What is the subprime

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					What is the subprime
What is subordinated debt?
Subordinated debt? What is subprime? For finance, I believe many people know very
In the U.S., there are three levels of mortgage lending. The first level is the
high-quality loan market, this market a credit score of 660 is above the quality
customers, which offers the traditional 15 to 3 years of fixed-rate mortgage loans. The
third level is the secondary loan market, he is for credit score below 220 is no proof of
income and liabilities of the heavier people, mainly to provide short-term loans of
three to seven years. The second level is the alt-a loan market, mainly to provide loans
ranging between the first two.
Is generally believed that the total size of the United States secondary market
generally in the 12,000 to 1,500,000,000,000 U.S. dollars, of which about 47 percent
of people without income proof about these people's total loans in 5000 to
between 600 billion U.S. dollars. While this is obviously a high-risk market, but
because of its large 约比基准利 rate mortgage interest rate 2% to 3%, considered
high-return market, so there are still many banks shone.
In order to chase profits, participate in the secondary market, lenders are generally
more flexible, they introduced a non-principal loans, three, five, seven adjustable rate
loans, adjustable rate loans and other selective loans. These loans have a common
characteristic is that in the beginning years of repayment, the monthly mortgage
payment low and fixed, but until a certain time, a sudden increase in the repayment
pressure. This means that the days of good over the past few years, after which it will
start becoming difficult to bear? This in turn argue that being the case, who should
have this loan? People are not monkeys, as early as uncomfortable with the
uncomfortable night What's the difference? Course. In fact, these loans
very large audience. People who choose this mortgage loans generally are real estate
loans, these people chose these loans are generally for two reasons: first, they think
real estate will always go up, it is to die, to sell, the loan ahead of schedule also out,
everything will be fine. Second, they believe that the added value of real estate faster
than the increase in interest burden.
To sum up, these two reasons, actually only one reason - whether bank loans, or loans
to individuals to accept all agreed that the U.S. housing boom will always continue.
As long as the U.S. housing boom has been, this economic model could have been
This was all due to U.S. financial oligarchs who have the financial tricks Bale to play.
Financial trick = Asset Securitization. Having said that some people may ask, what is
the asset securitization?
This little bit complicated, in the process of asset securitization, there are several key
terms, lending companies, investment banks, asset rating companies, hedge funds,
U.S. pension funds and other large funds, there is the ordinary people.
First, the income of ordinary people is not very stable, even simply not stable income
people buy a house. No steady income, no money, you can not afford not to buy a
house? How do you do? This time, lending companies, that is, sub-paragraph of the
mortgage companies will appear. They will tell you, no problem, I lend you money.
Not only lend money to you, and all the conditions favorably. Are you worried about
not starting? It does not matter, only has a little bit early years, followed by an
additional payment amount. What? Since you do not fear the future? Do not be silly,
you look at the current prices, to rise every day, that time you really have no money,
sell the house can not it? I'm loans, you can not use ah? In this way, the
home buyers to take this loan company money. In theory, lenders said it's
true, as long as the U.S. real estate has been on the rise, the loans are no problem. But
the question is, how can house prices have to increase? The United States in 1987 to
1995, not to experience a long bear market eight years What? If this occurs, how do?
Loan company, one would like, ah, no, this is very dangerous, and I are neither carry
this risk. At this time, lending companies think of the investment bank.
Investment bank is a central pillar of U.S. finance, but also the core of Rothschild
family interests lie. United States, all financial activities and even the world, in the
final analysis are controlled investment bank in the United States hands. Investment
banks is very great and powerful, banker in the investment bank's mouth, a
common vocabulary, called financial innovation. What does financial innovation?
Financial innovation is that you can think of, you might earn money, I have them help
you realize.
Well, loan companies to find investment banks, the heart pretty little apprehensive.
Because he knew he was in fact a great risk of the loans, as long as the turmoil in the
U.S. real estate event of non-performing loan ratio will quickly skyrocketed. They
thought that even they can be seen, the oldest investment banks are unlikely to be seen.
They want to get right, they could see the problem, how the investment bank may not
see out? However, these lending companies have forgotten one thing that investment
banks have always been afraid of risk, as long as there is sufficient return. And now
this thing, in the eyes of bankers investment bank, is obviously You
Gaotou's. As a result, investment banks bigwigs apart from anything else,
stroke of the pen, dry. Loan companies were suddenly relieved, the investment
bank's managers to go to work. Up to? Busy with packing ah. Packaging to
whom? Rating companies look to the assets.
Asset rating it bluntly, the equivalent of Quality Supervision Bureau, listing your
apple before he would let you make a tag. AAA is the best apple, good taste, smell
incense, as well as physical and mental benefits. Generally, as long as with this label,
you like apples sold. Investment bank managers working day and night, the quality of
these loans in accordance with the high and low divided into three parts. The first part
is the lower part, called the common CDO (CDO abbreviation), accounting for 10
percent. The second part is the middle, the same share is 10 percent, called the
intermediate CDO. Finally, the High, the largest share is 80 percent, called the senior
CDO. Scratch skull investment bank managers to prepare a lot of these loans to the
report, the data also touch-type math. Then, they excitedly rushed to the asset rating.
Investment bankers in line very sincerely said, ah, my general CDO and intermediate
CDO, is indeed a bit dangerous. People think he is kinda the man. Then, he says, but
my senior CDO, it is really reliable even than the Empire State Building and
insurance. Next, they immediately throw a bunch of data, you see, in the past three
years, our non-performing loan ratio is much lower ah. Then again, once again throws
a Nobel Prize to the experts to do the mathematical model, you see, according to the
latest model in the world today shows that in the foreseeable future, the bad loan ratio
will be maintained at a very low level. Is not very safe? I tell you, so not the only
security. You see, if this is really what the problem loans, but also losses for its first
regular CDO and CDO middle part of the money, senior CDO's money is
the last to move to. Unless the U.S. housing collapse, otherwise, no matter how tragic
and can not move to the senior part of the Qiana. If it is said that if the U.S. real estate
crash really, how do? Did not collapse in history are not over. Investment bankers in
line would immediately laugh, how is it possible, even if the earth exploded, blown to
the moon alone the United States will continue its prosperity. Then, the investment
bankers will be punched line a ton of research to prove how strong the U.S. economy,
how satisfactory the current real estate developments. In a word, to the U.S. real estate
collapse, it's harder than the Earth exploded. (But have heard here, we all
asked, are these ratings companies such assets were 忽悠 it?) Of course not, these
assets were rated in the company, not investment banks than bankers stupid, people
are all fine. Their financial intuitions will not worse than any financier, along with
their all day long, all right on the recession of the past history of the U.S. economy,
the 'withered red' words than anyone has a deep understanding
of . How they might be investment banks 忽悠 to come?
But ... ... you know, in the financial market is not really not important, but important,
do not you look like. We play in the financial years of? What is a concept not want to?
Several people buy a stock because the company has so many practical results? What
do you think the world is Warren Buffett? Furthermore said, do you think asset rating
is dry white? Investment banks to money or the. You not to ordinary investors rating
the company's human assets, wages, the real possessor of them, is the
investment bank. Haoshenghaoqi people say to you, but also gives you enough to
explain the material to the outside world, you have to what? Do the authors really do
not want to mix it? Thus, reasonable, and pockets bulging assets rating apart from
anything else, a seal cap, senior CDO rating is AAA. What does AAA? Simply put,
that is 100 points.
With this rating, the investment bank makes things up. Senior CDO easily buttoned,
sold the house down, and prosperity for all. The future of real estate fell, loan collapse,
not of my business, so those who bought the sucker senior CDO cry go, anyway, has
been put into the pockets of silver Zan. Loan companies, investment income line in
achieving a risk-free, risks all throw a senior CDO's checkbook were. If the
behavior of investment banks have only been here, they earn is not really lose. But the
problem is the greed of financiers is endless. End of this money making, investment
banks have come back to staring at another common CDO and secondary CDO, I
thought, Damn, this thing is arrayed arrayed anyway, I was not the way to find
anything, so this thing has helped me earn money? Minor consideration, the
investment bank bigwigs thought of a good way - to find hedge funds. What are hedge
funds? Licking the blood that are the main blade. CDO and CDO common
intermediate risk is indeed higher, but relatively speaking, very high returns indeed. In
general, the lowest interest rates in major developed countries in the world is Japan.
Hedge fund a plan, I went to the Bank of Japan to borrow money to dollars, to buy it
the CDO. I have a very high rate of return each year, ah, and is thinking of making
profits, Why not? Dry! So this way, hedge funds will take the burden of the past.
Dumped the burden of investment bank, hedge funds are also making money,
everyone happy again. Here, the only only one risk that some hedge funds, are
investment banks themselves set up. In addition, no risk.
However, the next strange thing has started. U.S. real estate since 2002, ride that up to
now in 2007 almost doubled the. As a result, the repayment rate for subprime bad low
Consequently, the CDO has started popular. Because it is really a high rate of return,
while, investment banks were all envious, I rely on the original so this stuff to make
money, ah, I knew I was out on their own. So, with this feeling some remorse, in the
interests of the drive under the large-scale investment banks were buying these hedge
funds, want to share these funds because of the benefits of CDO. This is the first
investment banks have a crisis, they feed a dog a bowl of arsenic, a half-day to see it
die, it grew bigger and bigger, is it anymore, actually ran the dog eat dog. Next, is the
second crisis, and they heat up after a CDO, hedge funds have to follow the shake up.
What are hedge funds? The hands of a dollar, you dare to play through the 100 main.
Hands with such a hot property, how could a waste? Of course, taken out mortgages
for cash, good to speculation the. Brought their mortgage collateral, is the reason of
the investment bank to sell their CDO, got used five times to fifteen times for the loan.
Under this drive, the enthusiasm of CDO investment bank to do more and more, while
hedge funds bought these CDO's passion is getting high, bought after the
mortgage for the loan out to more and more enthusiasm. Consequently, unconsciously,
to 10 trillion dollars leveraged through CDO keep this volume out from the bank.
When the United States to maintain low interest rates, when the United States real
estate soared all the way when the red, all right. But when the situation deteriorated,
the situation becomes out of control. Investment banks are aware of this, but the
immediate profit they have not even think about tomorrow, or it is thrown herself
headlong into it.
Hearing this, I believe we should think, as long as the subprime crisis in the event of a
detonation, these investment banks will suffer a huge loss.
But ... ... you mentioned that the financiers of the story here on the end? Ha, you
really misjudge them.
In the U.S. financial, described themselves as hedge. We are not saying CDO What
are the risks? Well, the U.S. investment bank to be a re-invention of Lords, broke a
thing called credit default swaps, short CDS. CDS is to say, if investors are willing to
bear the CDO default risk, then he will be paid by installments have CDO default
insurance. For investors, in the process, the risk that investors do not need out of any
funds or assets need to be any relationship between the insurance, he pays only CDO
potential default risk, it can be a Payment of insurance premium.
First of all, you bought a CDO, and then you make a lot of money every year, but you
are worried about the future of real estate turmoil, non-performing loan rate of
increase in the hands of the CDO become worthless. This time, the investment bank
launch CDS, a part of your profits to others as long as the points, it can be your risk
entirely onto the people who buy a CDS, the risk-free income, is not it feel so cool?
The purchase of CDS who are not out a dime, you can profit a year in which do not
feel so cool? Another happy, and then vote again in the process line their pockets with
a fortune, genius, right?
If you then think that the investment bank in the Lords of the imagination just stop
here, you're it wrong. Next, the investment banks will launch their killer
invention - synthetic CDO, synthetic CDO we know what is it? Synthetic CDO, is
based on the CDS based on the new products. We just said, CDS is the person who
bought CDO's default risk, then do not have a penny, you can get some
time for each insurance. No problem as long as the U.S. real estate, then the CDO will
not go wrong, no problem as long as the CDO, then people can buy CDS insurance
has been obtained. I said what? U.S. investment bank bigwigs most proud of?
Financial innovation. What does financial innovation? Financial innovation is to have
all the benefits can be expected soon realized. Hearing this, some friends will
definitely understand the hand scratching his head and asked, is not it? Does the
person have to be investment bank CDS have ABS? Entirely correct. Since the CDS
with a fixed income, why not be packing it up again, securitization, and sent to market
and sell it then?
This time, someone asked, how can that work? To the U.S. financial bigwigs are OK.
Others will ask to see this, CDS Although fixed income, but only if the purchaser
under great risk ah, how it can be used to made of the securities?
Will ask the people must have a unique financial concept, good. It is because of the
enormous risks, not those assets to the rating agencies rating the securities, CDS
securities of seeing the way to died. This time, the great glory of Lehman Brothers
debut, they made a genius of financial innovation. That is the cash flow generated by
CDS accumulation into a spare 'money pool'. Thus, in the event
of default, you can first share of loss of money you get white, no loss to your money.
And when you feel wrong, you can loss your own money, to have it sold. Think about
it, before you invest in CDO bonds, in order to get cash flow, you have to put money
into real money, and must bear the investment risks that may arise. Now your money
can not move, still on the stock market or other place for you to continue to create
wealth, you just take some risks will be stable cash flow. God, the world could be
more people Anshuang investment products? With this reason, asset rating is almost
no hesitation on the cover of the AAA's seal. Then, the investment products
sold in the United States was crazy, including pension funds, education funds, as well
as many large funds, including foreign funds rushed to buy.
At this time it is doubtful there will be people, are these fund managers have no
thought, no matter how packed this thing, it actually was a high-risk species. They do
not know if the national real estate real turbulence, they will face big trouble for you?
So what? High rates of return has been accomplished, and they have also got the high
bonus hands. I tell you, in addition to this general synthetic CDO, the hedge funds
they have for a special issue of zero coupon bonds, called synthetic CDO product.
This product's risk is higher and more terrible. I said and it is through these
channels, District more than one trillion U.S. dollars in subprime, it is strongly
expanded to dozens of trillion.
Having said that, everyone's heart to a heart will sum up to the bankers. In
this game, the only benefit, the only investment bank, they are thinking of making
profits. Apparently so, but was too greedy, over-lending hedge funds, and to
encourage speculation, and even investment to hedge funds, investment banks, the
losses are also huge. Most importantly, by their ruin has caused many people, is also
part of American society is their customers. Once the oscillations U.S. real estate, will
bring massive tidal wave of bankruptcies, which led to a U.S. recession. The influx of
U.S. investment banks in this recession, the same not be an exception.
American society as a whole, while U.S. investment banks like his brain. Investment
banks rely on their bodies swallowed a living, as long as it engulfed the speed control
well, the body can indeed continue to grow for its new meat to eat. But what if it is
too greedy, breath bitten his body, then eventually will ruin itself. The reason, whether
it is Wall Street elite, or stand behind the clearly dominant. However, when red
appears in the immediate profits, they have no one can resist this temptation.
Frantically devour profits, so that the end will devour itself, which is almost all the
financial oligarchy and the financial tragedy.
We are gradually moving towards the crisis in China.
Another version:
What is the subprime mortgage crisis (2008-09-23 10:55:32)
What is the subprime mortgage crisis to understand at a glance
In the past in the United States, loans are very common phenomenon, from house to
car, from credit card to the phone bill, credit everywhere.
Few local people a cash buy a house, loans are usually long. But we also know that
unemployment and re-employment in the United States is a very common
phenomenon. These revenues are not stable or no income, how they buy a house?
Because the credit rating not up to standard, they are defined as sub-borrowers.
From about 10 years ago, when the loan company that filled the ad appeared on
television, newspapers, street, or in your mailbox filled with tempting leaflets:
『You thought middle-class life? Buy a house now! 』
『Savings not enough? Loans now! 』
She will not have income? A 囧 loan companies to find it! 』
『First payment could not afford? We offer zero down payment! 』
『Worried about interest rates too high? The first two years, we offer 3% discount
rate! 』
『Every month or can not afford? It does not matter, the first 24 months you only pay
interest on the loan principal can be paid after two years! Just think, after two years
you definitely have to find a job or was promoted to manager, and that time afraid
they can not afford! 』
『Worried that after two years, or not start? Oh, you really are too careful, and look at
the house is now up more than two years ago, how much time you resold people ah,
not only white living for two years, can earn a too! Besides, how do you pay for, and I
believe you can do it, should I dare to credit, you can not borrow? 』
In such a temptation, many U.S. citizens did not hesitate to choose a loan buy a house.
(You worry for them in debt two years later? Has always been very optimistic about
the American people will tell you, as an actress can become governor, two years later,
I might even run for president can do.)
A few months 囧 loan company has made remarkable achievements on, but the
money loaned out, and can not be recovered from? The company's
chairman - A 囧 President, that is the person familiar with the history of the U.S.
economy, it is impossible not to know the real estate market is risky, it seems that this
income can not be pocketed, to find a partner to share the risk Caixing .
So A 囧 to find the leading U.S. financial sector brother - Investment Bank. These
guys can all name ringing brother (Merrill Lynch, Goldman Sachs, Morgan), every
day they do? Is fed idle is idle, then got the Nobel economist, Harvard professor get,
get the financial engineers, the cost model of the latest economic data, some financial
alchemy (copula is almost out of time refining ), the came up with several analysis
reports to evaluate what is worth buying certain stocks, certain countries have a
bubble stock market, and this group do anything they want in the risk assessment of
the market's big brother, you said that there is anything they see risk?
Joke, the risk is their feet are visible! But there is a profit ah, that hesitant about, to
take over it! So economists, financial engineers, university professors in the data
model, stochastic simulation assessment, re-packaged, they came up with new
products - CDO (Note: Collateralized Debt Obligation, CDO), reveals that bonds
through the issuance and sale of the CDO bonds, so bond holders to share the risk of
housing loans.
Light this sale, the risk is too high, or one will buy ah, assuming that the original debt
risk rating of 6, are medium to high. So investment banks and divided it into two parts,
the senior and general CDO (trench), the debt crisis, the senior CDO losses is the right
to have priority. This two-part risk rating into a 4 and 8, respectively, the total risk of
the same, but the former belongs to the low-risk bonds, and with investment bank
silver bad "money" tongue, the Advanced Hotel continued to
organize seminars, send beautifully made powerpoints and excel spreadsheets, of
course, sold a house down! But the rest of the risk level of 8 high-risk bonds how to
do? What is the hedge funds who then found a hedge fund investment banks that buy
space, but the financial sector in the world to sell more, do anything they want in the
role, licking the blood off the day that knife-edge, this risk is simply a mere trifle!
So by virtue of the relationship in the world to find the lowest interest rate banks
borrow money, then buy this part of the common large-scale CDO bonds before 2006,
the Bank of Japan interest rate 1.5%; general CDO interest rate may reach 12%, so
spreads alone hedge funds stood to profit full full.
In this way, wonderful things happen in late 2001, the United States real estate soared
in just a few years more than doubled, dear, this way is like A 囧 loan company at
the beginning of the ads, do not Housing loans will appear from what is not, even if
no money is also to sell the house one can make money.
The result is people who buy a house from lending to A 囧 loan companies, to major
investment banks, to all the banks, to hedge fund everyone to make money, but
investment banks are not very happy! CDO had is that the general risk is too high, it
threw hedge funds, did not think guys also earned more than their own, desperately
net up early to play that in my possession, so he began buying investment banks to
avoid insurance fund, a share of the plan. It's like A house at home has put
the dishes in a long time, happened to see the flowers next door neighbor that nasty
dog, had intended to poison it's quick, did not think the dog ate flowers not
only all right, but also the longer the strong, and A home instrument allows the bodice,
are mildewed food nutrition better? Then began to eat their own!
This time again a kick out of hedge funds, they are the people, the hands have a dollar,
you can try to play through the 10 dollar bandits ah, now holding a sought-after CDO
of course, make a big vote! So they turned the hands of the CDO notes mortgage to
the bank, in exchange for a loan 10 times the operation of other financial products,
and then continue to chase investment bank to buy regular CDO.
Koko, had signed an agreement but they can both fall under the general CDO us! !
It was great psychological investment banks not only to continue muffled buying and
selling general CDO hedge funds to hedge funds
Outside, they come up with a new product, called CDS (Note: Credit Default Swap,
CDS) Well, Wall Street is a hotbed of such genius products: general investors are not
all that original high-risk CDO do that Well, I get hold of the insurance each year as
part of the money from the CDO as a premium inside out, handing over the insurance
companies, but in the future the risk, we must all bear.
Represented by AIG insurance company would like to, yes, ah, the current CDO so to
make money, a dollar is not out on sub-profits, it is not white was giving us a year you!
Hedge funds would like to also okay, have earned a few years, and after increasing the
risk, just minutes away part of profits, insurance companies have to bear half the risk!
Then again, happy, Win Win Situation! CDS has also followed the red!
But the story that this is not over yet:
Because the "smart" people on Wall Street to come up with
innovative products based on CDS! Looking for more commitment with the general
investing public, we assume that CDS has brought us 50 billion in earnings, and now I
release a new fund to invest in this fund is designed to buy CDS, obviously the
establishment of a series of products in Zhiqian on the Fund's risk is very
high, but before I earned 50 million dollars as a deposit, if the fund was in deficit,
then the first five billion yuan with the advance, the only 5 billion yuan deficit is over,
your investment The principal will be losing money, but before that you can be
redeemed in advance, for the first time raised the scale of 50 billion yuan. Alas, there
are also cool than this fund it?
1 yuan denominations buy fund losses to 10% will not loss their money, earned every
penny they are their own!
Rating Agencies planning to see this genius is simply not hesitate: give AAA rating!
The results of the Fund to sell crazy, all kinds of retirement funds, education funds,
financial products, even other countries, banks have also bought. Although the
original scale for the first time to raise 50 billion yuan, but the number of 100 million
follow-up issue, simply has not estimated, but the margin five billion yuan has not
If the current size of 500 billion yuan, that bond can only guarantee that no loss in net
funds to only 1% of principal will not lose money, which means increasing the
probability of loss.
When the time reached the end of 2006, the scenery of the whole 5 years of U.S. real
estate finally fell down from the peak of heavy, this food chain is also finally starting
to break. Because of falling house prices, lending rates to the time after the first
ordinary people can not repay the loan, then A 囧 loan company collapse, hedge
funds and huge losses, which in turn hurt the AIG insurance companies and loan bank,
Citigroup, JP Morgan released one after another huge losses report, while investment
in the major investment banks, hedge funds also have a loss, then the stock market
crash, people generally lose money, people unable to pay mortgages continue to rise,
eventually, the U.S. Subprime Crisis broke out close to becoming Prime Crisis.
Credit Crunch opens the door to hell, do not know how to close the ... ...