In 1929, the stock market crashed, the entire U.S. economy fell into a depression, and the real estate market entered a harsh winter, with the average U.S. house price falling by 31%, and it took the United States another 19 years to recover to pre-depression levels.

Before the Great Depression, the main source of home loans was banks, generally with a term of thirty years. But compared to the allocation of bank liabilities, which are usually short-term, this is too high. Therefore, the general commercial bank requires the borrower of the mortgage to start repaying the loan in about five to seven years, and this practice is still in place today.

If the world is good, the economy is growing, and incomes are rising, the pressure on people with this kind of loan is not great. But when the world is withering and the economy is sluggish, lenders can only give up early repayment, which makes the loan default. In the event of a default, these properties will be repossessed by the bank for auction, leading to an oversupply in the entire market, which in turn will lead to a further decline in housing prices, forming an endless cycle.

Because of this characteristic of commercial banks, they cannot really become the main force in the mortgage market. In this context, the U.S. government established the Federal Housing Administration (FHA) in 1934 through the Guò National Housing Act, which guarantees home loans on behalf of the government to eligible borrowers, i.e., the FHA provides mortgage guarantees to working, owner-occupier borrowers with low down payments, allowing them to borrow from banks.

However, even in the name of the state, the time mismatch between assets and liabilities between banks could not be effectively solved, so in 1938, the U.S. government stepped in again and established Fannie Mae.

Fannie Mae was originally formed to acquire the FHA-guaranteed loans that banks had because of this. Banks can then get liquidity from Fannie Mae. In this way, the liquidity problem that plagued banks was solved. Homebuyers get loans, banks get liquidity, and both parties rejoice.

Because Fannie Mae was a federal government agency (at this time), the funds obtained came from federal revenues and did not have the financing costs of commercial banks. Therefore, it is very competitive in terms of interest rates. Soon, Fannie Mae and FHA teamed up to create a major innovation: a 30-year fixed-rate loan.

Although the interest rate of this part of the loan is slightly higher than the interest rate of ordinary loans, the great advantage for borrowers is that they no longer have to worry about the interest rate risk from the market, and they do not have to worry about the price of housing prices rising or falling, because they only need to pay a fixed amount every month to get the house they want. As a result, between 1938 and 1968, the U.S. housing market boomed, with the homeownership rate rising from 44 percent to 64.3 percent, thanks to Fannie Mae and FHA.

However, Fannie Mae's history as a federal government agency came to an abrupt end in 1968. Because the Vietnam War reached its climax in this year, and the anti-war voices in the United States also rose and grew. The American people do not want to see their young men go to the other side of the world and lose their lives for no reason, and naturally they are not willing to pay for military spending. In order to continue to raise huge military expenditures and maintain military spending in South Asia, the U.S. government at that time chose to sell Fannie Mae.

In order to prevent Fannie Mae from becoming bigger, two years later the U.S. government set up another company that specialized in acquiring FHA-guaranteed loans, namely Freddie Mac. Since then, the two giants, arguably the ultimate in the real estate market, have embarked on an almost uncontrolled expansion. Because they have an implicit guarantee from the government, the cost of financing is much lower than that of their competitors. So it's growing very fast.

In 1970, the two-house business was no longer limited to the acquisition of FHA-secured loans, but began to move into unsecured bank mortgages.

In 1971, Freddie Mac was the first to issue mortgage-backed securities, and in 1981, Fannie Mae followed suit.

1992 year. Fannie Mae became the nation's largest issuer of mortgage-backed securities, and in the same year the U.S. Congress asked the "Two Houses" to increase support for low- and moderate-income earners.

In 1999, the "two houses" began to gradually reduce their loan requirements and entered the high-risk loan market.

In 2003, Two Houses issued nearly $2 trillion in mortgage-backed securities. This is equivalent to 10% of the total U.S. bond market for the year.

In 2004, the "two houses" were found to have violated accounting rules and concealed billions of dollars in profits, which caused an uproar for a while. At that time, the management of the two companies was purged, but this move did not fully alert the two companies.

Beginning in 2005, the "two houses" began to accelerate into the high-risk market, buying a large number of subprime mortgage bonds in the market, until August 07, when the bomb of subprime mortgage bonds exploded.

……

As two giant companies, "Two Houses" provides the market with the liquidity of home mortgages, and then packages the acquired mortgages into its own bonds to sell or hold, using the interest rate difference between the two as a profit point. They hold or guarantee 42 percent of the U.S. mortgage market, or $5 trillion. On the other hand, the "two houses" issued more than $4.5 trillion in bonds, bringing their total liabilities and assets to close to $10 trillion.

Since August 07, with the outbreak of the subprime mortgage bond crisis, the price of a large number of subprime mortgage bonds held by "Two Houses" has fallen, and the operating conditions have turned into losses. By the second quarter, the losses announced by the "two houses" reached $6.5 billion and $2.7 billion.

In this case, from March 24, 08, the FHA began to inject capital into the "two houses", increasing its holdings of more than $100 billion in mortgage bonds, trying to help the "two houses" restore liquidity, thereby injecting new vitality and confidence into the US real estate market, but the situation did not improve because of this.

Fannie Mae announced a first-quarter loss of $2.19 billion in its financial statements released on May 6 and predicted that the loss could continue to worsen next year.

But what the world doesn't know is that even this number has been consciously reduced by their top management.

"Damn, how dare they do that?"

In this office, Henry, who has always been very elegant. Paulson made a rare move, slamming the text on his desk hard. "Have they forgotten what happened four years ago?" ”

Sitting across from him was Federal Reserve Chairman Ben Bernanke. In response to Paulson's gaffe, he tilted his head slightly, lowered his eyes, and said, "Now is not a good time to pursue it." We should be thinking about how to solve these problems. ”

"These bitches are really raising them because they have friends in Congress, so they dare to do this!" As soon as he heard Bernanke's words, Paulson became even more angry, his face instantly became gloomy, and he even gritted his teeth when he spoke, "Do you really think that we dare not let it go?" ”

Angry, Paulson rarely swears. But Bernanke didn't pay attention to these subtleties, and he was startled by Paulson's last words. Shuangyang suddenly opened his eyes, and the essence light burst out, "What? Henry, do you know what you're talking about? Leave it alone? God, this ...... How is this possible? ”

Without waiting for Paulson to answer, he hurriedly stood up and said, "Oh my God, I can't count on you on this." I'm going to report to you, Mr. President. I'm going to let him know how strict things are. Damn, this thing must not be left alone. ”

Henry. Paulson. U.S. Secretary of the Treasury, who is in charge of fiscal policy; Root. Bernanke, the chairman of the Federal Reserve, is in charge of monetary policy, and the two men at the helm of the U.S. economy and even the world economy can't decide something. It can be seen that the nature of the problem is very serious.

"No need!"

Paulson finally calmed down, "I must inform the president about this, but before that, we should both come up with a plan for Mr. President's reference." ”

"It's good!" Bernanke stopped. Looking back at the other person deeply, "We have to come up with a perfect plan to ensure that the negative effects are completely eliminated before the market reacts!" ”

Henry. Paulson didn't say anything more, but nodded heavily.

The "two-room" accounting scandal of '04 did not make their management change their minds, on the contrary, they still lied about profits. Just this afternoon, Bernanke got word from inside Fannie Mae that in order to keep up with Wall Street's expectations, Fannie Mae's president, David Brown. Glenn instructed his subordinates to falsely state up to $5 billion in false income.

In this anonymous report, Fannie Mae's top management distorted the internal accounting system to glorify the entire financial situation. Most shockingly, Fannie Mae's executives did this because they were paid more for inflating their earnings under the current compensation system.

Although the news came from within Fannie Mae, the source asserted that similar incidents of accounting fraud had occurred within Freddie Mac. In the end, he also said that the news could not be covered up for long, and he hoped that Bernanke and his colleagues would do everything they could.

Because something similar happened once, Bernanke was also shocked after getting the relevant inside story, but he couldn't solve this matter alone, so he could only appear in Henry as soon as possible. Inside Paulson's office.

Naturally, Paulson was furious when he learned of such a thing. Paulson was annoyed by the fact that Fannie Mae's chief executive and chief financial officer had gone four years ago, but now they don't know how to do so. But after being annoyed, Paulson quickly calmed down, because Fannie Mae and Freddie Mac were no ordinary companies.

And at this time, if the news spreads, the whole market will definitely be violently shaken, and the situation that has just stabilized will be broken again, and what is even more serious is that the "two houses" may be bankrupt, and if the "two houses" are really bankrupt, then the entire real estate industry in the United States may also be finished.

Until now, Paulson and Bernanke have not known the true financial situation inside the "Two Houses", but based on their rough estimates and published figures, it is believed that the two houses have lost more than $15 billion at least from '07 to the present, which is much larger than the disclosed figures.

Be sure to take action before the market!

"We came forward and publicly endorsed the 'two rooms', what do you think of this mention?" Paulson frowned and pondered for a moment, then gave such an opinion.

Generally speaking, the market is usually very face-saving for the speech of the finance minister. But Bernanke disagrees with this opinion, because he is actually on the front line of the financial crisis during this time, and he is more aware of the current market situation, shaking his head and saying: "I don't think this is a viable solution, I think hosting is more suitable for the current treatment." ”

"Escrow?" Paulson's expression changed dramatically, "Ben, are you kidding me?" Yan zhòng is like this? ”

Trusteeship, naturally, is to temporarily entrust the management of the "two houses" in the name of the federal government, which is an endorsement guaranteed by the government's credit. If it is to be escrowed, it means that the debt generated by the "two houses" will be borne by the government.

Paulson couldn't do anything as big as that.

"Well, let's draw up our respective plans and send them to the president for him to decide!" In the end, Bernanke gave in and said worriedly, "But hurry up, I hope that Mr. President can make a decision as much as possible." (To be continued......)

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