Chapter 17 Chapter 4 How the Financial Crisis Impacts the Real Economy

●What is the impact of this financial crisis on us? ● What is our real problem?It is more serious than others not to buy our products. ●The so-called subprime loan refers to a group of people with less than outstanding credit who also borrow money from the bank. ●Because of subprime loans, the debt of the entire United States is full of a new element called melamine. Let's think about it first, this time the financial crisis itself.What is the impact on us?Many of us at this time are still dreaming that our banks don't buy much US subprime debt, so we won't have a problem.Do you know why they think that?Because we are a nation that feels very good, we never see our own problems, we only see other people's problems.But now it is not a matter of finance or not. The essence of our problem is that others will not buy our products. This is more serious than anything else.

So please think about it, how far has the US subprime mortgage crisis reached by the end of November 2008?It has actually hit the real sector.The so-called subprime loan is to allow a group of people with poor credit to borrow money from banks to buy houses under the operation of Wall Street led by international financial capital and its pawns.Why can they borrow money?Because they hired intermediary agencies, these intermediary agencies used to be very strict, but recently, I think they have become corrupt, and they are not so strict. These people with poor credit and intermediary agencies forged information to cheat the bank together. Suppose they cheated the US dollar mortgage, and after the money was cheated, what did the bank do?The bank resells the $10,000 debt.Sold to US government institutions, including Fannie Mae and Freddie Mac.The original intention of Fannie Mae and Freddie Mac was that the U.S. government hoped to help American people buy houses through such institutions (the details need not be mentioned), or sell them to securities companies.After these institutions get $10,000 of creditor's rights, they cut it into derivative financial instruments.In other words, all financial instruments derived from banks are called derivative financial instruments.My explanation is relatively clear. The derivative financial instruments you see reported in the media are too complicated.

How do these institutions cut the $10,000 bond into derivative financial instruments?It is cut into 10 real estate mortgage bonds (this is the so-called derivative financial instrument), each bond has a face value of 1,000 US dollars. 10 is exactly $10,000.Then, these institutions resell these bonds and buy them to ordinary people.Buy it to the bank, or sell it to the government. Now the problem arises.The buddy who bought the house couldn't pay back the money.The inevitable result of him not being able to pay back the money is to hit the final buyer through the entire chain, that is, the people who buy these bonds, including our Chinese government, including the American people, including Citibank.Citibank also almost went bankrupt in late October 2008, also because it bought these subprime mortgage bonds, and the US government also came to rescue it.The situation is very serious.Think about it, everyone, what kind of shock will this incident cause in the hearts of Americans?That is, the United States was originally a good place, but because of subprime loans, the entire US debt system was filled with a new element called melamine.

So the real problem of the financial crisis is subprime loans. If you understand it as melamine, you will understand everything.Readers, please think about it, how do we feel when we encounter melamine?We have completely lost confidence in the milk industry, and the inevitable result of our loss of confidence in the milk industry is that China's milk industry will collapse in an all-round way.By the same token, when Americans encounter subprime loans such as melamine, they almost completely lose confidence in the US financial system. What should we do if we lose confidence?The result is that banks are afraid to lend money and the US financial system has collapsed.