Chapter 22 understand the logic of finance

In August 2009, Professor Chen Zhiwu published the book "The Logic of Finance", which was warmly welcomed by the book market.What kind of value conflicts lie behind the popularity of this book? ◎Reporter: You recently published the book "The Logic of Finance". What is the main idea of ​​this book? Chen Zhiwu: The financial crisis that occurred in the past year has made people all over the world very interested in the financial market.In China, there are some very misleading books flooding the market in my opinion, such as, etc. These books inherit the perspective of exploitation theory and conspiracy theory to understand financial markets, politics and society.China has often had such a perspective in the past 100 years, which made us lose the opportunity to really learn finance.

In Chinese society, the reason why a book like this has caused such a big response and so many people like it may have a lot to do with the fact that the whole society has always believed in superstition.What is superstition?People will die and get sick, but when we get sick and when we die, we have no way of knowing.For these unknowable things that scare us so much, we want to find some kind of explanation that feels good and can provide a little comfort.What is characteristic of these explanations?You don’t need to prove it, you don’t want to prove it, you think this is right, it makes you feel that you understand this matter, and that’s fine.This kind of book basically inherits the tradition of Chinese superstition and explains finance in the way of conspiracy theory and exploitation theory. It makes us wonder why the Ross family still has so many financial masters, whether it is Goldman Sachs or Morgan Stanley. If you need to issue 1 billion, 10 billion or even hundreds of billions of dollars of bonds, stocks or differential securities at any time around the world, you can mobilize the required capital globally within a few hours.We should ask why they have these abilities, what skills they rely on to build such a large financial network and financial strength, and what things we Chinese can learn, so that China can also be in the financial market and in the whole society in the future. If the financing aspect can also reach that scale, that is a constructive perspective.Don't use descriptive conspiracy theories as an answer that this person will eventually control this king and control that country.

You can think about it, there are so many kings in the history of the West in the past hundreds of years. They have great power and control the army. Why are they willing to accept the support of financial family financial companies?Why are they so strong in terms of military and political power, they can be dictators, but they still have to make concessions or be subject to these financial masters?At least one thing, these financial masters must have a reputation that even the king himself cannot have or establish.Understanding from this constructive perspective can give us the opportunity to learn a lot of useful things.From a conspiracy theory point of view, you can live a dry addiction, but you don't learn anything.

I can give an example that has caused great harm to China.Since more than a hundred years ago, regarding the operation of Western multinational companies and the rise of the economy, the textbooks and mainstream views throughout China say that it is Western imperialism that plunders and exploits.After drawing such a big conclusion, we have no chance to ask some more constructive questions. For example, these Western multinational companies, from the British East India Company to the United States, France and other companies, they entered It is a very strange society and country for them, and they don't understand the local culture and norms. How do they develop their business in those unfamiliar lands, and what specific operations do they use to avoid risks in all aspects.In the past, we always interpreted it from the perspective of the theory of exploitation and the theory of destroying the country. Until today, when Chinese multinational companies, Lenovo, Haier, PetroChina, Sinopec, Huawei, etc., went out, we suddenly discovered that because we have been exploiting and plundering To interpret the history of Western multinational companies, there is no chance to understand their overseas operating experience, so that the knowledge in this area is very little, almost equal to zero. Today, when my company goes out, it loses a little here, a little there, and so on This kind of trial and error way to re-learn again.

Today, when we understand the financial and capital markets, we must not make the mistakes of the past. We should understand multinational companies in Western countries from the perspective of exploitation and conspiracy theories. Instead, we should ask more questions from a constructive perspective. Learn more about how some financial consortia in the United States, Western Europe, and Japan operate.With such a hope, I have accelerated the publication of this book in the past few months, hoping that the book "The Logic of Finance" can answer these questions of many people in Chinese society in the past year or so.I hope to correct many people's misunderstandings about finance and have a more constructive understanding of finance.

◎Reporter: Now there is a view that the reason why China has not suffered as hard as European and American countries in this financial crisis is because our financial industry is not very open.What do you think about this point of view? Chen Zhiwu: The reason is very simple. Look at North Korea and Cuba, and see how much they were hit by the financial crisis. They were not hit because they chose to isolate themselves from the world.It's hard for any money to get into North Korea into Cuba, it's hard to get out, and they're not getting into the market at all.There are indeed some voices in China saying that there is no need to develop finance in the future, and there is no financial market, and it is enough to have manufacturing and agriculture.You can think about whether this judgment is right or not. For the well-being and long-term development of Chinese society, is the North Korean model more beneficial-it can allow us to avoid the impact of the financial crisis, or follow China's past 30 years? It is more beneficial to go down the road of market-oriented reform and opening up of foreign trade.It should be said that I don’t need to say too much about this truth, and everyone can judge for themselves.

After the financial market is liberalized, it is indeed possible for you to encounter a financial crisis. The more you develop, the more you may be hit by the financial crisis. This is natural. There is nothing in the world that has only benefits and no potential. disadvantages.There is a similar example, like electricity, we are inseparable from electricity now, whether it is computers, home lighting, or even cars, elevators, airplanes, subways, etc., all of these are connected with electricity.Electricity was first introduced to Shanghai by the British in the middle of the 19th century. As a trading port in Shanghai, the British set up telegraphs there. In order to support the telegraphs, they had to use generators. At that time, someone was beaten to death when they touched the wires, which caused a great deal of controversy in Shanghai. Many ordinary people took to the streets to drive away those foreigners and let them take back those wires and generators.

To people at that time, wires looked like nothing else, but something invisible and intangible could kill people. It must be a kind of witchcraft to drive away those foreign devils and gringos. At that time, the British were forced to Remove these wires and facilities that generate electricity.This is the same as financial products in the financial market. If it is not handled well, it can kill people. Electricity with a voltage of 200 volts or higher can kill many people.But if you handle it well and apply it well, as we can see in China today, we cannot do without electricity all the time.The same applies to trains, and they get the same treatment as soon as they enter China.In the 150 years from his time to the present, the Chinese society and the Chinese have gone from being completely repelled and completely incomprehensible to a little bit of understanding, so that they later found out that they had to do this for the power of the country and the Westernization Movement. Until now Totally 100% accepted.

Our understanding and acceptance of finance is also going through such a process. This process has not been fully completed, although the period when the financial securities capital market entered China in the modern sense is actually the same period as the electricity entered China. 18 In the 1960s, electricity came in, stocks came in, and bond trading also came in. These modern securities are similar to the period when electricity entered China, all in the 1860s, in the middle of the 19th century.We can accept electricity now, and the same is true for financial products. Don't be so afraid, especially in my opinion, for today's Chinese society, the role of the financial market is far more important than it was in the 1980s and 1990s.If the financial market cannot develop freely, including the development of financial derivatives, then the transformation of China's financial and economic growth model will be very difficult. Fundamentally speaking, whether the space for personal and household consumption growth can be controlled Further enlarged, and will be further compressed.

To give a simple example, housing mortgage loans are a very simple type of financial securities. Before 1998, when there were no housing mortgage loans, which would help consumers better plan future consumption and savings and investment, people had to rely on the money they saved every month, perhaps 10 or 20 years, to buy a house .But it’s different now. If you want to consume in advance and buy a house in advance, you can go to the bank to get a loan.Housing mortgage loans not only improve people's lifelong consumption plans, they can live in their own houses earlier, but also drive the development of real estate and related industries.

Through the benefits brought by the simple financial product of bank housing mortgage loans, it can be seen that if more financial innovations and financial products are provided in other aspects, it can quickly develop the financial market and the securities market, so that the general public Families feel more at ease to spend more of the money they earn today, and make good enough arrangements for medical insurance, pensions, etc., so that everyone has no worries about the future.At that time, China will naturally have sufficient domestic demand.Compared with the saving rate of more than 20% in China, the average saving rate of American households is only about 3%. This is a completely different concept.In other words, if more financial products and securities products targeting consumers can be provided, the pressure on ordinary households to save will be greatly reduced, and they will not save too much to avoid various uncertainties in the future. Consume more income and convert the power of consumption into the source of economic growth. ◎Reporter: Another serious problem that the economic crisis may bring us is inflation.Everyone is more worried that inflation may occur in the near future.If inflation occurs, the most important thing for ordinary people is to preserve the value of assets.I went to a lecture on this yesterday. In the lecture, some experts suggested that we should reserve more gold because the dollar is weakening. In the future, there will be a situation where major currencies are concentrated to check and balance each other. The renminbi may also become an international currency. Gold will play a role again, and the value-preserving function of gold will be further enhanced.What do you think of this point of view? Chen Zhiwu: Buying stock funds and real estate is far better than buying gold in an environment where the future currency value is full of uncertainty and future inflation is full of uncertainty.Many people in China who do not understand economics and finance are bragging about how gold can achieve value preservation. This is a very naive and traditional idea.The industrial value and use value of gold in modern society is actually very low, especially now that there are more and more various artificial composite materials, the use value of gold is not the same as 400 years ago, 300 years ago, 200 years ago method than.It turns out that human life is very simple, and they are all agricultural or nomadic societies. At that time, people believed that gold was the only one that could be appreciated and seen. Among all natural materials, its physical properties were the most unique, so its collection value was stronger.But now, frankly speaking, there may be only a few other Asian societies and some traditional African tribes in China, and gold still has some value for collection and appreciation, while American society and Western European society have very low worship of gold.It turns out that the reason why gold has some currency value is because there was no institutional framework to support credit currency at that time. Now, this institutional framework is generally very good in many countries. At this time, we still have to count on it to return to The gold standard may be based on gold as the main means of value preservation and appreciation. I think this is not easy to stand.Here are some ideas that couldn't possibly become reality.I know this is very abstract, but it is more understandable if I talk about some examples. In the past, if you went somewhere in China, you had to bring your own quilt, and you had to calculate how many days you would go out, how many catties of rice and how much vegetables you would bring, so that you could sleep on the quilt you brought and eat the rice you brought. , eat your own food, no need to use money.At that time, the society's demand for money was very low, and the gold or silver provided by God was still acceptable as currency and payment tools.But today in China, not to mention in the United States or other countries, there are not many people who go to Beijing to Shanghai with a quilt, food and vegetables, money and cash.Generally just bring a credit card and a small amount of banknotes.The current human society has monetized many economic transactions and economic activities that did not require currency payment. Is this development in sync with the total supply of gold in the world?We know the two are okay. The global underground and ground supply of gold has nothing to do with whether the marketization of the entire human society is developed or not, and whether the development speed is fast or slow.That's why a gold standard can be imagined, but not realized.In fact, in terms of the fact that the gold standard cannot become a reality, China has made great contributions in the past 30 years. How big is the contribution?In addition to no longer bringing quilts, no food, no vegetables when traveling, whether you are moving, or going to the train station or the airport, you used to ask your friends to take them there by bicycle, and conduct economics between friends in a friendly way. Mutual payment.But now they are all looking for moving companies, taxi companies, etc. The development of marketization in these areas has also greatly increased the demand for currency in the entire Chinese society.In order to support such transactions, the People's Bank of China must print more money accordingly, otherwise the new transformed and more market-oriented Chinese economy cannot function.In these senses, few people who really understand the modern economy, and those who really understand finance, will no longer spend their time on restoring gold to the silver standard or the gold standard. ◎Reporter: Is there really no problem with the current global banknote credit system?What do you think of the prospect of RMB as an international reserve currency or international trade currency? Chen Zhiwu: Still the example just now, just like electricity brings many benefits and is very useful, but it can also kill people.Will there be problems with finance or credit currency?There must be something wrong.Of course, everyone is focusing on whether the United States will issue currency indiscriminately, and everyone is not paying attention to what China is doing.What does the amount of credit mean?The issuance of a large amount of credit has essentially increased the mobility of Chinese society. In a sense, China is also issuing currency indiscriminately based on economic and political considerations.This brings us back to the question of who is more trustworthy. Many people lack understanding of the history of the right to issue currency, and have a wrong assumption that the right to issue currency has always been in the hands of the government and the state.This is a deadly wrong place to start.The real history of human beings is reversed. Only in modern times, the right to issue currency is in the hands of the government.For example, until now, Hong Kong dollars in Hong Kong are still issued by private banks, such as Bank of China, Standard Chartered Bank, and HSBC, rather than by the Hong Kong government.In addition to official money, China has always had a lot of private money, such as bills issued by banks.The United States did not begin to unify its currency until the 20th century, and European countries such as the United Kingdom did not begin to issue currency uniformly by the central bank until modern times. Historically, the right to issue currency has been vested in the hands of the government, which developed in tandem with the emergence of a democratic constitutional system.If a country does not have a democratic constitutional government that operates smoothly to restrain public power, it is better to leave the right to issue currency to private financial institutions. At least these private financial institutions will care about their credit in order to survive and develop.The constraints of such market forces are far more reliable than a government that is not constrained by democratic constitutionalism. It is a good wish for the renminbi to serve as an international reserve currency or international trade currency, but there is still a lot of basic work to be done step by step. Before the reform is in place, this wish will not be realized.The renminbi is not yet freely convertible. How can a currency that is not freely convertible become an international currency?The first step is not done.Second, even if you change the RMB into a freely convertible currency, whether China's capital account will be liberalized at this time is another key point.If I, as a foreign company or a foreign bank, get so much RMB, if I can't exchange it for my local currency or other international currencies in the world, I don't really want so much RMB.Is China's capital market well developed, is the asset market in all aspects well developed, and is it free enough?Otherwise, I won't be able to appreciate the value of these banknotes when I get them, so I will definitely quit. Why can't China liberalize its capital account and at the same time allow the free convertibility of the renminbi? There are other problems in this.This is because the renminbi should be freely convertible and the capital account should be liberalized. At the same time, the bank's loan and deposit rates should also be determined by market-based supply and demand.Now it’s all good. So many state-owned enterprises have been supported by the artificially low loan interest rate of the People’s Bank of China in the past few decades. Everyone knows that its efficiency is very bad.If the market is allowed to determine the interest rate of RMB loans, it means that many state-owned enterprises cannot continue to operate and will close their doors.This will also affect whether the state-owned enterprises can survive, or let some of them die and some survive, which involves another issue.Many people who don't understand these economic relations will talk about the internationalization of the RMB, the RMB becoming the world's reserve currency, and so on with a strong desire.These wishes can be expressed, but are very far from real reality.