My 1999

Xu Liang looked at Zheng Yunfei with some admiration. A big guy is a big cow.

This analysis is very close to the truth, but he still underestimates the madness of Wall Street.

He remembered that the size of U.S. subprime mortgages in the previous life was US$2 trillion.

Three times as much as it is now.

"Then can we short these subprime mortgages?" Qiu Heng asked.

"no."

Zheng Yunfei shook his head.

“Short selling stocks and bonds, you first have to borrow those stocks and bonds, and these mortgage bonds cannot be borrowed.

You can buy or not buy, but you can't bet against them.

This is the rule of the game now. "

After finishing his words, Zheng Yunfei continued after looking at Xu Liang.

"Of course, although it cannot go short, if the company wants to bet on subprime mortgages, it is not impossible."

"any solution?"

Xu Liang asked with a smile.

“Credit default swaps.

A credit default swap is an insurance policy, primarily on corporate bonds, that pays semiannual premiums and has fixed terms.

For example, you could pay $200,000 per year for a 10-year credit default swap on $100 million of General Electric bonds.

At $200,000 per year for ten years, the maximum amount you can lose is $2 million.

If GE defaults on its debt repayments within the next 10 years and bondholders receive nothing, you can get $100 million.

This is a zero-sum bet.

If you get $100 million, the unlucky guy who sold you the credit default swap will lose $100 million.

This is also an asymmetric bet, just like roulette.

What you may lose is the chips you put on the table, but if you bet correctly, you will get 30 times, 40 times, or even 50 times the capital gain. "

Xu Liang's eyes lit up.

If you know about the subprime mortgage crisis, of course you also know about ‘credit default swaps’.

But he didn't know the rules of the game very well.

"Is there any company willing to take such a high risk?" Qiu Heng couldn't help but ask.

He is an MBA master. Among all the knowledge he has learned, the core financial knowledge is risk control.

What a zero-sum game, it’s just crazy.

“Of course there are companies willing, and there are many.

The most famous among them is the world's largest insurance giant, American International Group, which has maintained astonishing profits for 15 years by selling credit default swaps.

Up to now, the Financial Products Department of American National Corporation can earn a net profit of US$300 million a year from selling corporate credit default swaps, accounting for 15% of the annual net profits of American National Corporation.

The success of AIG has attracted many imitators.

Including the Financial Products Department of Zurich Reinsurance Company, the Financial Products Department of Swiss Reinsurance Company, the Financial Products Department of Credit Suisse Group, and the Financial Products Department of General Reinsurance Company.

They are both world-class insurance giants.

In fact, it is unlikely that a large number of investment-grade companies belonging to different countries and industries will default on their debts at the same time.

Therefore, they can make huge profits. "

Xu Liang couldn't help but ask: "If we come to them, will they sell us credit default swaps on subprime mortgage bonds?"

"You have to try this to know. But I think there is a high probability that they will sell it.

After all, in the past century, there has never been a large-scale mortgage default in the United States, so subprime mortgages backed by mortgages are very safe products in the eyes of insurance giants. "

Xu Liang nodded, picked up the pen and paper next to him, and started writing.

Pass it to Zheng Yunfei.

“How much would it cost to do a credit default swap on the bonds of these companies?”

Look at the name on the paper.

Merrill Lynch, Citibank, Wachovia, Lehman Brothers, Bear Stearns, Freddie Mac, Fannie Mae, Washington Mutual, IndyMac.

Basically they are the top giants in the American financial industry and real estate industry.

"Mr. Xu, the corporate bonds of these companies are all AAA-rated. If we want to buy their credit default swaps, the rate according to American International Group is only 0.12%."

"That is to say, if I want to buy 10 billion US dollars, I only need to pay 12 million US dollars in insurance premiums a year. Is that what you mean?"

"Yes."

“If I want to buy credit default swaps against these companies, do I need to buy these corporate bonds?”

"It was necessary at the beginning, but now credit default swaps have become a speculative product. Those reinsurers are just eager for someone to give them money, so they are not needed at all."

"Lao Xia, let the investment department purchase corporate bond default swap products from the world's top reinsurance companies through Capital Today and other shell companies under our name.

Remember, you can only buy corporate bonds from the company on my paper. "

After Xia Changsheng nodded, "Mr. Xu, how much do we want to buy?"

“There is no upper limit, you can buy as much as you want.”

"Understood."

Xu Liang was moved. He took the paper again and wrote General Motors and Chrysler on it.

After thinking for a while and not remembering any other companies, he handed the list to Xia Changsheng.

"Mr. Xu, are we still short on that sub-prime housing loan?"

Zheng Yunfei asked.

"It's not the right time for Hongyan yet, but it's time for Hanhua to start."

Xu Liang turned his head and said, "Qiu Heng, how many subordinated bonds does Pacific No. 2 Fund hold now?"

"Currently holding $79 billion."

Xu Liang frowned slightly, "Already that many?"

"In fact, we still have more than half of the money that we haven't spent yet," Qiu Heng said.

Pacific Fund has 4 hedge funds.

No. 1, No. 3 and No. 4 each manage US$10 billion.

No. 1 is long China Coin.

No. 3 invests in U.S. real estate subprime bonds.

No. 4 invests in luxury goods companies such as Chanel, Kering, and Richemont, as well as equity and corporate bonds in financial institutions such as Merrill Lynch, Lehman, Bear Stearns, and HSBC.

As for the fastest-growing Internet company equity and corporate bonds, Xu Liang has already obtained them and can only choose other investment targets.

Fund No. 2 manages US$15 billion to invest in five major futures categories: oil, iron ore, copper concentrate, gold and silver.

Leverage has been used five times, and after leveraging US$75 billion into the market, the current position value has exceeded US$140 billion.

The most profitable thing is oil.

When Fund 4 re-entered the crude oil market in June 2003, the price of oil was still around US$35 per barrel.

As a result, it has now exceeded 55 US dollars per barrel, almost doubling.

This alone increased the income of Fund No. 4 by US$22.5 billion.

The prices of iron ore, copper ore, gold and silver are also rising in the context of global economic development.

Therefore, Fund No. 2 has become the new face of Pacific Fund.

"You have debts of US$79 billion before US$10 billion has been spent?" Xu Liang said.

Qiu Heng continued: “At the beginning, you asked us to buy the lowest-rated real estate subordinated debt.

Currently, the purchase price of 1 billion U.S. dollars of the lowest-rated 3B subprime mortgage bonds in the United States is 20 million U.S. dollars.

As long as we spend $200 million, we can hold subordinated debt with a book value of $10 billion.

Currently, the scale of the worst AAA-rated subprime loans in the U.S. market is only about US$50 billion, of which we hold US$34.9 billion. "

Hearing this, Xu Liang couldn't help but sigh.

Too cheap.

He didn't expect it to be so cheap.

“Although Class B and Class 2B subprime loans are more expensive than Class 3B, they are still very limited.

We only spent $2.1 billion and now have $79 billion in debt. That leaves $7.9 billion still on the books. "

Qiu Heng glanced at Xu Liang and hesitated for a moment.

"Mr. Xu, now we have become the largest holder of junk bonds on Wall Street. Wall Street and even the entire financial industry call us the 'Garbage King'."

Xu Liang smiled.

Gates Sr. and others also mentioned this topic to him when they called him.

"Don't worry about it. When we make money, we'll see if they can still laugh."

Qiu Heng nodded. He had previously doubted that these junk bonds could make money.

But after listening to Qiu Yunfei's analysis of the U.S. subprime mortgage market, he became confident.

The 3B-rated subprime debts they purchased were basically subprime debts supported by "adjustable interest rate mortgages."

What is adjustable interest rate?

Very simple.

The mortgage interest rate for the first and second years is 5%.

But by the third year it doubled to 11%.

Who holds these mortgages?

People who could not afford to buy a house.

For example, Mexican pickers, black gardeners, Oriental run dogs, etc.

The bank allowed them to accept this type of loan with adjustable interest rates with zero down payment.

Will these people breach the contract?

By the third year, there is a high probability that it will happen.

But banks say they are not worried.

Because real estate prices are rising across the United States.

Two years later, if the interest rate has doubled and you can’t afford to replace it, it doesn’t matter. Just sign a new variable-rate loan contract with the bank.

At that time, not only will the first house not have to be sold, but the cashed out money may also be able to buy a second house.

I have to say that American capitalists just know how to play.

On the eve of the subprime mortgage crisis.

An ordinary black maid with a monthly salary of no more than $1,000 actually owns six apartments?

There are many such people.

It’s so outrageous that his mother opened the door to outrageous things. It’s so outrageous.

Although the 3B-rated subprime mortgages that Hanhua currently owns are rubbish, its underlying support is at least the working class.

It is much better than the homeless, beggars, and homeless people who will appear later.

Wait until these people come on stage.

These 3B bonds in his hands will definitely need to be re-rated.

The difference of one level is nearly 10 times the profit.

It’s so profitable.

"$79 billion."

Xu Liang tapped his fingers on the table rhythmically and pondered for a while.

"We don't want to do default swaps on subprime debt. Find some small and medium-sized hedge funds in the United States and cooperate with them. We invest money in the direction, and they are responsible for taking action.

We make money, 28 cents, and we take 80%. "

"Mr. Xu, why is this? We can make this money ourselves." Qiu Heng said.

Xu Liang glanced at him.