Shadow banking, as the name suggests, is a shadow bank, it is not actually a bank in the real sense, especially not subject to the supervision of the regulatory authorities, but in practice it is the same as a bank, so some people call this kind of institution shadow banking.

The concept of shadow banking was proposed at the annual meeting of the Federal Reserve in 07, but in fact similar institutions appeared in the sixties and seventies of the twentieth century, first institutions that innovated various financial products and tools, and then non-bank financial institutions such as investment banks, hedge funds, and insurance companies.

In the hedge fund industry, the first to pioneer the shadow banking system was the famous Steinhardt, a Jew who called the storm in the bond market. Like the Quantum Fund's currency transactions, Steinhardt uses the central bank as a counterparty to the transaction.

In the early 90s, the US economy was in a recession, and President George H.W. Bush was defeated by a young man from Arkansas, Bill Clinton. In order to stimulate the economy, the Fed decided to stimulate the economy by keeping short-term interest rates low, a policy that allows financial institutions to borrow short-term money at an extremely cheap cost. Steinhardt took advantage of this imbalance in long-term and short-term interest rates to earn interest rate differentials, lending short-term money into the long-term bond market, which yielded much higher.

There is a risk that if long-term interest rates rise, the price of long-term bonds will shrink, and the longer the maturity of the bond, the more volatile it will be. But Steinhardt and his fellows are well aware that in a recession, the demand for long-term capital also declines. Then the price of capital, i.e., long-term interest rates, is unlikely to rise. As they expected, in the early nineties, long-term interest rates fell instead of rising, allowing Steinhardt to earn more on bonds than the difference between long-term and short-term interest rates.

The reason why he said that this behavior is shadow banking is because the Fed originally wanted to make the regular business of banks more profitable through long-term and short-term interest rates, but shrewd hedge funds borrow short-term loans and lend long-term loans (to buy bonds), making their actions almost the same as the bank's business, especially hedge funds do not need to set aside deposit reserves, and there are no capital adequacy requirements, so they have more advantages than commercial banks.

Meanwhile. Steinhardt and his hedge fund are getting bigger and bigger in the bond market. Even the big financial institutions on Wall Street have been led into a trap by them. In April '91, Steinhardt's hedge fund, along with the founder of another commodities company, auctioned off $12 billion worth of U.S. Treasury bonds, which they lent to short-selling institutions and bought them in the market. Then the classic trick of "long forcing short" was staged in the bond futures market. Naturally, the bears lost a lot of money. These bears include Goodman, Salomon Brothers, and Bear Stearns, a PhD (poor, hungry, and hungry for success) investment bank, three well-known investment banks on Wall Street.

This pattern of exploiting spreads was soon imitated by other hedge funds. Soon the European bond market across the ocean was also on the radar of hedge funds, and soon there was a steady stream of money flowing into the bond markets of various European countries from North America.

Since the currency crisis erupted in Europe two years ago, hedge funds have been following the continent's economic situation unabated. The attacks on some of the currencies in the ECU system have not stopped. Following the Finnish mark, the British pound, the lira, the Swedish krona and other currencies have announced their withdrawal from or no longer pegged to the European exchange rate system, hedge funds led by the Tiger Fund launched wave after wave of attacks on the French franc, and even once exhausted France's foreign exchange reserves, but with the intervention of Germany, the franc finally stayed in the European exchange rate system.

However, in the end, in order to avoid such currency attacks, the European Economic Community decided to increase the fluctuation range of currency exchange rates from the previous 3% to 15%, which in a sense indicates that the previously closely linked European exchange rate system has collapsed.

With the end of the exchange-rate mechanism crisis, Europe is preparing for a monetary union, a process that will be a convergence of interest rates among members of the entire European economy. Since countries like Italy and Spain have higher inflation rates, they must raise yields in the bond market to subsidize investors. But now, with strict inflation restrictions, interest rates in these countries are about to fall to the same level as Germany, which inevitably makes the price of long-term bonds fluctuate. Because this policy is not kept secret, hedge funds quickly analyze the price trend of long-term bonds, and they begin to borrow heavily from brokers or brokerage firms to buy bonds from European countries.

This is where the bubble is created, where the government borrows money from the issuance of bonds, and these bonds amplify the leverage through the futures market, and hedge funds hold Treasury futures by borrowing money from brokerage firms, and the money from brokerage companies may be borrowed from other institutions through other means, so behind this layer of debt, there is a link that goes wrong, which can cause fatal damage to the entire chain.

Because of the lack of regulation, financial institutions such as hedge funds and investment banks, which are "shadow banks", can use leverage to short any financial product that can be profitable. As long as this trading model continues to make profits on the side of the "shadow bank", then the risk will not break out, but once there is a loss, causing the brokerage company's margin call, then the entire market may fall into a collapse situation.

In November, after Zhong Shi successfully established 100,000 short orders in the crude oil futures market, he set his sights on the European bond market, which is his old business and a relatively low-risk market.

In addition to more than $200 million in crude oil short orders, more than $200 million was set up, and another $1 billion flowed to the European bond market. Unlike hedge funds, his funds are shorted in the bond futures markets of several countries such as the United Kingdom, Germany, and France.

Because the fluctuation of the price of treasury bonds is small, it can also be very large in terms of leverage, generally speaking, dozens of times the leverage is a small thing, and even a hundred times the leverage is possible. After all, the bond market is an extremely large market, and even the amount of funds derived from the futures market is very large, and the distribution of Zhongshi's billions of dollars to various countries immediately becomes inconspicuous.

Just when Zhong Shi placed funds in the global financial market, Zhong Jianjun, who was far away in Hong Kong, called, and it was said that it had been two months since the end of the first academic year, Zhong Shi had not returned home, and he had not even returned to Hong Kong with his love, which made Zhang Wei, who had been to Hong Kong several times, pounced, but this time Hong Kong called the Zhong brothers because their uncle, who had not yet met, came to Hong Kong with a delegation to attract investment.

Zhong Shi's uncle is Zhang Wei's father, named Zhang Yuanchao, a middle-aged man who looks like he is forty years old. He was born with thick eyebrows and big eyes, a high nose, slightly thick lips, and wore a somewhat loose suit, which looked very ill-fitting. As soon as Zhong Shi saw his dress, he wanted to laugh a little, but when he thought that this dignified person was his elder, he suppressed the desire to laugh. After all, he and Zhong Shi are two shijies.

In this shijie where Zhong Shi is located, people with a little status have their own personal tailors, and most of the clothes they wear are tailor-made, and there will be no nameplate logos, but people with a little vision can distinguish from the cut, clothing material, fit, etc.

There was once a joke that a newcomer wore a suit with a big G to work, which is the hallmark of the luxury brand Gucci, but was ridiculed as a "gap" by his peers because of this vulgar taste, and finally the rookie had to resign and leave soon after.

Zhong Shi doesn't pay much attention to what he wears on weekdays, but since the last time he went to the Mid-Levels Club, he has reserved dozens of coats, shirts and other necessary clothes in his wardrobe. This time, my aunt came to visit, and out of courtesy, he also had to dress properly.

"You are the bell stone that Xiao Wei often mentions, right? Sure enough, it's a talent. Zhang Yuanchao faced the junior, stood up and shook Zhong Shi's hand rarely.

Soon after Zhong Shi left the southern capital, Zhang Yuanchao was transferred to the newly established Jiangdong City as the mayor, with the rank of main hall. Although he left the post of deputy mayor of Nandu at the level of deputy department, Jiangdong City is a newly established prefecture-level city and is in a state of ruin, so the development task that falls on his shoulders is very heavy.

Before he came, he had heard Zhang Wei talk more than once about how rich the Zhong family was and how luxurious their residence was. Knowing his son Mo Ruo's father, whenever Zhang Wei mentioned it, he always smiled faintly and didn't believe it. Now when he really came to the Zhong family's mansion, he realized that what his son said was true, which surprised him.

Not to mention the spacious living area, the luxurious decoration in the house, the oily floor under his feet, and the soft and comfortable sofa under his body, it is much better than the city office where he usually works, not to mention the few servants who are waiting to be sent with their heads bowed and their hands bowed.

And all this, it is said that it came from the handwriting of the young man in front of him, which surprised him greatly. But after all, he was a man in the officialdom, and the surprise on his face flashed as if nothing had happened.

In the center of the living room, there was an old man Zhong Fangzhuo sitting with a smile on his face, and at this time he was staring at Zhang Yuanchao happily, and his heart was furious when he saw this local magistrate who was in charge of one party. (To be continued......)

PS: PS: Steve Cohen, the founder of the SAC hedge fund, who was fined $1.8 billion last year, made nearly $5 billion this year because of the correct bet on the timing of the Fed's exit from QE, and it is estimated that he has been the king of personal money for 13 years. SAC's annual yield is 40%, but unfortunately all external funds will be refunded - thank you for the monthly ticket support of Book Friend Mouse Fly! Thank you for making me think about it, the reward of the Demon Dragon and the Ghost!