Chapter 7 Lecture 06: What does the subprime loan stimulate?

●If things were done according to the strict standards of the past, there should be no subprime debt turmoil in the United States at all. ●What is the root cause of the US subprime crisis?The fiduciary duty of finance companies has been lost. ●If you think the economy is going to be depressed, your actions will definitely lead to a depression. For ordinary domestic investors, no one may be able to explain the reason for "subprime debt", but it is becoming the most frequent concept in the analysis reports of global investment institutions, and it has also become a nightmare in the hearts of many investors.Subprime mortgages in the United States have achieved remarkable results in the past 10 years. Why did subprime debt lead to today's crisis 10 years later?

Our Chinese banks do not have risk assessment when lending.We don't know how risky it is to lend money to company A or company B, because we don't have an independent agency to judge the quality of the loan, and the bank doesn't know what will happen to the loan.So I was amused when we were discussing the US subprime crisis, because we didn't understand what was going on, and started talking about his risks. In the United States, bank loans, corporate loans, and corporate bonds all have risk ratings, which are divided into eight levels.The first four grades are three A, two A, one A, and three B, which are investment grade.The risk of this level of bonds or bank loans is acceptable.The next four levels are two B, one B, one C, and one D. Bonds of this level are called junk bonds.Countries and regions all over the world also have ratings and use this method to rate. The United States has three A's for the United States and the United Kingdom, and China has three B's.Hong Kong, China is an A.Vietnam is two B's.

In the world, most of the bank loans or corporate debts in most countries are rated. Just look at the rating of a certain bank to know the quality of the bank’s loans, and there are only two agencies that do this rating: Moody’s, Standard & Poor's. As a result of ratings, "subprime" and "prime" in the U.S. mortgage market are defined by the creditworthiness of the borrowers.According to the level of credit, lending institutions treat borrowers differently, thus forming a two-level market.People with low credit cannot apply for preferential loans and can only seek loans in the secondary market.Both levels of the market serve buyers with loans, but the interest rate of loans in the secondary market is usually 2% to 3% higher than that of preferential mortgage loans.

Subprime mortgages have a good market prospect.Because it provides mortgage services to discriminated against or borrowers who do not meet the standards of the mortgage market, it is popular in areas with high concentrations of minorities and economically underdeveloped areas. I have been in the United States for many years, and I found that the living environment is completely restricted by these ratings. Many things you do, including buying a house and borrowing money, are restricted by these ratings, which clearly classify you.For example, I bought a house in the United States and asked a Chinese to act as a real estate agent.After the house is confirmed, the Chinese agent will definitely recommend me to find a Chinese financial intermediary to handle real estate financing. I will call it "old Chinese" for the time being.This "old middleman" will help you get a lot of new proof materials, that is, help you forge a lot of materials to show that you meet the loan qualifications.

For example, the husband wants a loan, but his income cannot meet the loan level. The "old middleman" asked the wife of the family to work part-time, and then changed it so that the money from the part-time job was counted as the husband's income, so that his income met the loan requirements, and he could take out loans or do other actions.With the help of these "old middlemen", it is very easy for many people to buy a house in the United States, but this is a disrespect for this rating system, which makes many people who should not get loans get loans. Loose loan qualification review has become an important driving force for the unprecedented activity of the US real estate transaction market.From 1994 to 2006, the homeownership rate in the United States rose from 64 percent to 69 percent, with more than 9 million households owning their own home during that time, thanks in large part to subprime mortgages.Minorities make up more than half of those who have used subprime mortgages to obtain housing, and most of them are low-income earners.Subprime mortgages gave them options, not shut them out.According to statistics, more than 40% of the total US real estate mortgage loans in 2006 belonged to subprime loan products, with a total amount of more than 400 billion US dollars, and the proportion in 2005 was even higher.

But the high risk of subprime mortgage also comes with it.Compared with the 6% to 8% interest rate of ordinary mortgage loans, the interest rate of subprime mortgage loans may be as high as 10% or even 12%, and most subprime mortgage loans are in the form of adjustable rate mortgages (ARM).In the past two years, as the Federal Reserve raised interest rates 17 times and the repayment rates of subprime mortgages became higher and higher, the US real estate market gradually showed signs of cooling down, but the subprime mortgage market did not stop because of this. This phenomenon was very obvious in the 1980s in the United States. Usually, ethnic minorities did more of this kind of thing.When white Americans make loans, they basically abide by the law and check for you carefully. Whether the income is real or fake is checked very carefully - your wife is not counted as a temporary worker, and your child is not counted as a temporary worker, so there is very little room for turning around. .Moreover, banks in the United States do not contact you directly for lending, but through many financial intermediaries.Financial intermediaries run by Chinese people are especially able to help you make false data and make you eligible for loans.So this financial intermediary is very important, because he is a bridge between the bank and the borrower, and their honesty is very important.

So how did this crisis come about?Since the U.S. central bank lowered interest rates in the past one or two years, the interest rates have dropped to such a low level as 3% to 5%, so it is very cheap to buy a house.Bank of America has a lot of money and is eager to lend out, so customers with real problems like this can easily get loans. Those rated three A's are the best customers, those rated two A's are medium, and those rated between A and three B's are called subprime debt.It means that the risk is not high, and the relatively poor customers are called subordinated debts.Let me tell you that most of China's bank debts are like this, and they are less than two Bs—two Bs may still be recovered.Our bank's bad debts are grade D, and there is absolutely no possibility of recovering them. If 30% of bank bad debts are classified according to international standards, they are all grade D, and there is no guarantee of loan recovery.

Three B's, two B's have major problems with their loans because financial intermediaries have become as resilient as intermediaries were in the 1980s.In order to release the money, many gray tricks will be used to allow you to borrow money smoothly.The reason why American real estate boomed in the past two years is mainly because these financial intermediaries use flexible operating methods.This allowed some people to obtain loans smoothly, so it quickly pushed up housing prices in the United States. This is the source of the US subprime debt turmoil, but if the most stringent standards are really used for supervision and review, most people should not be able to borrow money.If the strict lending standards of the past were implemented, there should be no subprime debt turmoil in the United States at all.It's just that over the years, the fiduciary responsibilities of these financial companies have been lost, and they have not played the role of screening customers.Therefore, the US subprime debt crisis basically originated from the loss of the fiduciary responsibility of US financial intermediaries.And we Chinese people have always paid little attention to this kind of fiduciary responsibility, which is why our state-owned enterprise reform will cause problems.

Because of your lack of fiduciary responsibility, a series of problems in the reform of state-owned enterprises have arisen. We even think that the bosses of state-owned enterprises should not do well because they make too little money.I also tell the audience that this is wrong.Because we have never asked the bosses of state-owned enterprises to do well. What I want to say is that it is impossible to do well, but it should be done well.This is the responsibility of a professional manager to the country, the nation and the common people. However, our education for so many years does not emphasize the sense of responsibility, and is even eager for quick success. It only emphasizes income and wealth.

If you don't come to listen to me do this show today, maybe you don't know the importance of fiduciary responsibility.After the subprime debt turmoil, we found that fiduciary responsibility is the real fuse of the subprime debt turmoil.In the United States, this is very interesting. For example, if you borrow money from Bank A to buy real estate, you will later find that when you repay the loan every month, it is not necessarily repaid to Bank A.Maybe Bank A has been sold to Bank B.I borrowed money from Bank A, but in the end I repaid the loan to Bank B. This incident is almost unheard of in our mainland, but it often happens in the United States, because many investment companies, including fund companies, etc. are making asset portfolios, and many of the banks you know are themselves Also invest.When our Bank A transfers this loan to Bank B, it is equivalent to transferring a bond to them, which is equivalent to transferring a certain asset to them, and they can charge interest every month.The worse the rating, the higher the interest rate, and the better the reputation, the lower the interest rate, so he buys both good and bad ones, which is called asset portfolio, which is investment.Its most important meaning is to buy back all kinds of assets, some good and some bad, so that their risks can be hedged and offset against each other. This is the most essential meaning of a fund manager's asset portfolio.Therefore, almost all U.S. banks you can think of have problems now, because everyone has a part of subprime debt in their asset portfolio.

However, this part of subordinated debt is different from the subordinated debt in the 1970s and 1980s. The subordinated debt at that time was subordinated debt with fiduciary responsibilities, which accurately reflected the risks at that time. However, the subordinated debt in 2007 It is a subordinated debt with a lack of fiduciary responsibility, and the risk is very high. It cannot be represented by three Bs, and it is likely to be a B, or even a C.However, financial intermediaries used some fraudulent means to make the credit rating into two Bs and three Bs, so the ratings of subprime debt in the United States are all overestimated.Therefore, the real credit rating of subordinated debt is very low. Those who should not have borrowed money at all, because of the manipulation of financial intermediaries, appear to be able to repay their loans very well.A bank's loan structure looks good, for example, 40% three A, 20% two A, 10% one A, 30% three B, this seems to be no problem, but it is not.The credit level of this 30% triple B loan is not even three B.This is the most important issue in the US subprime crisis. As a result, people who could not pay back the money also borrowed money.For example, those who work at McDonald's may be fired the next day, and even their wives are fired, obviously unable to pay off their debts.It is not one or two people who can't pay it back, but most people can't pay it back, which makes the banks that keep these claims go bankrupt one after another.The triple B borrower shouldn't have been able to pay back his debt, but in fact he couldn't, creating a cascade of crises. In February 2007, as the risks of mortgage loans in the United States surfaced, many banks with subprime debt were in crisis. The U.S. credit market is at its worst in 20 years, and European and American stock markets plummeted across the board.France's largest bank, BNP Paribas, announced its involvement in US subprime debt.Metals, crude oil futures and spot gold prices plunged. The US subprime debt crisis spread, and the European Central Bank intervened.Shares of the nation's largest commercial mortgage lender have plummeted and are facing bankruptcy. On August 16, 2007, the US subprime debt crisis worsened, and the Asia-Pacific stock market suffered the worst decline since "9? 11".Dozens of companies, including Wal-Mart and Home Depot, suffered huge losses due to the subprime crisis. In September 2007, the US subprime debt crisis spread to the UK.British banks are cash-hungry, and Northern Rock is being run on for a spin-off.The chief executives of Merrill Lynch and Citibank resigned, and both banks suffered huge losses. In January 2008, Citibank announced a loss of $9.83 billion in the fourth quarter.UBS announced a loss of about $11.4 billion in the fourth quarter, dragged down by write-downs of up to $14 billion in subordinated debt assets. Fortunately, the US financial sector is full of talents.For example, the most influential people in the world are not the World Bank or the International Monetary Fund as you think, but the US Treasury Department.It is the real financial control center of the world, the real manipulator.The Secretary of the Treasury of the United States is Paulson, who is the former president of Goldman Sachs, the most famous investment bank in the United States.Goldman Sachs is one of the few banks not involved in the subprime debt crisis.So, he knows all these issues like the back of his hand.Bernanke, the president of the Central Bank of the United States, used to be a professor. He was very powerful. He published many papers when he was a professor, and I read them all when I was a student. The two joined forces to save the US subprime crisis.How to save?People of his age, who were students in the 1970s, had studied the economic panic in the United States in 1929.The unanimous conclusion is that the actions of the U.S. government and the U.S. central bank accelerated the emergence of the crisis.When the New York stock market crashed in the United States, they tightened their money supply and tightened their currency control, so a series of problems arose. So as soon as these two encountered this crisis, they immediately took several very effective measures to prevent this problem.The measures were to loosen money immediately, release a large amount of money, lower interest rates, lower tax rates, and at the same time, banks should not repay each other's debts, cutting off the so-called triangular debt problem from the beginning.Boost the economy with tax cuts, allowing banks to get more money quickly to deal with the crisis.The U.S. government invested hundreds of billions of dollars to rescue the market.Due to the continuous decline of interest rates and the large outflow of US funds, the US dollar has continued to depreciate, so the renminbi used to basically stare at the US dollar.Now relative to the dollar, we are appreciating, this is the current situation.In order to quell the crisis of subprime debt, the United States has lowered interest rates, issued more currency, reduced taxes, and banks have not repaid their debts. Now everyone has no time to pursue who is responsible for fiduciary responsibility.Put out the fire first, and don't rush to pursue responsibility.This strategy appears to be working so far. Facing the subprime debt crisis, a series of policies of the U.S. government caused major fluctuations in the U.S. and European economies, making the U.S. and European economies slowly enter a recession.A recession doesn't need an exact sign, as long as everyone thinks it's beginning to decline, it's a recession.I personally experienced the stock market crash in 1989. At that time, the stock market crash was very strange. All computer transactions were controlled by a program. If the stock price fell by 5%, the computer would automatically sell and liquidate the position.If only one fund did this, no problem, but at that time the stock price fell below 5%, and almost all funds in the United States were selling.And once the computer was sold, people found that they couldn't stop, and the whole United States began to sell it, which caused the stock market crash in 1989.This affects not only the US, but also Europe and Asia.When the common people see the stock market crash, although nothing has changed, everything is the same as in the past, it is purely a problem with the operation of the computer, but the common people are nervous, the entrepreneurs are nervous, and the common people are afraid to spend money when they are nervous.Entrepreneurs are afraid to invest when they are nervous.One doesn't spend money, the other doesn't invest, and the economy begins to slump. So the common people think that the economy is going to be depressed, so they are 100% depressed.Because when you think depression, your actions must lead to depression.So let me tell you, how do economic depression and economic prosperity come about?I still can't tell clearly that this is not a rational behavior, but a random move and a random move.The common people feel that it is over, and they are depressed; the common people suddenly get excited one day and start spending money again, and the entrepreneurs also get excited, spend more money, and the economy recovers.So when I was studying in the United States, we studied what is called an economic cycle and why the economy goes up and down.I read countless papers and still don't know the conclusion.Economists across the United States have published thousands of papers, and the final conclusion is that they don't know why. The European economy is already growing slowly, 2% to 3%, and if it falls by 1 percentage point, if it falls to 1% or 2%, depression will come, and the depression in the United States will follow the psychological changes.So what impact does it have on us in China?Many of our Chinese banks immediately stated that they have not bought subprime debt, so they will not be affected.But I say the impact can be great.Because once the U.S. and Europe are in recession, they will reduce their imports, and our exports to them will decrease.As soon as our exports decrease, we will also be depressed.In fact, the subprime debt turmoil in the United States is caused by the purchase of real estate by Americans and the lack of fiduciary responsibility of Americans. It has nothing to do with us and has nothing to do with us.However, through the relationship of trade and export, the subprime debt crisis will also affect us. Audience: Hello, Professor Lang.The subprime debt crisis in the United States was caused by the lack of fiduciary responsibility. Will China suffer the same fate as the United States.If so, how can the government prevent it? Lang Xianping: The US subprime debt is not that serious, and China's bank debt level is even worse. Of course, we also have good companies. I don't deny this.But what is the difference between China's junk debt and US subprime debt?Subprime debt in the United States is securitized, and it can be sold to many banks for investment, which is why it is so widely discussed and a series of problems arise.China's debt problem is the problem of banks. The government strips off bad debts, reinjects funds, restarts operations, accumulates bad debts, and divestitures... So we control this financial risk within the banking system, which is controlled by the government. of.The government's control is indeed effective in this regard, and it can divest low-rated junk debt at any time to reduce risks.From this perspective, the financial risk of our country is much smaller.