Chapter 93 Section 1 Wall Street and the American Financial System

To understand America, especially American society, one must understand its financial system.Although none of the founding fathers of the United States (Washington, Jefferson, Adams, Franklin, etc.) was a banker, and they could have foreseen the harm that bank capitalists would do to the country, they were powerless to prevent it from happening.The first U.S. Secretary of the Treasury, Hamilton, established the U.S. fiscal system. The U.S. Treasury Secretary, who died young, recognized the importance of nationalizing fiscal power, established a financial system governed by the Department of the Treasury, and contributed to the early development of the U.S. The central bank, First Bank of the United States, which issues dollars, is printed by the state-owned Mint.However, in the United States of early liberal capitalism, Hamilton's ideas could not be recognized by most people. The First Bank of the United States (later renamed the Second Bank of the United States) he founded eventually went bankrupt, and the United States Mint he created became an institution that did not belong to the United States. An independent agency of government (not taken back by the Treasury until a hundred years later).For a long time until the early twentieth century, the United States had no central bank!In the past one hundred years, private banks in the United States have developed by leaps and bounds, and they have laid the foundation for today's American banking industry.

When it comes to private banking, I must here clarify some misconceptions and fallacies that are widespread in China.To some extent, these misunderstandings have caused Chinese investors to suffer huge losses in their investment in the United States.And the most absurd of all misconceptions is the idea that the Rothschilds control the Federal Reserve, control the world and that they are the richest mystery family in the world. The Rothschild family was originally a German Jew, so according to the German pronunciation, this word should be translated into Rothschild (in German, th sounds t, sch sounds sh together, and the correct pronunciation of this word should be ro -t-sh-ild).Given that the name Rothschild has become popular in Chinese intellectual circles, we can only be wrong.The Rothschild family used to be the richest family in the world. They made a fortune through the Napoleonic Wars. Their immediate nephews once had a lot of business in Germany, Italy, France and the United States. The descendants of Rothschild He also participated in the preparations for the Federal Reserve Bank initiated by the American financial tycoon J.P. Morgan, but the work he did was far from being comparable to that of Morgan.Today, the family's influence on the world is now almost negligible.

According to some Chinese writers, one or two hundred years ago, the family’s wealth was growing at a rate of 6% per year as original capital, and now the family should have trillions of dollars.As for why no one has seen these trillions of dollars, it is because the family is mysterious and does not disclose its finances.This explanation obviously does not match the common sense of normal people.What is the concept of trillions of dollars?It is the economic scale of the whole of China and one-fifth of the world's population.We must know that none of the rich people in the world lock their money in a safe. Their money must be invested in economic life.There is no way in the world that such a large sum of money can be hidden.According to the simple logic of those authors, Tao Zhugong in the Spring and Autumn Period of China only needed to leave one tael of silver to his descendants, and now it should become ten to the sixtieth power of taels of silver, while the total wealth of the world today is only ten to fourteen This means that the wealth of Tao Zhugong's descendants is hundreds of trillions of billions of billions of times the wealth of the whole world.Since the wealth of Tao Zhugong’s descendants cannot increase exponentially, it is absurd to assume that the wealth of the Rothschild family has increased exponentially for hundreds of years.The facts are always true, since people can no longer see this family, it can only show that this family has declined.

In order to confirm this and find out the reasons for their decline, I specifically consulted investment experts from Goldman Sachs and Citibank. Although they have heard of this name, few people know why this family has declined, because in their eyes The family's current money is not considered money at all.Later, my friends from Goldman Sachs helped me consult extensively in the company, and finally figured out the truth. The Rothschild family reached its peak in the middle and late nineteenth century, but made several fatal mistakes and encountered several disasters, and then never recovered.The family's first mistake was to underestimate the development of the United States.In the second half of the 19th century, the United States had sharp racial conflicts, and later a civil war broke out. The Rothschild family was not optimistic about the United States, and withdrew most of their business in the United States, losing a great opportunity to follow the development of the United States. (I often tell others that it is a pity to miss the express train of China's development now, just like missing the development of the United States 150 years ago.) The first World War, the family's business in Europe suffered a major blow.After World War I, many European countries had to sell museum collections to Americans.Although it is said that a lean camel is bigger than a horse, the Rothschild family had a brief respite after World War I and recovered some, but then Hitler's persecution of the Jews made the family suffer another disaster.A few years later, the Nazi forces were eliminated, but the former Soviet Union realized socialism in Eastern Europe, and all the remaining assets of the Rothschild family in Eastern Europe (mainly Germany) were nationalized.Some of the family's remaining assets in countries such as France and the United Kingdom have also shrunk sharply.Since the 1960s, the family, which had been reduced to a second-rate investment company, made another fatal mistake.Large banks in Europe and the United States, including Switzerland's UBS (UBS, sometimes referred to as UBS), Credit Zurich, Deutsche Bank, Morgan Stanley, Goldman Sachs and other companies in the United States have been listed one after another, raising a lot of development funds.The Rothschild family is still stuck in the nineteenth century family workshop business.Two Goldman Sachs bankers told me that the family’s business activities are actually not mysterious. Like Goldman Sachs, they are now managing private wealth management for others in Europe, and their annual profit in the best years is no more than About 100 million US dollars, less than one percent of Goldman Sachs.Among the average wealthy person in the United States, most people heard the name because of Lafite-rothschild Bordeaux (Lafite-rothschild Bordeaux), which is the best and most expensive wine in the world. , about one or two thousand dollars per bottle.The winery was bought by the Roche family in the 19th century.

Closer to home, since the US banking industry is based on private banks, its ability to resist financial crises is very limited. In the financial crisis of 1907, the US banking industry almost collapsed.At this time, initiated by the famous banker Morgan, united the major banks, and with the support of President Wilson, the United States established the Federal Reserve System (Federal Reserve System), referred to as the Federal Reserve.The Federal Reserve includes seven regional Federal Reserve Banks and is a government department registered as a private company. Its chairman is appointed by the President of the United States.Its duality of being half-official and half-business has aroused great controversy in the future, and it is still the target of attacks by some "conspiracy theories".In fact, although many of its directors are executives of private banks, it cannot be determined that it is a private company like some threat theories, just as Treasury Secretary Paulson was originally the CEO of Goldman Sachs and Cheney was the CEO of the world. The CEO of Halliburton, the largest oil extraction company in the world, denied that they were government officials.Although the Federal Reserve is called the Reserve Bank, it does not have any reserves. Its responsibilities are basically to issue dollars and set interest rates.However, the entire economic activities of the United States, including the business activities of technology companies, still rely on private banks to maintain their operations.

There are many kinds of financial companies in the United States.Recently, in order to save the stock market, the U.S. Securities Regulatory Commission has listed as many as 800 listed financial companies whose stocks cannot be shorted, and there are as many as 8,000 banks in the United States, and there is one bank for more than 10,000 households on average.These companies can be roughly divided into several categories: 1. Commercial Bank (Commercial Bank), this is the traditional bank most familiar to the common people. Almost all banks in China, including the four major commercial banks, belong to this category.Famous commercial banks in the United States include Citi Group, Bank of America, and J.P. Morgan (formerly known as Chase Manhattan Bank), all three of which are Dow Jones 30 companies in the industrial index.There is also Wells Fargo, which is controlled by Buffett, which focuses on savings and business loans and has little to do with technology companies.In the 20th century, starting from the Great Depression in the 1930s, and before Reagan came to power, commercial banks could only issue commercial loans and housing loans, and could not speculate on stocks.However, in the past two decades, the U.S. government has relaxed restrictions on the banking industry. Many commercial banks are also investment companies. For example, Smith Barney under the name of Citigroup is a large investment company. J·P·Morgan is a commercial bank and an investment bank.Among the big banks, only Wells Fargo has played its part, so it escaped the financial turmoil.

2. Investment companies, although they are called investment banks (Investment Bank), but until October 2008, they are not really banks, because they can neither accept deposits nor borrow money from the Federal Reserve Bank, they are Buy and sell securities, futures, real estate and any commodity of value for others.People who don't buy and sell stocks are not very familiar with this type of company.The most famous of these companies are Goldman Sachs and Morgan Stanley, and there were several Merrill Lynch securities companies, but as mentioned earlier, they all closed down, which saved me a lot of trouble.These companies are the main force in the ups and downs of the stock market, commonly known as market makers, and have the greatest impact on the rise and fall of technology companies. They not only raise or suppress the stock price of a technology company, but also can determine the success or failure of technology companies' mergers and acquisitions and divisions.For example, the spin-off of AT&T mentioned in the first chapter above, the merger of HP and Compaq, and the merger and acquisition intention of Microsoft and Yahoo mentioned later, etc., all have investment companies behind them.In addition to investment banks in the United States, countries such as Europe and Japan also have large investment banks, such as Credit Suisse First Boston (CSFB for short) and Union Bank of Swiss (UBS for short). banks and investment banks).In addition, Buffett's flagship company, Berkshire Hathaway, is an extremely influential but very special investment firm.Since Buffett himself never invests in technology companies, Berkshire Hathaway has little influence on technology development.

3.Mutual Fund (Mutual Fund), there are many such companies.Big ones, such as Fidelity and Vanguard, control all retirement accounts (401K) in the United States and a lot of wealth in the world.Small ones may only have dozens of people and only manage hundreds of millions of dollars.In general, the purpose of mutual funds is to invest, not to speculate.But they are often the shareholders with the most voting rights in some technology companies. They pursue technology companies when they are profitable, and put pressure on technology companies when they encounter difficulties, asking them to lay off employees or reduce expenses. There are also impacts that cannot be ignored.

4.Hedge Fund, including the famous Renaissance Technology Company, and the Quantum Fund of Soros and Rogers.Since the United States strictly restricts mutual fund companies from shorting stocks and futures, many Wall Street predators feel that these regulations limit their ability to speculate, so they set up hedge funds that are not for investment purposes but exclusively rely on speculation to make money.Although the scale of hedge funds is small, with a global scale of only US$1.5 trillion, they can short-sell stocks, futures, and currencies, and can buy them several times or even dozens of times with their own margin (Margin) through borrowing. and short selling a security or commodity, so their power cannot be underestimated.The Quantum Fund of Soros and others almost killed Southeast Asian countries in 1998, although Soros himself shirked all responsibility.Renaissance Technologies is the company with the highest return on investment in the world, with an average annual return of more than 30%, higher than Buffett's flagship company Berkshire Hathaway.

Each of these big banks and investment companies can be described as rich and powerful.At its peak in 2007, Citibank had assets of US$2.2 trillion, and investment company Goldman Sachs controlled a wealth of US$1 trillion.Fidelity funds control wealth as high as $1.5 trillion.