdraw cash, which led to a run. In the next three days, they withdrew 65,438 billion euros. In June 65438+10, Northern Rock Bank declared bankruptcy. 10/On October 23rd, the American Bankruptcy Association announced that the number of consumers filing for bankruptcy in September was close to 69,000, up 23% year-on-year. Since August 2007, news of losses or bankruptcies of large and small banks has been coming from the United States, Europe and Japan. Although central banks around the world have injected more than 400 billion dollars into the banking system for two consecutive months since August, the decline of the housing market and the stock market is still irreversible. From June to 10 in 2007, Moody's downgraded the credit rating of $33 billion mortgage. In 65438+February, the CDO rating of153 billion dollars was also lowered, which made Citigroup, Merrill Lynch and Morgan Stanley face asset depreciation of 70 billion dollars. The world entered 2008 amid endless downward adjustment, devaluation, losses and bankruptcy.
The downturn of real estate market and bond market makes John Paulson struggle for money every day, but he is not idle. He studied the debt problems of banks such as Bear Stearns and Lehman Brothers, and soon found an amazing problem: leverage. If you have 1 10,000 cash to invest, and the investment target increases by 10%, you will earn 10%. But if you borrow a total of 9 million to 6.5438+million, this is 654.38+00 times leverage. If the investment object goes up by 10%, you will get10 million, and the return on principal is 100%. After returning the principal and interest of 9 million yuan, your rate of return is still several times. However, if the investment object falls, it needs to fall by 100% without leverage, but it only needs to fall by 10% with leverage of10 times, and it will be wiped out.
John found that during the market frenzy, Bear Stearns and Lehman increased their leverage to expand their investment profits in the subprime mortgage market. Lehman's leverage ratio is 30.7 times, Bear Stearns is 40 times, and Fannie Mae and Freddie Mac are 75 times. The collapse of the housing market and the bond market means that these companies will fall. John began to short these companies, from subprime bonds to Lehman Brothers, Washington Mutual Bank, Merrill Lynch and Fannie Mae. In September 2007, John's nanny left without saying goodbye, leaving only a credit card reminder filled with the whole mailbox. John found that the monthly expenses of nannies are 10 times of their monthly income, and nannies have to rely on more than a dozen credit cards to maintain high consumption. This made John see another market crisis. Since the housing boom, borrowing, consumption and life have become the mainstream of Americans, with an average of five credit cards for each American. When the market goes down, the credit card default rate and mortgage default rate will rise steadily, dragging down the real economy. John went on to short credit cards and the construction industry, believing that the subprime mortgage crisis was only a prelude to a bigger crisis.
Chapter V Destruction
On August 9, 2007, BNP Paribas frozen its three funds holding mortgage bonds on the grounds of "completely exhausted liquidity". The liquidity crisis quickly spread throughout Europe, and the European Central Bank urgently announced that it would provide unlimited financial support to all banks in Europe. Within a few hours, 49 banks borrowed 94.8 billion euros, equivalent to 654.38+03 billion dollars, breaking the event record of 965.438+065.438+0. Henry Merritt Paulson is well aware of the root causes of the crisis: subprime loans, balloon loans and refinancing. The failure of secondary customers makes the cash pool of MBS and CDO lose its cash source, just like the faucet loses its water source. These wealth management products have completely lost their liquidity and will only make investors lose money. On August 17, the Federal Reserve re-entered the interest rate cut channel, injected liquidity into the market and lowered the interest rate of balloon loans. 10 June10, the Hope Alliance, a rescue project jointly created by the Ministry of Housing and Urban-Rural Development and the Ministry of Finance, was established. It uses refinancing to convert buyers' balloon loans into fixed-rate loans with low interest rates and reduce the loans to a level that buyers can afford. By March 2008, Hope Alliance had converted 1 10,000 mortgage loans into low-interest loans, of which 680,000 were subprime loans. This did alleviate the crisis, but it was not enough. More and more investors began to flee the financial market and turned to the safest investment-US Treasury bonds. The losses on Wall Street are still expanding, and the liquidity of the market is still declining.
On March 14, 2008, Paulson received a distress call from Bear Stearns, and his funds were only $200 million. At the beginning of March, rumors began to circulate in the market that Bear Stearns was about to run out of liquidity. On March 7th to 14, the share price of Bear Stearns dropped from 77.32 to 62.3 dollars, and the unit price of CDS contract of subordinated bonds of100000 dollars soared from 3 16 thousand dollars to 6 19 thousand dollars, while the unit price of Lehman's CDS rose from 228 thousand dollars to 398 thousand dollars, which was still 3 a year ago. Obviously, short sellers are frantically shorting these two investment banks. Another Paulson in this story made a lot of money by lying down again.
At the beginning of May, the quarterly report released by Fannie Mae showed that it had suffered losses for three consecutive quarters. As I said before, two-thirds of the profits of Fannie Mae and Freddie Mac come from subprime bonds, so it's no wonder that they don't lose money. In early June, Lehman Brothers released its second-quarter results ahead of schedule, with an estimated loss of $2.8 billion. By the end of June, Lehman's share price had fallen to $65,438 +09.5438+0, and it was still 39.56 in mid-April. As of September 4, Fannie Mae and Freddie Mac had a net loss of $5.5 billion. Fannie Mae shares are $7.32, compared with $66 a year ago. The only related products that the three institutions raise prices are just shorting their CDS. These three institutions are teetering under the attack of short selling. George W. Bush and Henry reached a consensus in July that Fannie Mae and Freddie Mac could not fail. Their mortgages and MBS account for half of the total issuance in the United States, and their customers are all over the world. The biggest customers of Fannie Mae and Freddie Mac are Russian and China, which are the largest holders of US Treasury bonds. George W. Bush and Henry felt the balance of financial terror between China and the United States for the first time. The content of financial terror balance will be introduced in detail in the third issue. If Fannie Mae and Freddie Mac with the background of "government-sponsored enterprises" fall, the credit of the US dollar will be seriously damaged and even lead to a global economic recession. Lehman handed it over to the market, which is another bear Stearns model. On September 7th, Henry Merritt Paulson officially announced that the government had taken over Fannie Mae and Freddie Mac, respectively, injecting 654.38 billion US dollars, and replacing the CEO. Fannie Mae and Freddie Mac handed over 79.9% of their shares to the government. Why 79.9%? Because if the shareholder's equity ratio exceeds 80%, it will be taxed to inject capital into the company, and the Ministry of Finance will not forget to avoid taxes while rescuing both parties.
As early as September of 12, AIG's share price fell by 3 1% in one day. On the day of Lehman's collapse, AIG's share price fell by 50%, and its share price was only $6.65 within an hour of opening. Why did AIG go out of business so soon? Although AIG stopped underwriting CDS in 2006, his early 125 CDS contract brought him a loss of11500 million dollars, which was equivalent to twice the profit of AIG's financial department from 1994 to 2006. The bulk of these losses are not from the CDS of the three empty gods, but from Goldman Sachs. AIG has asked Henry Merritt Paulson for help during the negotiation of Lehman Brothers' acquisition. Without any help, AIG will run out of oil within a week. Goldman didn't give AIG that much time. /kloc-in September of 0/5, AIG's rating was downgraded and Goldman Sachs' hidden clause was triggered. He decisively attacked and asked AIG to add collateral. The downgrade led to the depreciation of AIG assets. In the past, you may need 100 asset compensation 100 billion dollars, but now you may need 150 assets. If AIG can't afford it, it will further trigger short-selling attacks, downgrade its rating, continue to depreciate its assets, and the hole for paying Goldman Sachs will become bigger and bigger, forming a vicious circle. Goldman Sachs pressed hard, and AIG's liquidity quickly bottomed out. When the financial market building is about to collapse, the first investment bank of the United States killed the first insurance company of the United States, and Goldman Sachs will make a profit of 50 million US dollars. Although AIG has almost exhausted all its assets, it still cannot satisfy Goldman Sachs' appetite. If AIG can't provide full collateral on September 16, it will breach the contract, and the short seller will not let AIG go, and his ending will be the same as Lehman. As the largest insurance company in the United States, AIG has pension insurance for millions of Americans and teachers' pensions. If AIG falls, it will directly shake the foundation of the United States. Henry Merritt Paulson never dreamed that his former company gave him such a big gift. Just a few hours before AIG publicly defaulted, Henry went to Capitol Hill for AIG's rescue. At 9 pm, the US government nationalized AIG, holding 79.9% of its shares and providing 85 billion US dollars in loans to support AIG.
Goldman Sachs was dumbfounded, AIG was nationalized and all the bullets in the bear market fell on Morgan Stanley and Goldman Sachs. The CDS prices of these two institutions doubled in an instant. A bear market is no different from those who made real estate speculation a few years ago. They don't care about the impact of the collapse of the financial system, only about how much money they can make. 18 In September, in order to save the capital market, the US Securities and Exchange Commission issued an order prohibiting short selling of 799 stocks, and the short selling ban was finally extended to June 10. How terrible is the strength of the bears? In 2008, the size of CDS issued by the United States was $62 trillion. What is the world GDP in 2008? 63.7 1 trillion dollars.