Today, do you have a hunch that a financial crisis will emerge within the next year?
Today's global economic environment is very bad, the economic recession, inflation remains high, the government debt ratio of enterprises and residents is high, commodity prices fluctuate greatly, the central bank raises interest rates rapidly, and various political storms are constantly staged.
Whenever there are three of the above phenomena in the world, usually, we are not far from the financial crisis....
In 2008, the subprime mortgage crisis.
Few of my young friends may remember how much of the impact of the crisis was at that time...
So, today, through a movie, we will tell the scene before and after the 2008 financial crisis.
And we have to sum up from it, to see how far we are today from a new round of financial crisis...
Bear No. 1: Michael Burry is a fund manager in the United States;
The material comes from the movie "The Big Short"
Left: Fund manager Michael Burry, played by Christian Bale
Right: Prototype Michael Burry
On this day he called in his assistant and asked to see the 20 best-selling mortgage bonds.
Here to explain to you the mortgage bond, at that time in the United States, residents only need to buy a down payment of 5%,
The rest of the money is borrowed from the bank, so these mortgage bonds are an IOU that residents make with the bank.
Originally, the bank collected some interest from residents every year, until one day, a man named Lewis came to the bank, he packed the mortgages together, and launched mortgage bonds.
That is, the IOU was allowed to buy and sell to each other...
The whole chain can be understood in this way, the left is the customer who has borrowed a loan and needs to repay, and the right is the customer who has money in his hand and wants to invest, so the bank only needs to package these mortgages into bonds, and then sell these bonds to those who want to invest, and this business is established.
The material comes from the movie "The Big Short"
Originally, this IOU was worth 105 yuan if the lender repaid on time, and now it is sold to customers who want to manage their finances at a price of 100 yuan.
This is equivalent to the investment of the person on the right, and the interest obtained by buying bonds is actually the mortgage paid by the person on the left.
The role of the bank in this is just to be a second-rate peddler, and the bank can also charge a 2% fee in the middle.
So, after the introduction of mortgage bonds, banks made a lot of money by selling these bonds.
Banking has also become the most prosperous industry in the United States.
So from the perspective of the bank, of course, I hope that the more mortgages, the better.
Because the more mortgages, the more bonds that can be packaged, and the more bonds, the more money you can receive to customers who want to manage their finances.
So banks will create more bonds at all costs...
As for how banks create more bonds, we'll talk about that...
Michael Barry saw that a large number of lenders in those best-selling bonds had deferred repayments, and these mortgages were likely to default at any time.
In other words, these seemingly AAA bonds are actually garbage...
So Barry decided to short the bonds.
But now there is no derivative on the market that can short mortgage bonds, so Barry goes to the bank and asks the bank to create a derivative for him.
This is credit default swaps...
Credit default swap refers to a bet between the bank and Barry for a certain period of time, if the value of the mortgage bond falls in the future, the bank will pay Barry a sum of money, if there is no problem with the mortgage bond in the future, Barry will have to pay a sum of money to the bank every once in a while.
The manager of the bank heard that someone was going to make an empty mortgage bond and was willing to pay himself a hundred million dollars, and he was happy to blossom, only Barry knew that shorting the mortgage bonds that were about to default on a large scale was a value investment, because those bonds were not worth at all...
Barry worries about what to do if the bank also goes bankrupt and can't afford to lose his money if the mortgage defaults, so Barry buys different amounts of credit default swaps at multiple banks.
Ever since Barry shorted mortgage bonds and was under tremendous pressure, investor after investor began to denounce him, as if the voices of the whole world were laughing at him.
The material comes from the movie "The Big Short"
Because the bank people gladly accepted the bet, the sales manager also made a big commission.
The financial industry is so corrupt that when you make money, you have to go to the bar to spend a bit, and when you meet your peers, you will brag about it.
So Barry's short mortgage soon reached Jared's ears.
The material comes from the movie "The Big Short"
The Big Short: Jared hears about Barry shorting his mortgage
1►
Someone is shorting the U.S. property market?
On the eve of the collapse of real estate in the United States, everything was a peaceful scene, and everyone thought that the mortgage would not default, and no one would not fail to pay the mortgage.
Only a few people are beginning to see that more and more mortgage defaults in the United States, mortgage bonds are beginning to become worthless, and this risk is gradually spreading.
Jared. Wienert is also a fund manager, and when he learned that real estate would crash in the future, he began investigating the borrower's credit behind these mortgage bonds.
The material comes from the movie "The Big Short"
Left: Fund manager Jared Gosling, played by Ryan Gosling. Jared Vannett
Right: Greg Lippmannt, a trader at prototype Deutsche Bank
He found that 65 percent of AAA bonds, 95 percent of which were backed by loans from people with credit ratings below 550, were subprime loans.
These people can't even get a bank loan, and his mortgage can be rated as low risk?
So he started looking around for customers, hoping that more people would short the mortgage bonds with him, and as long as the credit default swaps were sold, he could get a lot of sales remuneration.
At this time, some people must ask, why are there so many subprime loans, but the banks are indifferent?
Because banks don't care about this at all, they make IOUs to people who need houses, and then sell IOUs to those who want to invest, and make a fee from it.
If the person who owes the money doesn't pay it back, it's the person who bought the IOU who loses the money, not the bank.
Jared made a sales call to Mark.
This Mark is our second wave of protagonists.
Because of this sales call, he knew that someone was shorting mortgage bonds, and the amount was huge....
So he had the following conversation with Jared:
The material comes from the movie "The Big Short"
What is a CDO?
It can be understood that when the mortgage bonds were first sold, the bank just combined the IOUs together to form an IOU package, and later found that this IOUs package became very risky because there were too many subordinate loans in it.
What to do at this time?
Banks will put N different types of IOUs packages, some with good ratings and some with bad ratings, and then make a package to become an IOU super package.
The material comes from the movie "The Big Short"
The film uses blocks to show subprime defaults
Because the IOUs super gift package looks like a diversified thing, there may be good or bad in it, but the overall risk should be very low, so the credit rating agency gives the super gift package a 3A rating, that is, an ultra-low risk bond.
One day, when the risk of this super gift package also becomes high, and the credit rating becomes 3B, then put the super gift package and more super gift packages together and package it into a new super super gift package.
Also because of diversity, credit rating agencies will also rate super gift packages with a grade of AAA.
But in fact, a pile of garbage put together is just a bigger garbage.
Therefore, shorting these junk mortgage bonds can get ten times and twenty times the return in the future.
So Mark began his journey of research.
The material comes from the movie "The Big Short"
2►
Will the housing market crash?
In the financial market, most people are blind, and when the market is full of risks, there will always be a very small number of people who are willing to go against the public.
When everyone was betting that real estate would keep going up and that mortgages wouldn't default, a couple of young people also saw Jared. The Wehnert Fund's plan is to short U.S. real estate, and they also choose to believe it.
The prospectus says that the credit default swap for the purchase of mortgage bonds can earn ten times the future.
However, the capital threshold required to short mortgage bonds is very high.
Banks wouldn't have received them without a certain amount of money, and it just so happened that the two young men had a neighbor from Morgan's retired trader, so they chose to go to Ben for help.
As soon as the camera pans, Mark and his gang come to Miami to investigate what the owners of the mortgage bonds are.
They saw that many of the houses were vacant, no one lived at all, some houses, the newspapers sent a long time ago were completely placed in front of the house, and a house where someone lived, the applicant for this mortgage, was actually a dog of the landlord.
When they went to investigate home sales, they saw that most of the homes were listed for sale, which could be due to the fact that the owners of these homes were unemployed or were short of money.
They asked the salespeople who lent money, who, four years ago, could only lend a few loans a month, but now they can lend more than 60 loans a month. And 90% of loans are floating interest rates.
Here's a simple explanation, because bank interest rates actually change every year, for example, we are talking about US interest rate hikes this year.
I took out a loan last year and the interest rate was 1%, and if I had chosen a floating rate, the Fed's 1.5% rate hike this year would mean that starting early next year, my repayment rate would have become 2.5%.
And these loan salespeople, in order to get more commissions, do not care about the customer's credit, and will not explain the floating interest rate to the customer.
The material comes from the movie "The Big Short"
And these loan customers...
Dancing girls, for example, know nothing about it.
Large areas of housing vacancies, widespread defaults on mortgages, poor credit to lenders, and a large number of subprime lenders, and floating interest rates, and the United States is still a rate hike cycle.
All the bad things come together, and the spearheads eventually point to one: "The U.S. housing market is about to collapse."
So Mark decided to buy a credit default swap of large mortgage bonds and short the US housing market.
3►
Rating agencies are not caretakers of the financial system
Financial crises never happen suddenly, they always have signs very early on.
In January 2007, U.S. real estate was already unable to hold on, and in reality, large numbers of mortgage defaults occurred, and millions of houses defaulted.
At this time, two young people also planned to short the real estate in the United States, and through the introduction of their friend Ben, they also got the qualification to buy credit default swaps.
By this time, Barry, Venette, Mark, the two young men, and Ben had all shorted U.S. mortgage bonds.
However, the absurd phenomenon has emerged, the mortgage default rate is getting higher and higher, but the corresponding mortgage bond price is rising.
This is equivalent to, I gave you an IOU, but obviously I can't pay back the money, and when you want to sell this IOU to someone else, you have to raise the price?
And the rating agencies have not downgraded the rating of these bonds, or AAA.
The material comes from the movie "The Big Short"
Obviously, all financial institutions are lying.
Mark approached the rating agency Standard & Poor's and asked why the mortgage bonds had defaulted so much and still received AAA ratings.
The answer was:
The material comes from the movie "The Big Short"
It turns out that credit ratings are also a business.
When a crisis is about to happen, the entire financial system lies!
It's ridiculous, but it's in everyone's interest...
4►
The crisis explosion is far greater than imagined
Real estate is facing a collapse, mortgages began to default on a large scale, but the entire financial system, but do not admit it, while not acknowledging, but also trying to cover up their crimes.
In order to expose the bank's atrocities in a more public scene, Wernert, Mark, and others on the other side plan to go to the U.S. Securitization Forum to see what those people think of the financial environment in 2007 and see if credit default swaps are a good business.
At the conference, the first speaker was Mark
And Mark also said bluntly, saying that the bank's subprime loans will be zero!
The material comes from the movie "The Big Short"
On the other side, Jamie meets his ex-sister-in-law, who works at the Securities and Exchange Commission.
The sister-in-law is preparing to jump from the financial regulator to the big bank, and among them, there is no legal provision that the financial regulator and the financial institution cannot jump from each other.
Watching mortgage bonds still rise step by step, and watching mortgage default data also rise, the whole world is in chaos.
Deception in the financial world...
It is vividly embodied.
The material comes from the movie "The Big Short"
However, this is very uncomfortable for traders, and it is time to pay premiums, Barry's fund has lost 19%, want to continue to hold credit default swaps, cash is not enough, Barry can only sell AIG, real estate bonds to pay the premium of credit default swaps.
Jamie and Charlie, after doing some research again, decided to increase their positions, this time to short those AAA bonds, not just B-rated bonds.
Under normal circumstances, bonds rated at AAA will not default, just like Treasuries, but the 2007 US mortgage bonds, AAA super super gift package, which has most of the super package of junk bonds, so short AAA bonds will make a profit of 200 times!
Only Ben knew that if they won, the U.S. economy would collapse and a large number of ordinary people would lose their homes, their jobs, and their pensions.
Mark is chatting with a fund manager of a Merrill Lynch CDO, the so-called CDO fund manager, in fact, he took your money and bought a lot of super gift packages.
And these super gift packages he bought were provided by Merrill Lynch.
So Merrill Lynch provided him with customers, and customers gave him money, but most of his customers' money was purchased into the garbage super gift package provided by Merrill Lynch.
This is not the end, we thought that a junk bond super gift package sold once, in fact, it is not, junk bond A can not be sold, and junk bond BC formed a new bond junk no. 1 for sale.
After Junk Bond D could not be sold, a new bond Junk Ii was formed with Junk Bond EF to sell.
At this time, if a fund manager comes and he raises a large amount of money to buy junk bond No. 1 and buy bond Junk No. 2, then he is equivalent to Junk Fund No. 1.
At this time, another fund manager came, and he also raised a large amount of money, and he bought Junk Bond No. 1, and Junk Fund No. 1.
So he became Junk Fund Number Two.
In this way, one fund buys one fund, one fund buys another fund, and the bottom fund buys junk mortgage bonds.
So there is this passage
The material comes from the movie "The Big Short"
Originally only 50 million subprime loans, behind the layer after layer of investment, the funds involved have become 1 billion.
Dirty financial industry...
The client chooses this fund manager, but the fund manager does not want to think about how to make more profits, only wants to make investors' money, you think you are earning his interest, in fact he earns your principal.
After the end of the forum, these glamorous people are gone, Jamie's former sister-in-law, and the goldman Sachs person, kiss goodbye, it seems, it should be a job hopping success...
The material comes from the movie "The Big Short"
5►
The dilemma that traders will face
Only people who have traded know how much pressure there is to carry an order.
After Barry shorted U.S. real estate, the mortgage default rate is getting higher and higher, but the price of mortgage bonds is still rising.
He knew that there were people in the financial system who were lying, but there was nothing he could do, looking at the losses on the books, carrying a huge psychological pressure, and could only listen to the fierce rock music and drums every day to solve it.
Finally, in April 2007, the mortgage default rate continued to rise, and news broadcasts began to have large financial companies with large-scale layoffs and filing for bankruptcy.
When a crisis arises and everyone wants to protect themselves, Mark swaps credit defaults, and Morgan Stanley tries to trick Mark into selling credit default swaps to himself.
Barry called the bank to ask about the current price of the credit default swap, the bank was afraid of losing money, delayed answering the phone, and a week later answered the phone saying that the price of the credit default swap had not changed, saying that this was an independent market...
The subprime mortgage crisis is breaking out, and banks are beginning to want to settle their accounts...
Jamie and Charlie are going to the newspaper to report the crimes of Exposing Wall Street, and they are so greedy. But the Wall Street Journal said:
The material comes from the movie "The Big Short"
Although the credit default swap was bought, everyone's situation seemed to be critical.
Although the bank that holds the credit default swap is on the verge of bankruptcy, in case the bank is really bankrupt, the credit default swap held by the bank is worthless.
Barry bought credit default swaps at every major bank, and the Jamie brothers were mostly in Bear Steden.
Mark's bet was actually his parent company, Morgan Stanley.
The material comes from the movie "The Big Short"
Because credit default swaps are not traded in the open market, it is difficult to find a buyer, so everyone began to sell out at a price significantly lower than the market price.
After some twists and turns, although it was finally about half lower than the market price, everyone still made a lot of money in the face of several times the profit.
Afterward...
Mark went to a forum where he confronted a banker who was backing up Bear Stearns.
Mark is blunt about the crimes of Wall Street, who sell bonds for profit and develop derivatives for profit, but none of them are responsible for the risks of any breed.
While the forum is in progress, Bear Stearns' share price continues to fall.
Some days later, several banks, led by Bear Stearns, declared bankruptcy...
At the end of the film, Wall Street is in a mess, and the protagonists return to calm.
Barry saw the collapse of the financial industry, so that many ordinary people who have nothing to do with the financial industry, are suffering from it, after two years of anxiety and turmoil, Barry decided to liquidate the fund and withdraw from the jianghu.
So far, the fund has returned 489%.
Jamie and Charlie go to the failed investment bank, see a mess, and only sigh.
Mark, also changed his anger and became calm and helpless, knowing that the financial disaster would end with the poor and the common people.
And those high-ranking bankers will soon return to their original positions and restart this financial game...
6►
The dispute between the United States and Japan
Looking back now, the causes of the subprime mortgage crisis, the entanglement of interests between the financial system and financial institutions, have made no one responsible for the emergence of subprime mortgages.
The generation of subprime loans is the source of explosives, banks and financial institutions only care about earning fees, because banks can transfer the risk of subprime loans to other retail investors who invest in bonds, so that the subprime mortgage storm can be unscrupulous in the private sector.
The financial derivatives CDO, on the other hand, is the amplification of explosives again, when the entire financial system begins to binge for it, when the subordinated debt begins to flood the market, the world is not far from collapse.
For hundreds of years, financial crises have been unavoidable, why?
Because of the system?
Because of derivatives?
No, it's because of human nature...
Capital itself is not bloodthirsty, what is really bloodthirsty is the humanity behind capital.
Human nature is greedy, and everyone is doing what is in his interest, but together, these can cause a crisis in the entire financial system.
The material comes from the movie "The Big Short"
Many financial crises in history have not occurred suddenly, and before The problems of Bear Stearns and Lehman, the bright-looking financial system was already full of moths.
However, the collapse of large investment banks is the last straw that crushes people's psychological defenses, and also pushes the financial crisis to a climax...
Debt is the root cause of the financial crisis! The rise in the debt default rate is a precursor to the financial crisis...
Before the financial crisis, there will be many phenomena, but the people at the dance party will not hear that the flood outside has been terrible, until the flood engulfs them...
Here we also leave a topic, before the financial crisis, what are the more specific phenomena, waiting for me to make a profound summary, we will talk about it in the next issue.
The in-depth interpretation series of this issue of financial movies, if you like, hard to forward the comments and like it.
The boss is not optimistic about this series, and the boss said that only if this series of tests is successful, can it continue to be done in the future.
Finally, in the words of Mark Twain at the beginning of a "Big Short" movie, I would like to send it to us in this unprecedented era:
What gets us into trouble is not ignorance, but fallacious assertions that seem to be correct.
The material comes from the movie "The Big Short"
I hope that every reader can feel the surge of the tide of the times, and can follow the trend and step forward.
Thanks for watching, I'm Flush. If you are interested, you are welcome to comment on the interaction.
Friends, we'll see you next time.
Risk Warning: Personal views are for reference only and do not constitute investment advice
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