When the global financial market was severely shaken, stocks, futures, bonds, etc. fell one after another. However, many people found that the prices of crude oil and gold were constantly fluctuating up and down. It could even be said that they did not fall at all, but rose slightly.
First, the hot money that fled from the bond and stock markets entered the futures market one after another. Futures are also goods and can be regarded as physical objects.
Originally, they could liquidate their bonds and save them in U.S. dollars, but the U.S. dollar is depreciating, and they are losing money when they save money.
The decline in the stock market, coupled with the emergence of various bad news, caused a large number of investors to flee. Of course, there are also some investment funds that take the opportunity to short-sell the stock market and make profits from reverse operations.
It's a pity that this won't be possible soon. It's not that the government doesn't allow it, but that no financial company is willing to lend you stocks.
Everyone knows that the stock market has fallen seriously, so why should we lend you stocks
In the past, the leverage ratio of many investment companies continued to rise, from five times to ten times, to thirty times, and some companies even achieved ultra-high leverage ratios of fifty times.
Don't think that these investment companies are just stupid, and they are seeking death by using such high leverage. They can buy insurance, a kind of credit default swap insurance.
Banks cannot use these high leverages, but fund companies and so on can. They use high leverages to invest. What should I do if the risk is too great
Buy insurance. Of course, this is not insurance in the traditional sense, but the practical effect is the same.
The fund company went to the bank and said, my investment here is very risky, how about you help me get loan default insurance? For ten years, I will pay you 100 million in premiums every year, which is one billion US dollars.
If I did not breach the contract, then you would have gotten this premium for nothing, and if you invested my premium, you would definitely be able to make another profit, right
If I breach the contract, then you have to help me pay for it.
What Party A thinks is that if I use leverage to invest, the profit itself will be multiple times. If I spend one billion to buy insurance, I will still make a profit.
After analysis, Party B believes that the risk of Party A's default is extremely low, maybe only 1%, so this insurance can be purchased and the profit is not low.
If there is only one company, then the profit will not be particularly large, but what if we can attract the same 100 customers? Wouldn’t it be possible to collect 100 billion in insurance money
In this way, even if one of them is really unlucky and breaks the contract, I will still be able to afford the compensation. Using the premiums of other policyholders to pay insurance claims is itself a normal business method for insurance companies.
So the bank promoted this credit default swap insurance contract to major fund companies and collected more premiums from the companies, so they would be safe.
But it will take ten years to fully realize this profit, which is too slow, right
So they negotiated with a third party: These contracts of mine are worth 100 billion U.S. dollars, but it will take ten years to get them. Now I will sell them to you for 50 billion U.S. dollars. Do you want them
After bargaining, the third party bought the contract worth US$100 billion for US$40 billion, and Party B directly pocketed US$40 billion in profit.
The third party also felt that ten years was too much, so he also put the price up for sale at US$45 billion, attracting a fourth party to buy it. Once it was sold, they easily pocketed a profit of US$5 billion.
After so many changes of hands, coupled with the attractiveness of this model, the market for this kind of insurance contract has become extremely large, with a total volume of more than 60 trillion US dollars.
All the participating financial institutions above have made money. Their profits basically come from the subprime loan bonds that the original company used to leverage, and these loans ultimately fell on the heads of those credit institutions and lenders. .
So only credit institutions and lenders lose money, and everyone else makes money. It is said that the bank will not lose anything because of this, but banks are also credit institutions, and even fund companies under banks also invest in subprime loan bonds and the like.
When the lender defaults, the company holding the insurance contract will pay compensation.
Then the last taker is unlucky, and they have to pay for the insurance. It doesn't matter if there are only one or two defaulters, they can afford it. But they never imagined that the default rate would be so high.
From a few percent to more than ten percent, the insurance premium is not that high, not to mention that they are still changing hands.
The last one that takes over the business cannot bear it anymore and is about to go bankrupt, which will ripple upward, and then affect the entire chain step by step.
At this time, everyone began to look for political axes. We are going bankrupt and the government doesn’t care
But think about it, how much insurance was collected at the beginning, but the money paid out was dozens or hundreds of times more than the insurance money, or even higher.
What should the American government do if they don’t have so much money? It’s simple. They have a giant like Fannie and Freddie, so Fannie and Freddie are forced to swallow such bad contracts again.
If the government takes action, more and more fund companies that cannot bear it will declare bankruptcy. Originally, some of their parent companies belonged to some large consortiums, so these losses were not unbearable.
But now that the government has taken over, it would be great to just throw the burden away. Those financial groups still put their own interests first.
As a result, bankruptcies are becoming more and more serious, with corporate bankruptcies and personal bankruptcies, and the numbers are soaring.
It was also at this time that Obama announced a series of measures, all targeting the poor, which attracted too many people to vote for him.
He also claimed that it was a mistake for the United States to launch a war in Afghanistan. It would be fine if the battle was resolved quickly as they expected, but if it drags on for so long, it will directly bring down the U.S. economy.
Anyway, Xiao Bu Shi is about to step down. At this time, all kinds of shit basins will be thrown at his head. Many policies are decided by the National Congress, and Bush's power is far less powerful.
The people of Xiao Bu Shi's family are also working hard behind the scenes, trying desperately to delay Xiao Bu Shi at least to let Xiao Bu Shi resign safely, and then leave the trouble to his successor to prevent this matter from being used by his opponents when there is another candidate in their family. Bring it out for criticism.
The economic situation in the United States has become increasingly severe, and Europe has also been severely affected. Even UBS has suffered losses.
At this time, a lot of funds simply fled the US market and turned to the European market. In fact, this is also the reason why Europe has vigorously rescued the market, attracting these hot money to join and making their economy better.
The reason why the United States' economic situation is very good is also related to its ability to attract the largest amount of foreign investment in the world.
When those funds arrived in Europe, just as Feng Yu and others expected, they joined the futures market, and the largest investments were in crude oil and gold.
After Feng Yu and others saw the news, they all relaxed a lot. It seems that crude oil has risen to about one hundred dollars, which is no longer a problem!
While Feng Yu was enjoying himself, serious problems arose in the business of one of Feng Yu's important partners.
… (To be continued.)