Subprime mortgage crisis - _1_

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					Subprime mortgage crisis - (1)
The concept of sub-prime mortgage crisis subprime mortgage crisis (subprime
mortgage crisis), also known as the subprime crisis, also translated into sub-debt crisis.
It is a place in the United States, because of subprime mortgage lender bankrupt
investment funds were forced to close, the stock market turbulence caused by severe
financial crisis. It resulted in major financial markets worldwide lack of liquidity
crisis. U.S. "subprime crisis" is from the spring of 2006
gradually emerging. Began in August 2007 hit the United States, the European Union
and Japan, the world's major financial markets. Sub-prime crisis has
become a hot issue internationally.
Subprime crisis model
1, lever:
At present, many investment banks to earn huge profits, with 20-30 times leverage,
suppose a bank's own assets A 30 billion, 30 times leverage is 90 billion. In
other words, the bank A 30 billion in assets as collateral to borrow 90 billion of funds
for investment, if investment earnings 5%, then A would be 4.5 billion profit,
compared to A's own assets, which is 150% of the profits. Conversely, if
the investment losses of 5%, then the Bank lost A light all the assets of their 1.5
billion owed.
Second, CDS contracts:
As the leverage of high-risk, so the normal requirements, banks do not carry out such
a risky operation. So someone came up with a way to leverage investment to take to
do "insurance." This type of insurance called CDS. For example,
Bank A lever in order to avoid the risk of finding a body B. Body B may be another
bank, it could be insurance companies, and so on. A pair of B said that you do to help
my credit default insurance, how, I pay your premium each year 5 million, for 10
years, a total of 500 million, if my investment does not default, then this insurance
you took on the white If breach of contract, you have to compensate for me. A thought,
if you do not default, I can make 4.5 billion, there is come up with 500 million used
for insurance, I could net 4.0 billion. If there is breach of contract, there is insurance
to pay anyway. Therefore, it is a case of the A earn not lose business. B is a smart man,
did not immediately accepted the invitation of A, but go back and do a statistical
analysis showed that less than 1% of non-compliance situation. If you do 100 business,
you can get 50 billion total insurance premium, if one of breach of contract,
compensation up to but 50 million, even though the two breach of contract, they can
earn 40 billion. A, B both believe that this sale to their advantage, it immediately
closed the transaction, satisfaction of all.
3, CDS market:
B, after doing this the insurance business, C in the next jealous of. C went to B over
there that these 100 CDS you sold to me how, give you 200 million for each contract,
a total of 20 billion. B would like, my 40 billion to 10 years to get, there is now a 20
billion changing hands, and there is no risk, why not, so B and C immediately on a
deal. Thus, CDS is like the stock flow to the financial markets as above can be traded
and trading. Group C received after the fact, CDS, does not want to wait 10 years to
charge 20 billion, but put it up for sale, price 22 billion; D see the product, forget
about, 40 billion minus 22 billion, also earn a 18 billion, which is
"IPO", not expensive, and immediately bought it. A resale, C
earned 2 billion. Since then, the CDS in the market repeatedly copied, and now CDS
market has been copying the value of 62 trillion dollars.
4, sub-prime:
Above A, B, C, D, E, F. ... are making big money, then from somewhere in the end the
money come from? Basically, the money from A and A similar investors with the
profits. Most of their profits from the U.S. sub-prime loans. People say that the
subprime crisis is due to lend money to the poor. I not agree to this statement. In my
view, the sub-prime mainly to the average American real estate investors. Economic
strength of these people had enough to buy their own apartment, but saw rapid
increases in house prices, moving from the idea of the real estate speculation. They
mortgaged their house, borrowed money to purchase investment housing. Interest on
these loans to 8% -9%, and with their own income is difficult to deal with, but they
can continue to mortgage the house to the bank, borrow money to pay interest, sleight
of hand tricks. A very happy at this time, his investment for his money; B is also very
pleased that the market is very low default rates, the insurance business can continue
to do so; behind the C, D, E, F, etc. are followed to make money.
5, the sub-prime crisis:
Prices rose to a certain extent on the rise not up, and later no answer set. Real estate
speculation at this time were anxious like ants on a hot pan. Not sell the house, high
interest rates to keep the pay, and finally to the end that day, the house training and
preparation of the bank. At this time of default to occur. A point was a trace of regret,
big profits are a vain, but also loss not there, anyway, there are B for insurance. B do
not worry about Anyway, the insurance has been sold to C. So now the CDS insurance,
where it, in the G hand. The hands of just F G spent 30 billion to buy the 100 CDS,
not enough time to change hands, suddenly received the message, these CDS were
downgraded, including 20 default, far beyond the original estimate of 1% to 2%
default rates. Every breach of contract to pay 5 billion of insurance money, a total
expenditure of up to 100 billion. CDS add 30 billion acquisition fee, G losses totaling
130 billion. Although G is the U.S. ranked the top 10 large institutions, can not
withstand such a huge loss. Therefore G insolvent.
6, the financial crisis:
If the closure of G, then A cost 500 million U.S. dollars to buy insurance on the bubble
of soup, even worse, because A uses leverage investment, according to previous
analysis, A lost all of the assets is not enough light debt. Therefore, the risk of A
bankruptcy immediately. In addition to A, there is A2, A3 ,..., A20, all should be
prepared for closure. Therefore, G, A, A2 ,..., A20 came together before U.S. Treasury
Secretary, a nose a tear lobby, G must not collapse, it finished a close down everyone.
Minister of Finance, a soft heart, put G to nationalize, and then A ,..., A20 of insurance
totaled 100 billion U.S. dollars all paid by U.S. taxpayers.
7, the dollar crisis:
CDS 100 mentioned above the market price is 30 billion. The CDS market is worth 62
trillion, assuming that 10% of them default, then there is 6 trillion of default CDS.
This figure is 300 million, 200 times. If the U.S. government worth 30 billion
acquisition of CDS after the sum of the 100 billion. Then for the rest of those who
default CDS, the United States government to bear the consequences of a 20 trillion.
If you do not pay, we must look at A20, A21, A22 and so one after another collapse.
Assumptions used in the calculation above and the figures will differ with the actual
situation, the U.S. can not underestimate the seriousness of the financial crisis.
Definition of subprime crisis
Sub-prime or "sub-prime subprime mortgage loans" (mortgage
loan), "time" to mean: the "high",
"excellent" corresponding to describe the poor side, in the
"subprime crisis" in middle finger the credit is low, low debt
Subprime loans are a high-risk, high-yield sector, referring to the creditworthiness of
poor lending institutions and low-income borrowers of loans. And in the traditional
sense of the difference between the standard mortgage loans, subprime loans to
borrowers credit history and repayment ability do not ask, lending rates accordingly,
much higher than the average mortgage. Those who have bad credit history or ability
to pay was weaker banks refused to provide high-quality mortgage loans to people
who would apply for subprime loans to buy houses.
Constantly higher in price, the sub-prime mortgage business is booming. Even if the
lender is not enough cash flow to repay the loan, they can add value through real
estate loans to fill the gap in the re. But when house prices flat or falling, there will be
funding gap and the formation of bad debts.
Subprime mortgage loans are a type of mortgage abroad, did not lend much lower
income or credit history people. The reason why loans to these people, because
lending institutions can charge more than a good credit rating mortgage mortgage
interest. Rising in price, because of adequate collateral value, loan no problem; but
prices are falling, the value