My Age of Investment

   Chapter 751 Synthetic CDO

  I heard that Xia Jingxing emphasized his relationship with Peter Thiel and Claire Capital.

  The two investment bank CEOs immediately became a lot enthusiastic.

   "No problem, we at Morgan Stanley and Darren have always had a great time working together, and the person you introduced must be the same."

  Mai Jinheng smiled and took out a business card and handed it to Peter Thiel, "This is my personal business card, and I will keep in touch later."

  Berlankvan immediately took out a business card and handed it to Peter Thiel, with a very close attitude.

  The two have changed so much before and after, Peter Thiel naturally felt it, and couldn't help but look at Xia Jingxing, who was looking at him with a smile.

  Even if Peter Thiel still has his own pride in his heart, he believes that he is not weaker than others in his life, but in the face of the facts, it must be admitted that Darren has surpassed him and entered a higher class.

   "We and Peter plan to establish a new fund in the near future to invest in the CDO and CDS markets. We would like to entrust Goldman Sachs and Morgan Stanley to help us design a new product-a synthetic CDO."

  Xia Jingxing’s words did not surprise the CEOs of the two major investment banks too much, because Xia Jingxing had expressed this intention before.

  Some time ago, Jiang Ping and Liu Hai talked about this with people from two major investment banks.

  The two CEOs kept pressing and did not reply, just want to talk about this with Xia Jingxing in person.

  The business is actually not that big, but this business confuses the two of them.

  "Dalun, you are interested in the CDO market, why don't you just buy some subordinated bonds?"

  Belankfan pretended to be confused, and looked at Xia Jingxing with a smile.

  Xia Jingxing began to play with the spirit of possession, a trace of disdain crossed his face, "I am not interested in that kind of low-yield bonds. If you want to play, you have to play a big one."

"haha, really?"

  Belankfan smiled, "How do you want to play?"

  Mai Jinheng also looked at Xia Jingxing with interest.

  "We will select and recommend a portion of subprime loan bonds to Goldman Sachs and Morgan Stanley, and sign a CDS contract with both of you. We pay premiums to both of you every year, and you become CDS insurance providers."

  Berlankvan’s eyes became sharp, and he stared at Xia Jingxing, "Are you betting that the bond will default?"

  "How can this be called gambling? This is called investment."

  Xia Jingxing shrugged, his face full of confidence.

  Mai Jinheng narrowed his eyes slightly, his gaze stopped on Xia Jingxing’s face, “Dalun, did you smell any danger?”

  Xia Jingxing smiled mysteriously, “It’s inconvenient to disclose, you only need to answer whether I can do it or not.”

  Mak touched a soft nail and felt that the transaction became more suspicious.

  He shook his head, “Dalun, you are so confident that you pledged all your hard-working Facebook shares. We at Morgan Stanley dare not compete with you!”

  Berankvan pondered for a moment, and said: "To be honest, seeing Darren you so confident, Goldman Sachs is not afraid to bet against you.

  Your own money, you can be the master.

  Unlike us, we have to be responsible to the board of directors and shareholders.

  Once I lose the bet, I lose my job, and I have to look for a job at this age, it's really terrible. "

  Belankfan shrugged, looking extremely helpless.

  Peter Thiel took a look at Xia Jingxing, and a huge wave was set off in his heart.

  CDO and CDS products are relatively niche, but he has also heard of daimyo and knows some basic common sense.

  What is Darren doing?

  I am betting that house prices fall, leading to subprime loan default, and the corresponding value of subprime loan bonds declines, and the value of CDS as subprime loan bond insurance, that is, credit default swaps, rises.

  Can house prices collapse?

  As a financial professional, he knows the term cycle and believes that a decline is normal, and it is not impossible at all.

  Moreover, housing prices have risen for so long and so much now, so it's normal to fall back.

   But if it doesn’t fall, what about the fall in the next few years?

  That is really going to be a dog.

  Peter Thiel took a look at Xia Jingxing, who was as steady as Mount Tai and seemed extremely confident.

  Xia Jingxing met the skeptical gazes of Mai Jinheng and Bellan Kefan, and said without hesitation: “As the two largest investment banks in the world, if you dare not even open the door to do business, then it’s really a joke.

  The default rate of subprime loans is very low. When you buy CDS, you usually pay your premiums in vain.

  This is the same as buying accidental injury insurance. A person has bought it from birth to 80 years old, and he has never taken out insurance once.

  Insurance companies like this kind of customers the most. "

  Mai Jinheng smiled, avoiding the seriousness and saying lightly: “It must have been a child who has been kissed by God in his life, and he will live in peace, but there are also many children who have not been kissed by God.”

  Xia Jingxing nodded, "Probably so, we also think that most "children" will have no accidents in their lives. Buy an insurance and ask for peace of mind.

  But if something really happened, a small amount of premium can be exchanged for a huge amount of compensation. "

  Mai Jinheng understood Xia Jingxing’s metaphor. Compared with compensation, CDS’s premiums are horribly low.

  This design ratio is also based on the probability of occurrence.

   Just as insurance actuaries have calculated the probability of risk to set premiums, Wall Street financial geniuses have also calculated the CDO default rate to determine the corresponding CDS price.

  Attempting to make a profit by buying CDS is a typical example of small gains!

  Correspondingly, the probability of losing money is very high.

  Mai Jinheng still couldn't figure it out. In his eyes, Dai Lun was not a fool.

  In this transaction, someone must be a fool.

  So this is where he feels very confused.

  Berlankfan’s thoughts are similar to those of the old friends beside him, and they all think Xia Jingxing’s deal is suspicious.

  Just a few words: I’m making a set for you.

  Xia Jingxing looked at the two men with solemn faces, feeling a little tired.

   These two people are both old worlds, so it's not easy to fool around.

  Especially his transaction itself is very suspicious, a bit different from common sense, and I have to make people think about it.

  After thinking about it for a moment, Xia Jingxing could only temporarily give up the idea of ​​thinking about the two companies.

   "What we signed with your two is only the first CDS contract."

  Hearing Xia Jingxing’s words, the two CEOs who were thinking raised their heads.

  Xia Jingxing began to elaborate on the synthetic CDO solution he mentioned earlier.

  "You two can change hands to transfer CDS positions to the next level, such as signing a CDS contract with AIG.

  It’s just that, in this transaction, you are the premium payer, and AIG is the insurance provider.

  Of course, because you have to pass it once, the premium that AIG gets is less than the premium you collect from us. This is your profit margin.

  If the CDS is not sold off to the next level, you still have a risk of partial compensation, what should you do?

simple!

  You set up an SPV special purpose company in the Cayman Islands, and then you issue a number of “bonds” with different repayment priority levels in the name of this instrument entity and sell them to investors.

  The money that investors pay you is bought into other relatively safe bonds, earning a certain amount of interest every year.

  Finally, these interest will be combined with a part of the premium we paid to you to make a "higher interest", which will be paid to investors every year.

  In this way, a brand new product was born. "

  (End of this chapter)