Listening to Ren Pingsheng's assertion, Jiang Qiurong showed a thoughtful look on her face, and she turned the pen in her hand to continue to use her understanding of financial products.

"MBS is a very creative invention and it works perfectly in practice. In the process, banks earn intermediary fees, management fees, and interest rate differentials, wealthy investors get stable investment returns, and poor people borrow money to buy houses. Occasionally, a few people don't repay their loans, because housing prices have been rising, and the bank just takes the house back for auction, and the bank's risk is well controlled. ”

Ren Pingsheng shook his head and continued:

"It's not just MBS, it's CDOs who are fueling it. ”

Seeing that Zhang Wenwu was about to ask questions again, Jiang Qiurong quickly explained:

"CDO Guaranteed Bond Certificate is a kind of bond-type financial derivative. Investment banks acquire these MBSs, with a total value of more than a trillion yuan, and divide them into different asset packages. Mix different MBSs together, combine principal with principal, interest with interest, and divide them into different financial products, and then sell them to earn interest rate differentials. The so-called CDO is a bond product derived from the re-combination after the investment bank has packaged it. ”

In order to increase her persuasiveness, Jiang Qiurong walked to the whiteboard in the conference room, picked up a pen and drew formulas and schematic diagrams on it, and kept saying:

"For example, there are two MBS, A has a principal value of 100 yuan and an interest income of 8 yuan per year, and B has a principal income of 200 yuan and an interest of 22 yuan per year, and the investment bank buys these bonds at a price of 300 yuan, and the principal part is made into a principal CDO (total value of 300 yuan) and sold at a price of 283 (equivalent to 6% annual interest rate), and the interest part is made a interest CDO (total value of 30 yuan) and sold at a price of 25 yuan (equivalent to 20% annual interest rate). ”

"Why is there such a big difference between the interest rates of the principal CDO and the interest CDO?"

Zhang Wenwu was puzzled:

"The reason why the price and interest rate of the principal interest are different is that the principal is repaid first when repaying, so the interest part is not as safe as the principal, and the riskier assets have to pay a higher interest rate in order to attract investors to buy, which is common sense. ”

Jiang Qiurong explained very carefully like a teacher.

Although Ren Pingsheng has some understanding of the essence of CDO, he has not been systematically trained in financial knowledge, so he is also listening to Jiang Qiurong's explanation with interest at this time.

Jiang Qiurong said while drawing numbers on the whiteboard:

"For such a CDO, the investment bank spent a total of 300 yuan to buy MBS and sold it for 308 yuan. One mile and one outside earned 8 yuan, equivalent to 2.67% of the income. Don't look at this return is not high, but the 2.67% time is very short (generally 3-4 weeks), then the annualized return is more than 20%. “

Moreover, if the investment bank borrows all the 300 yuan used to buy bonds at the beginning, and the short-term borrowing interest rate is 1.3% (that is, the annualized interest rate is 15.6%), then the investment bank is equivalent to 1.34% (that is, 300 yuan * 1.34% = 4 yuan). This model is a typical financial derivatives leveraged trading model. ”

Ren Pingsheng applauded softly in appreciation, but he also pointed out:

"CDOs are trading without ratings from rating agencies. “

When Jiang Qiurong heard the words of such an insider, she nodded sympathetically and said:

"The packaging composition of financial derivatives is very complex, traders generally can't understand, the credentials of their trading is to look at the rating, generally speaking, the company's rating level determines the interest rate level, and what the rating is is more important than who the company is. This also creates conditions for the packaging of bonds of the same rating. “

"Moreover, CDOs traded in the market are often not as simple as packaging the principal with the principal, and the interest rate with the interest rate at one time. It tends to be packed multiple times. ”

For example, in the above example, if the principal CDO is sold for 283 yuan after packaging, there may be a company that packages this asset package and then packages part of this CDO into another CDO, that is, a derivative of derivatives. This also makes it difficult to supervise. “

In other words, after many times of packaging, investors themselves do not know what kind of bond they are buying as the basis and after several packages of products. The vast majority of people are looking at the rating buy, and the bigger the company, the more trusted the rating. “

Ren Pingsheng tapped the table lightly with his fingers and said slowly:

"The three major rating agencies in the U.S. all adopt an issuer-pays model, which means that the ratings revenue of the three major rating agencies comes from bond issuers. Then, the issuer and the rating agency form a collusive relationship. Since a high rating reduces the cost of raising funds for issuers, issuers want to get the highest possible rating. Since the rating agency's rating income comes from the issuer, the rating agency's analysts may adjust their rating model or recommend that the issuer adjust in a direction that is conducive to obtaining higher rating results. ”

Zhang Wenwu asked with a puzzled face:

"Aren't the three major rating agencies internationally recognized as the most authoritative, and aren't they abandoning the principle of professional neutrality in doing so?"

Ren Pingsheng smiled slightly, shook his hand and said:

"The so-called most authoritative is only because of their long history and great influence. If you think about it, if you blindly maintain the principle of neutrality, where will any customers give them business, they will not survive to become the era of the Big Three. The so-called principle of professional neutrality has never existed in the business world. ”

Jiang Qiurong stopped talking, but her eyes already showed that she completely agreed with Ren Pingsheng's judgment.

Ren Pingsheng stood up at this time, his eyes projected a radiant light, and said to the two:

"Whether it is MBS or CDO, their essence is financial leverage. ”

Jiang Qiurong and Zhang Wenwu both looked at Ren Pingsheng intently and listened to his explanation.

"A real estate mortgage loan is essentially a financial institution that allows you to buy a house with three times the leverage, which is the first leverage. This is basically manageable. MBS is to put the first layer of leverage into the market trading, so that securities investors can further buy through leveraged funds, which is the second layer of leverage on leverage. And CDO is to package all kinds of MBS together and then trade them, which is the leverage on the leverage, and this is the third leverage. ”

In this way, through the tools of financial derivatives, the most basic mortgage loan funds have been put into tens to millions of times, and these funds with countless leverage have entered the real estate market, and at the same time, thousands of times the risk has been brought into the real estate field. ”

Jiang Qiurong couldn't help but retort at this time:

"The bank's risk control mechanism has been calculated by many mathematicians and large computers, and it is mathematically highly reasonable. The pricing of MBS and CDO was developed by Wall Street's gifted mathematical analyst and actuary David X. Li, a Chinese invention by Li Xianglin, uses each person's credit history Fico points as a reference standard to make the overall health of each asset package quantifiable and volatile for pricing. ”

Ren Pingsheng smiled slightly:

"However, you have to remember that any number is handled without human interference, especially in financial institutions where profit is the chase. The CDO asset portfolio can also use mainframe computers to disperse and package a large number of flawed toxic assets into good assets, and create artificial beauties by canceling each other and hedging them. To customers who don't have financial literacy, these securities look beautiful, but they are actually toxic. ”

Ren Pingsheng said the essence of financial institutions, Jiang Qiurong couldn't refute it, only Zhang Wenwu was still asking:

"Financial institutions know that their assets are toxic, but they continue to sell these MBS and CDOs, are they not afraid of the ripple effect caused by the poison?"

Ren Pingsheng looked at Zhang Wenwu, nodded, and continued:

"Of course the financial institutions know, but they believe that the public will not know the secret, and they just need to sell the MBS and CDOs to promote the boom in the real estate market, and then cause the overall house price to rise, and at the same time offset the loss of those toxic assets. ”

Jiang Qiurong had a cold face just now, and only then did she reluctantly add.

"From the perspective of long-term market tracking, property prices will eventually improve, and future profits will cover immediate losses. ”

Ren Pingsheng smiled and said:

"That's what financial institutions thought at first, but as derivatives are sold more and more profitable, a new generation of investors has forgotten the risks of the product in the first place and taken the rise in property prices for granted. ”

"Of course, this is also inevitably fueled by the U.S. government, especially the 'Home Ownership' program proposed by Clinton during his presidency, which encourages and requires major banks and real estate subprime lenders to lower the threshold for buying a house, plus federal interest rates have been falling, so anyone can get a loan to buy a house. The original down payment was 30%, and proof of income was required, but now the down payment is 5% or even 0 down payment, and you can get a loan by standing on the street and taking a photo. The house bought with a loan can also be mortgaged and refinanced to buy a second home.

"Under the dual stimulus of the government and financial institutions, Americans continue to leverage and leverage to buy houses, creating a false boom in the real estate market, and the bubble is rising. ”

Zhang Wenwu nodded frequently while listening, and he echoed:

"Well, I think the real estate market in our country is similar, and it feels like there's a big bubble. ”

Ren Pingsheng didn't answer his words, and continued:

"When the market is rising, everyone will not feel that there is a bubble, and the rising prices will make any risk control agency fail. And a bubble is a bubble after all, no matter how gorgeous the bubble is, it will burst when you poke it. ”

Jiang Qiurong finally spoke, and she said calmly:

"The Fed has raised interest rates. ”

Ren Pingsheng nodded approvingly and said:

"Since 2005, the Fed has felt that the U.S. economy is overheating, so it has started to raise interest rates constantly. When interest rates rise to a certain level, those subprime lenders will not be able to repay their loans, partly because of increased repayment pressures, and partly because of tighter monetary policy, which has reduced employment and rising wages. The market is starting to turn sour, and at first, it's just that more and more subprime loans are defaulting, and house prices are starting to plummet. ”

"As house prices fall, it becomes difficult to sell a house. The original 1 million house is now only worth 750,000, and it looks like it will continue to fall by 50% next year. Anyone with a normal brain will feel that they have lost money. So they voluntarily defaulted, demanding that the bank take back the house and refuse to continue to repay the loan, that is, forcibly defaulting. Now the banks have more houses, and house prices have fallen even more. ”

"At this time, the bottom mortgage loan contract on which MBS relies has defaulted on a large scale, and now the bank can't get the money at all, only a batch of rotten houses in their hands, and customers who buy subordinated products such as MBS and CDO first lose money, then sub-optimal, and even the least risky superior can not get the principal. “

"The banks that issue loans, the people who deposit money in the banks, the institutions and individuals who buy MBS derivatives, and the institutions and individuals who invest in MBS derivatives suddenly can't get the money. As a result, New Century Finance went bankrupt, Bear Stearns suffered huge losses, and all financial institutions that invested in MBS suffered huge losses, which is the origin of the subprime mortgage crisis. ”

Jiang Qiurong and Zhang Wenwu can only nod now, although they don't know how Ren Pingsheng has mastered such rich and profound financial knowledge, but his analysis of the subprime mortgage crisis is indeed very precise, even Jiang Qiurong, who is a financial expert, can only be admired.

But Jiang Qiurong still didn't understand, and said:

"Even if we know the root cause of the subprime mortgage crisis, there is no feasible tool for arbitrage. ”

Ren Pingsheng shook his head slightly, and said confidently:

"Yes. ”