My Age of Investment

  Chapter 709 Everything can be gambled

  After the reception, Xia Jingxing found a room in the hotel and chatted with Gates on the sofa.

  As soon as he sat down, Gates couldn’t wait to ask: "Daren, tell me, how do you make money with this stuff?"

  Xia Jingxing smiled. He thought Gates was not interested in money.

  Even Gates is still interested in making money, so Jack Ma must be a lie.

   "Mr. Gates, have you observed the housing prices in the United States in recent years?"

  Xia Jingxing looked at Gates, he did not directly answer the other party’s question, because this thing was not clear in a few words, and he had to start from the root.

  Gates shook his head, “I didn’t specifically understand it, but I know that the real estate market has been extremely prosperous in recent years, and it has only risen but not fallen.”

Xia Jingxing smiled. Gates has been financially free decades ago. There is someone to take care of his assets. Naturally, he doesn't like the financial management method of real estate speculation, and he basically won't buy a house. Is the Xanadu 2.0 built by himself uncomfortable? ?

  If the question he asked was not about Gates, but about ordinary working-class people in the United States, those people would definitely be able to analyze it well.

  A scene that reappeared in China more than a decade later, the boom in buying a house, is happening in the United States at this time.

  "Do you know how to buy a house with zero down payment?" Xia Jingxing asked.

   Gates was taken aback, "You mean you don’t pay a penny, move into the house with your bag, and then you will spend the rest of your life slowly repaying the house loan?"

   "Yes, consumerism prevailed in the United States ahead of time, and it has now spread to the real estate field."

  Gates spread out, "This is good, you can live in your favorite house earlier, but it may be harder to work, and it will take a long time to pay off the loan.

  I still remember that when I was studying at Harvard, I had a classmate from the bottom of the class who paid back the student loan for many years. "

  Xia Jingxing laughed loudly, “Your classmates still went to Harvard University anyway, and the work income is guaranteed, and the loan is not a problem.

  Then, did you know that even new immigrants who are not working are now living in big houses? "

   "New immigrants? No job? Still living in a big house?"

  Gates grew up in a wealthy family, and after so many years of wealth, he has long been separated from the masses, and he does not know the status quo of the bottom.

Xia Jingxing nodded, "Yes, after the promulgation of the "American Dream Down Payment Act" led by George W. Bush, the down payment ratio for low- and middle-income families was required to be reduced, and government financial institutions such as Fannie Mae, Freddie Mac, and Geely Mae were also required. A certain amount of housing loans for the poor must be included in the purchase of bank mortgages.

  In this way, homeowners have their own houses, and many poor people without financial means have a piece of land to cover them. "

   Gates frowned, "What should I do if the loan is not repaid? This is a bet that house prices will not fall!"

  Xia Jingxing nodded slightly, "Yes, this is a bet that house prices will never fall.

  But savvy banks and lending institutions will not fail to see the risk of default by the lender. Now they have transferred the risk out. "

   Gates asked: "Asset-backed securities?"

   "Yes, banks and other lending institutions have securitized the mortgage asset package and sold them all to other financial institutions."

  Xia Jingxing smiled and said, “Today, nearly half of the MBS in the US real estate mortgage securities market is sold to the famous Fannie Mae and Freddie Mac.”

  MBS, mortgage-backed bonds or mortgage securitization.

  Gates continued to listen quietly, and Xia Jingxing continued to speak quietly.

  "The term of housing loans is relatively long. Banks and other lending institutions do not want to hold this asset for a long time, and the "two houses" also do not like to hold it for a long time.

  So Liangfang became a distributor and sold them to the world—governments (sovereign wealth funds), banks, hedge funds, insurance companies, pension funds, individual investors, etc.

  In this case, a complete chain of capital flow is formed—from homeowners who buy houses with loans to investors all over the world.

  This is equivalent to investors all over the world, who are "funding" the American people to buy houses. Therefore, since 2001, housing prices in the United States have risen at a rate never seen before in history..."

  Looking at Xia Jingxing with a smile on his face, Gates always felt that it was an unkind smile, and along the way, even if he didn’t understand the real estate market, Gates knew that there was a problem, and the problem was not small.

"Of course, in addition to the two rooms, the investment banks of Wall Street also took a fancy to this business. They pulled on the three major rating agencies, packaged all kinds of mortgage securities into CDO bonds, and put them on an A rating or even an AAA rating. Sell ​​in the market."

  Xia Jingxing said with a smile, “These CDO bonds are very easy to sell, because everyone thinks that house prices will not fall in the future, and the lender has defaulted, so it’s just a matter of taking it back and auctioning it to make up for the loss.

The concept of    has penetrated the bones of most people, so after the establishment of this business model, more and more subprime loans have appeared, and the scale of financial derivatives developed on the basis of subprime loans has also become larger and larger. "

  CDO, Guaranteed Debt Certificate, also known as Debt Mortgage Bond, Mortgage Debt Contract, and its English name is collateralized debt obligation.

   Gates basically understood at this time, and asked: "Darren, you mean that housing prices may fall, and this false prosperity bubble will be burst."

   "Yes, the price of anything that can be traded in the world is not constant, and there will be fluctuations and changes."

   Gates was silent for a while before asking again: "You judge that housing prices are falling, then how do you make money?"

   "Thanks to the little geniuses on Wall Street."

  Xia Jingxing said with a smile, he really admires these little geniuses, as long as they are profitable, there is no financial product that cannot be designed.

  He introduced to Gates: "Credit default swaps (English: credit defaultswap, abbreviated CDS) are also called credit default swaps, credit default swaps, and loan default insurance.

  It is one of the derivatives of credit and insurance. The contract is traded by two legal persons, one is called the buyer (the party protected in the event of a credit default), and the other is called the seller (the buyer is protected against losses in the event of a credit default).

  We are going to buy CDS now. When house prices fall and subprime loans and subprime bonds default on a large scale, the seller will be responsible for compensating for our losses. At the same time, CDS will also increase in price, and selling is profitable.

  Of course, what’s more ruthless is that you can not only insure your own CDOs, but you can also insure other people’s CDOs.

  In other words, we don't need to hold subordinated bonds, just buy CDS directly.

  This is actually a gamble, and the tool is CDS. "

  Gates already fully understood, and asked: "Then who sells CDS?"

Xia Jingxing replied: "Investment banks, Goldman Sachs, Morgan Stanley, and insurance companies."

   "Then you play against them?" Gates asked again.

  Xia Jingxing shook his head, "After they receive our premiums, they can also buy CDS issued by other financial institutions, and change to another opponent to continue playing."

  Gates asked again: “They issue CDS, so they are not afraid of defaulting on their debts and paying themselves to death.”

   "Many elites on Wall Street have calculated that there are many borrowers in an asset package, and the probability of all defaults is extremely small.

  And the CDS issuing organization will issue countless CDS, as long as the probability is controllable, the premium can still cover the cost of compensation. "

  While speaking, Xia Jingxing laughed himself. If it is true, there will be no subprime mortgage crisis.

  These CDS-issued institutions thought they would make money like selling insurance, but it was almost meaningless to describe it as a blood loss.

  In essence, CDS is similar to insurance, except that it does not insure diseases, not people, but whether there will be a crash in the market.

  So, there are so many ghosts on Wall Street, and everything can be gambled.

  (End of this chapter)