Chapter 2 Lecture 1 When the United States is in Crisis

Once in a century, the financial turmoil in the United States triggers global turmoil. Once the American people lose confidence, the consequences will be disastrous. ●Why are there so many mysteries behind the subprime crisis? Take out a small part of the money as your salary, that is an annual salary of several million or tens of millions.The annual salary of millions or tens of millions of dollars a year is still not enough for them.They created an unprecedented subprime market. ●Wall Street experienced an industry earthquake, who is manipulating the US investment banks? When I graduated in 1986, my first choice to find a job included Lehman Brothers, Goldman Sachs and Merrill Lynch.

●What is the basis for the U.S. government's resolute move to rescue the market? The root cause of the 1929 economic crisis was that the US government did not have a firewall. On September 15, 2008, Lehman Brothers, the fourth largest investment bank in the United States, finally filed for bankruptcy protection due to the subprime mortgage problem, thus becoming the source of a new round of financial turmoil.Wall Street, known as the heart of the United States, has thus fallen into earth-shaking turmoil. In just a few days, Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac, American International Group... the once powerful Wall Street... The roles have fallen one after another, and everything seems to be verifying the words of former Federal Reserve Chairman Greenspan-the United States is in the midst of a "once in a century" financial crisis.So, what is the reason for the financial crisis in the United States, and behind the storm on Wall Street, how many secrets do we not know?

The subprime mortgage crisis has recently become the most popular word in the financial news, but I believe that most ordinary people do not know what a subprime mortgage or subprime debt is. Background: The reason why subprime mortgages triggered the financial crisis in the United States is closely related to the financial structure of the United States.When an American applies for a housing loan, the intermediary agency must first issue an income certificate. The intermediary agency proves to the bank that the borrower has the ability to repay the loan, and then the bank will loan the money to the borrower.The difference with China is that in addition to the relationship with the borrowers, banks also issue bonds to social institutions and the public through Freddie Mac and Fannie Mae while lending money to borrowers.In this way, the housing loan permeates into the entire financial link. If there is a problem with the loan, its impact will not be limited to the relationship between the bank and the borrower.Another source of this crisis is the investment banks on Wall Street. Investment banks are a concept opposite to traditional commercial banks. Traditional commercial banks take deposits and loans as their main business, while investment banks serve the capital market and continue to try financial innovation.Wall Street in the United States is almost synonymous with modern investment banks. These investment banks have continuously expanded their scale, seized the commanding heights around the world, and deeply penetrated into the lifeblood of the modern economy.So, what kind of people are behind these investment banks?And what is the reason that the Wall Street investment banks, which are in charge of the wind and rain, are in crisis?

For these Wall Street investment banks, you don't need to know who they are just yet.What I can tell you is: this is the greediest bunch of people. Lehman Brothers, Goldman Sachs and Merrill Lynch.Working in this kind of company is simply perfect. The annual salary in the first year is hundreds of thousands of dollars. After working for a few years, if you don’t get fired, your annual salary can reach millions of dollars. The company's partners or chairman and general manager may earn an annual salary of tens of millions of dollars. Professor Lisenberg of the Wharton School of Business, he went to work at Goldman Sachs, rose to the highest position and became a partner.He's retired now and bought a big house, right here in New Jersey.New Jersey is a very wealthy state in the United States, with high housing prices.His house has 1400 mu and the yard is very large. What is the concept of 1400 mu?It is quite the size of a town like ours.He said, our family still has a mountain where we can go skiing, and there are 7 villas.It's really big, and it's very troublesome for everyone to meet. 1,400 mu of land is really too far away.It is because he works at Goldman Sachs that he has such financial resources to buy such a big house.So every student is very envious when they see it, and they all hope to enter this bank.

But think about it, why does he take so much money?How can an ordinary person get an annual salary of tens of millions of dollars, or millions of dollars?Even newly graduated MBAs and MBAs can earn at least two to three hundred thousand dollars a year. This is still their first year of employment, so why do they get so much?Where did so much money come from? Some people may say that because the company has good benefits.However, if it is a company that sells mineral water, no matter how large the output is and how good the benefits are, the annual salary of tens of thousands of dollars for employees at most will be great, and it cannot be compared with these investment banks at all.

To give another example, in general Wall Street commercial banks, new employees earn tens of thousands of dollars a year, and an ordinary company executive’s annual salary of hundreds of thousands of dollars is considered high. Dollars, this is simply unimaginable. Why do investment bank employees make so much money?Let me tell you, this is Wall Street greed.Where does this greed come from?The profit margin of general banks is about 5% to 10%. The reason why they can get so much money must be because they have created huge wealth.This amount of wealth creation must be very large, so large that we can't imagine it, so that they can get millions or tens of millions of dollars in annual salary.

So, how is such a huge wealth created?Take the manufacturing industry as an example. For every 100 yuan invested, you can earn almost 2 yuan, or even 10 yuan. How can investment banks create such a huge wealth?The answer is: they spend all the money of our children and grandchildren today.That is to say, all the financial markets we have seen, including housing loans, including the futures market, including the derivatives market that many of us may not have heard of-the options market, and even the stock market itself, these financial markets are the most The essential meaning is to expand our wealth today without limit.How to expand it?It is to use all the wealth of the future, the wealth of our children and grandchildren today.

We can imagine that if we spend the money for many years in the future today, whether it is in the form of houses or stocks, we can imagine how huge the amount will be.After they have created so much wealth, a small part of the money is used as the salary of the employees, which is an annual salary of several million or tens of millions of dollars.It is these speculators who bring all our future wealth to today through the financial market, but they still don’t earn enough. They feel that the annual salary of several million or tens of millions of dollars a year is still not enough, so they are under the above-mentioned chain. , they created an unprecedented subprime debt market.

Greed is the driving force that stimulates various financial innovations and derivatives on Wall Street, and the subprime mortgage problem is precisely driven by this motivation. Then, what is the reason that makes the subprime mortgage problem on Wall Street a fuse? What finally detonated the financial turmoil that radiated the world? This market is at the expense of our financial crisis today. The current debt of Freddie Mac and Fannie Mae is 5 trillion US dollars. How much subprime debt do you think? This is the next shock, and you haven't heard it yet. The impact of the US subprime mortgage crisis on us is limited and has not yet started. When will it really start?

What is Subprime Debt?The so-called subprime debt, to put it bluntly, is to create a market for those who are not eligible to apply for housing loans, so that these people with insufficient credit or bad loan records can also apply for loans. This market is based on our current financial crisis. cost.These subprime loans need to be applied through intermediary agencies, and intermediary agencies should have taken care of the first hurdle.However, intermediaries began to lose their fiduciary responsibilities, began to violate regulations, falsified, and used false data and false income certificates to deceive banks.After the bank got the fake data, it seemed that the situation was okay and the credit record in the past was good, but it was unexpected that the data was all fake.So they lent them $1 million, and then the bank converted the $1 million loan into bonds and sold them to Freddie Mac and Fannie Mae, and Freddie Mac and Fannie Mae divided the $1 million bonds into 1,000 bonds. Bonds for one dollar are sold to ordinary investors.

In fact, there are worse ones, which have not been reported by the media so far. In addition to subordinated debts, there are also subprime debts.What kind of people is this for?People who can't even show proof of income.Subprime debt borrowers can at least produce proof of income, but they may add a few extra zeros and forge it.However, the borrowers of these subprime debts cannot even provide proof of income. Who are they?They sell hot dogs, run small grocery stores, and let them take out loans to buy houses. In this way, people who can't even provide proof of income can take out loans, deceive the bank through the packaging of intermediaries, and the bank then sells the bonds to Freddie Mac and Fannie Mae, and Freddie Mac and Fannie Mae don't know Next, it will be divided into bonds of 1,000 US dollars and sold to the world, including companies such as AIG.Finally, one day, the borrowers of these subprime debts began to be unable to repay the interest. If the bank cannot get the interest, it cannot cash it to Freddie Mac and Fannie Mae. If Freddie Mac and Fannie Mae cannot get the money, they cannot give The general public, thus triggering a series of economic collapses.The current debt of Freddie Mac and Fannie Mae is 5 trillion U.S. dollars, of which 2 trillion U.S. dollars are sold to foreign governments, and 3 trillion U.S. dollars are sold to the American people themselves.Guess how much subprime debt is there?There is still one trillion US dollars, which is not yet imagined.Because there is almost no interest in the first five years of this one-trillion-dollar bond, and high interest rates will start to be paid after the fifth year.I believe that as long as they start paying high interest rates, they won't be able to afford it, so that's the next shock that you haven't heard about yet.This is a series of problems caused by greed. Finally, one day, it collapsed. The question now is what the US government decides to do? The U.S. government has spent 600 billion U.S. dollars to rescue Bear Stearns, AIG, Fanfang and related funds. On October 3, 2008, the U.S. House of Representatives passed President Bush’s 700 billion U.S. dollar bailout plan. It is possible for any country to have 10 US-sized aircraft carrier fleets overnight.In the existing bailout plan, the acquisition of "problem assets of financial institutions" is the core content.As the United States with a highly developed market economy, why does the government rescue these problem companies at any cost?What is the relationship between the bailout and the business chain theory put forward by Professor Lang Chengping? Today I want to tell you a new concept, that is, our world today has entered an unprecedented era of industrial and commercial chains.What is the era of industrial and commercial chains?That is, as long as there is a problem in one link, there will be a domino effect of chain reaction immediately.For example, today's Chinese stock market, = if the Chinese stock market falls sharply, the result will not only be losses for stockholders, but also a series of problems, such as stock market plummeting, stockholders can no longer afford houses, and house prices will also fall accordingly.Confidence falls, and consumption falls.When consumption decreases, production decreases. If production decreases, what is the next domino?Unemployment increased.Unemployment has increased, what is the next domino?Consumption is less, and then a vicious circle is formed, causing an economic recession.This is the reason why I appealed to the government to save the market in March 2008. I hope that the government will cut off the business chain and prevent the domino effect from appearing.In other words, when a problem occurs in our stock market, a firewall should be set up immediately so as not to affect industrial production, otherwise the crisis will spread.Of course the government is also doing work, I have to admit that.So, what is the US government doing? The US government used 700 billion US dollars to rescue the market. What is the concept of 700 billion US dollars?This amount is equivalent to 70 US aircraft carriers, equivalent to US$2,000 for each American citizen, and US$700 billion can buy 2.33 million 300-square-meter houses in the United States.The U.S. government has decided to use such a large sum of money to save these companies, but why should it save these companies? Because of the domino effect, because of the special domino effect in the era of industrial and commercial chains.It doesn't matter if you don't save these companies. If you don't save them, the result will be massive unemployment on Wall Street, collapse of confidence, and reduced consumption.The collapse of confidence will cause the stock market to crash, and the decline in consumption will affect the industry. Unemployment will continue to increase, and consumption will continue to decline. What will the consequences be in the end?The Great Recession in the United States. So we no longer have the concept of marketization today.What is marketization?That was the concept of the farming era, but today is the era of industrial and commercial chains.This is a new vocabulary I created - the era of industrial and commercial chains.So the US government is right, what is it doing?It is cutting off the industrial and commercial chain, that is, by setting up a firewall, so that the financial crisis will not affect confidence and consumption. This is why the President of the United States has repeatedly said that we promise to save the market and ask Americans to have confidence.Once the American people lose confidence, the consequences will be disastrous. At present, the central banks of many countries around the world have begun to extend their hands to help the financial crisis in the United States. There may be national interest considerations in this, but in any case, as far as the US government is concerned, its actions today are very commendable, and I also hope that through Our promotion has made our government understand that today is an era of unprecedented international business chains. What the U.S. government is doing is not violating market-oriented operations or shifting responsibility to the market, but what?It is a domino effect in which the government comes forward to cut off the industrial and commercial chain.How to cut it off?By setting up a firewall. Of course, what the government can do is not only to set up firewalls after problems arise.In fact, the U.S. government has very strict regulations on investment banks and so-called general commercial banks, but it has no regulation on the innovation of financial instruments. Subordinated debt belongs to the innovation of financial instruments, a new and unprecedented financial instrument, so it lacks supervision.It's as simple as that, which is why the US government said, well, stop playing, we don't want investment banks in the future, everyone returns to general commercial banks, no huge profits, no million-dollar annual salary, don't play this game anymore, and you don't Give me financial innovation, we play traditional things, financial innovation is too bad for the country.I can tell you that in the future, don’t think about going to Wall Street to earn millions or tens of millions of dollars. This may be a thing of the past, and maybe there will be no financial innovation in the future, because everyone is now interested in financial innovation. Innovation is abhorrent, and it is because of financial innovation that subprime debt can cause trouble. The United States has experienced financial turmoil and knows the benefits of strict regulation. Today, when problems erupt in the weakest link of regulation, it is not surprising that they will take decisive measures.So, in the face of such complex financial changes, is the United States capable of dealing with it, and what kind of think tank figures among the American elite can stand out and turn the tide? ●The root cause of the economic crisis in 1929 was that the US government did not set up a firewall. ●See if these two buddies can successfully and effectively set up a firewall. ●So the impact of the US subprime mortgage crisis on us is limited and has not yet started. When will it really start? ... The subprime mortgage crisis triggered a change in the fate of the five major investment banks in the United States. Bear Stearns was acquired in March 2007, Lehman Brothers went bankrupt in August 2008, and then Merrill Lynch was acquired. Only Goldman Sachs and Morgan Stanley remained Also turned into a bank holding company. Lang Xianping said: No one can escape the financial crisis A nation that has not been baptized by the economic crisis cannot be an economically mature nation; Entrepreneurs who have not been baptized by the economic crisis cannot be mature entrepreneurs; Citizens who have not been baptized by the economic crisis cannot be mature citizens in the market.