In fact, at this time, the subprime bond crisis in the US real estate industry was already beginning to emerge.

On the afternoon of February 7, 07, New Century Financial Corporation, the second largest subprime mortgage company in the United States, announced a surprise news that the release of the fourth quarter statement, which was supposed to be released the next day, had to be postponed because the company's internal accountants were still calculating gains and losses. Prior to this, the market generally expected that New Century Financial would be profitable in the fourth quarter, but now the situation has suddenly become complicated and immediately shocked the entire market. There was speculation that the New Century Financial Company should have incurred a large loss, so the accounting department simply did not have enough time to process the financial statements, so it had to postpone the publication of the financial statements.

On the same day, HSBC, the third-largest subprime mortgage company in the United States, announced that the collapse of its subprime loans had forced the group to set aside tens of billions of dollars as a reserve for mortgage loans.

The two pieces of news have heightened concerns about subprime mortgages.

Prior to this, the issue of subprime mortgages had grown to a jaw-dropping point. Due to the general rise in housing prices across the United States, the number of loans for homes has reached an alarming level, and the threshold for many fast loan companies to issue loans is simply appalling. Most of them don't even need to verify their financial income to get a mortgage. Even more radical companies have advertised "Credit problems, bankruptcy, foreclosures, recovery difficulties, these are not problems". These are all of the most important factors in the traditional loan making process.

In this context, more and more mortgages are going to people who are unable to pay their mortgages and even have problems with their livelihoods, and because they lack the ability to pay, the risks inherent in these loans are self-evident.

These are subprime mortgages.

According to the ability to repay, the rating agency classifies these home mortgages into five grades, among which there are AAA, AA, A, BBB, BBB-, where the home mortgages rated BBB and below are called subprime home mortgages. Originally, the bonds were circulated in Markit, an over-the-counter market of U.S. banks with more than 1,000 members. The company that operates this market, Markit Group Limited, is a joint venture of 16 major banks. The primary responsibility is to provide the market with a standardized trading platform and quotation for asset-backed securities (ABS) and collateralized debt obligations (CDOs). A market maker formed by 15 large banks that provides quotes for buyers and sellers.

The characteristics of this platform are that the participants are large institutions, the number of single transaction amounts is huge, and the market liquidity is poor. And it's an over-the-counter market. Not subject to regulatory monitoring. As a result, there is a lack of transparency.

It is such an over-the-counter market, and the participating institutions have basically made a lot of money in the bond market, but the financial institutions on Wall Street are still not satisfied. Because the liquidity of this market is so poor, that they are not satisfied with the generous commissions enough. At the urging and help of investment banks, Markit launched the residential mortgage bond index ABX.HE at the beginning of 06, which completely securitized residential mortgages and greatly enhanced its liquidity.

With the introduction of the ABX index, which integrates all aspects of residential mortgages, the liquidity of CDBs across the market has been greatly enhanced. In addition to market makers, the Wall Street financial giants have made a lot of money on the basis of the original big profits.

In addition to banks and investment banks, hedge funds are also deeply involved in this market. In fact, since each institution has to provide the market with a bond package of no less than $500 million and approved by a rating agency, such institutions need at least 20 such institutions, and there are as many as five rating ratings, that is, at least $50 billion of mortgage bonds are synthesized every six months (all ratings are available), and at least $100 billion for the whole year. Although these bond packages will be made by credit derivatives trading companies into standardized, indexed trading targets and sold in smaller components, there are millions of dollars in price anyway, so the ultra-high threshold prevents the vast majority of investors in the market. However, hedge funds with deep pockets do not mind this, in fact, no one dares to underestimate the hedge fund industry, so hedge funds have naturally become one of the main investment forces in this market.

Paulson's fund entered the market in this way, and after a lot of observation and analysis, he hired an Italian named Manuel Pellegrini to help him run the CDO and CDS market. This is a beautiful man, dressed in a suit all day, his hair is always shiny and combed back, and his handsome face often has a charming smile, but such a guy who is becoming more and more rare on Wall Street has become Paulson's most important right hand.

Paulson first raised a fund, the one in which Bell Stone invested, which focused on mortgaged real estate bonds, which initially focused on CDS, or credit default swaps. Specifically, when an insurance company guarantees a BBB-rated mortgage bond, the entire bond is $100 million and the underwriting costs are $2.4 million. When the investment bank then sold the bonds and mortgage contracts as financial products, Paulson's fund only had to pay $2.4 million for the policy, and when the mortgage defaulted, he could make a solid profit of $100 million. And if the mortgage bond had not defaulted, Paulson's fund would have lost $2.4 million.

At first glance, this ratio of payouts is strictly asymmetrical, and it seems that the Paulson Fund only needs to pay a small amount of cost to get a huge return. But in fact, this is not the case, and the actuaries of the insurance company have already calculated the probability of default and the possible cost at the time of application, and then gave a policy quote of $2.4 million. So it seems unlikely that the Paulson Fund will want to bargain for it.

But Paulson didn't give up. He had already recognized the serious problems in the mortgage market, so after figuring out the entire financial chain, he decisively bet on the CDO first, borrowing mortgaged bonds and selling them short, while also keeping a close eye on the CDS market.

Due to the complexity of the CDO's operating procedures and the fact that it is difficult to find banks willing to borrow money for projects that are making money, after the launch of ABX, the insurance of related low-grade mortgages has sprung up one after another, and the liquidity of the entire market has been greatly enhanced, so both CDOs and CDSs have been greatly enhanced. Paulson was able to get it from the market with ease.

The results were surprising. Over the past six months or so, Paulson has managed to scrap up $500 million in CDS from the market, but he bought $2 billion in CDS in two days shortly after ABX launched. This made him ecstatic.

In the face of such strong market liquidity. Paulson stood firm in his convictions. He frantically bought CDS while selling CDO, but he didn't have enough money, so he quickly issued a second fund. And this time he found Zhongshi again. Naturally, Zhongshi was very happy to invest another $2 billion in the other party, and in two cases, Zhongshi invested a total of $3 billion, which accounted for almost half of the total amount of Paulson's new fund, and this money will be used in the CDO and CDS markets without exception.

By '06, Paulson had built a $7.2 billion position, a portfolio that included short-sold CDOs and CDS. Although it seems to be an extremely staggering number, in front of the entire market, this number is only pediatric.

On February 8, the ABX index fell by 5 percentage points due to the news of the delay in the publication of financial statements by New Century Financial Corporation and the collapse of HSBC's subprime loans. In the face of Paulson's huge position, a one-percentpoint drop would have meant he had earned $250 million, and on that day, he earned a full $1.25 billion, a figure that shocked the entire market.

In March, Paulson sent an email to investors saying that in the past two months, their performance had improved to 66 percent. Some people even couldn't believe this qiē and thought that the other party had made a wrong punctuation.

A generation of "kings of money" is now beginning to emerge.

……

Zhong Shi sat in the back of the Mercedes Benz, looking at the rows of villas that fell backwards, and did not speak, but his heart was thinking about the phone call from Paulson just now.

Next to Zhong Shi, sitting Lu Rover, he carefully observed Zhong Shi's face, and after making sure that there was no serious incident, he boldly asked, "Zhong Sheng, what happened?" ”

Land Rover keenly observed that after answering the phone, Zhong Shiqing was a little excited, but he quickly fell into deep thought, and after more than ten minutes, Zhong Shi did not say a word. This situation is quite rare, according to Land Rover's understanding of Zhong Shi, he must have encountered some serious problems, but looking at his face is not like it, because although Zhong Shi's expression is calm, the excitement in his eyes cannot escape Land Rover's observation.

Tapping slowly on the lacquered armrest, Zhong Shi pondered for a moment before replying, seemingly lightly, "That call I just received, I have tripled my investment in Paulson Fund. ”

"And how much did you put in?" The corners of Land Rover's mouth twitched slightly, although he knew that Zhong Shi was very profitable, but the tripling number still shocked him a little, but he thought that if the amount of money invested was not much, it would not be too scary, so he still asked more.

"It's not much, it's just three billion dollars!" Zhong Shi shook his head slightly, and his tone was even lighter. After saying that, he waved his hand and closed his eyes, as if he didn't want to say anything more.

Just a gentle sentence, but it was like a thunderbolt in Lu Rover's heart, his head was a little confused for a while, and after shaking his head a few times, he crossed his fingers and began to calculate: "Three billion dollars, double is six billion dollars, and double is ...... Nine billion dollars. ...... days"

He just wanted to exclaim, but he thought that he might surprise others in the car, although there were only four people, but he thought that it might disturb Zhongshi's contemplation, and immediately suppressed the exclamation that came to his lips.

Although I didn't hear what the other party said clearly, Alan who was sitting in the co-pilot seat. Anthony felt something from the driver's obviously shaking hands, and he looked back at the "high roller" with mixed thoughts, and saw that the other party did not mean to speak English at all, and turned his head back silently, while his eyes began to flicker, and he did not know what he was thinking.

At this time, Zhong Shi handed over the funds to the "king of money" to take care of, and he did not get too deeply involved in the CDS and CDO market, for such a capital feast, he definitely would not miss it, so he must be seeking a larger pattern of profits. And what exactly is this, Land Rover can't think of for a while.

"Kaminmen Brothers, Bellstone, Stanley, and Goodman, how many subordinated mortgage bonds do you market makers hold?" Zhong Shi, who closed his eyes, was thinking about such a question. His opponent this time is not only to make money, but also to buy shares and even defeat these Wall Street supergiants. (To be continued......)

PS: Thank you to ERICfmx, yangyimb, Wenhuang, huid296, kalm gods and other book friends for voting for the monthly pass two days ago! Last month's update was pitiful.,I'm really sorry for everyone.,Thank you all for your attention to this book.,A new month has begun.,The author tried his best to restore the normal update progress.,And strengthen the concept of time.,No longer delay until late at night~