My Age of Investment

  Chapter 752 Casino-style investment banking

  After Xia Jingxing finished speaking, Mai Jinheng and Beran Kefan looked at each other, and they both saw the movement in each other's eyes.

  Berlank Van Haha laughed, "Daren, you are really suitable for the financial industry, and you are very talented in designing financial derivatives."

  Ma Jinheng smiled and nodded, “Yes, it seems that Darren, you have basically understood the rules of the game on Wall Street.”

   Peter Thiel was silent, with an enlightened appearance.

  Dairun’s proposal is equivalent to helping the two investment banks to transfer the potential risks of subprime mortgage defaults perfectly.

  In this cleverly designed transaction, Goldman Sachs and Morgan Stanley played the role of "middleman", which can also be said to be a channel.

  In addition to earning the difference in CDS premiums from the two investment banks, in the process of packaging the remaining CDS to form a new bond, they can also set the yield difference and make ordinary investors money.

  If there is a black swan incident and the subprime bond defaults, Goldman Sachs and Morgan Stanley will not have to bear any risk, because all the pots have been thrown out, and they are only intermediaries and matchmakers.

  This is equivalent to a stable profit without losing trade, without any risk.

   Thinking of this, Peter Thiel took a deep look at Xia Jingxing.

   is really a powerful character, who can do nothing but make a living.

  He believes that the two CEOs will be tempted by this plan.

  Because Mak Jinheng has a good saying, Darren has already figured out the rules of the game on Wall Street.

  What are the rules of the game?

  Benefits can be gained by yourself, and the pot will be carried by others.

  Xia Jingxing smiled and looked at the two CEOs. He had enough confidence in the plan he had put forward. They had no reason to refuse this kind of money.

  Ma Jinheng pondered for a moment, and said, “Dalun, how many such synthetic CDO contracts do you want to buy?”

  Xia Jingxing put his head close to Mai Jinheng, looked at the old man, and said in a very calm tone: "There is no upper limit. I will buy as much as you can sell."

  Mai Jinheng smiled, looking at the young man with an open personality in front of him, he couldn't make an accurate evaluation in his heart for a while.

  At first, he felt that this young man was a little overpowered, or blindly confident, and went to make a vacant market.

  Out of suspicion, he refused to bet against Xia Jingxing.

  After that, Xia Jingxing immediately came up with the ingenious scheme of synthesizing CDO, which made him scream in his heart.

  When he first admired the financial talent of the young man in front of him a little, the other party proposed the "no upper limit" AllIn plan.

  This made the thought of appreciation that he had just raised, quickly disappeared.

  Small positions are used as a vacant market, which Mak can understand and can be regarded as a risk hedging technique.

   Ke Xia Jingxing wanted to make a large-scale vacancy market at this moment, and the madness and desperation he showed made him have to change his evaluation. The young man in front of him is likely to be a gambler.

  No matter how amazing or confident Envision Capital is in the housing market, this desperate approach is far from a coup.

  In his opinion, Xia Jingxing must pay a heavy price for such greed and conceit sooner or later.

   is obviously a crooked way, a wild way!

   Then he thought that Xia Jingxing would drop out after studying for two years at University. It was estimated that all financial knowledge was self-taught, and he was relieved.

  After all, I still suffer from an uncultured loss.

  In addition, he is a super rich man worth billions of dollars at a young age. He has never experienced setbacks, so he is very conceited and aggressive.

   "Darren, are you sure you want to buy synthetic CDO contracts with no upper limit?" Mai Jinheng reminded pretendingly.

  Xia Jingxing nodded heavily. In the market, synthetic CDOs are not particularly popular, because the returns are not high, but the risks are “relatively low”.

  This is relatively low. It is necessary to design the bond layer by layer, and then find a rating agency to provide a higher credit rating, and finally package it.

  To put it simply, it is a lie, but the legal affairs and compliance of major investment banks such as Goldman Sachs and Morgan Stanley will avoid all risk factors.

  Even if everyone thinks they are cheating, they can’t come up with conclusive evidence to accuse them.

  Because of the legal terms of the contract, product design and packaging, sales process, etc., experienced investment banks will not leave any flaws. After all, they are eating this bowl of rice and have first-class housekeeping skills.

  How much this product can eventually sell depends on the capabilities of Goldman Sachs and Morgan Stanley. If it flickers, then sell more, and vice versa.

  However, Xia Jingxing will still make a request to exclude the unlucky AIG, Bear Stearns, and Lehman. Synthetic CDOs cannot be incorporated into the CDS contracts provided by several of their companies.

  Because these institutions collapsed and went bankrupt, the compensation was lost.

  By packaging and designing subordinated debt layer by layer, selling it to ordinary investors or some European banks, Xia Jingxing thinks it is a reliable way.

  The most stable aspect of synthetic CDOs is that there are actually two types of financial products that investors purchase from SPV special purpose companies.

  One is to receive the premium paid by Xia Jingxing, that is, SPV becomes the provider of CDS.

  This product is Xia Jinghang pays SPV premiums, and SPV does not have to pay a penny out of it, which is equivalent to sitting and collecting money every month or every year.

  Only SPV has to bear a responsibility, if the subordinated bond defaults, it should be responsible for compensation to Xia Jingxing.

  SPV really invests money in another product, high-grade, safe and high-quality bonds.

for example:

  SPV issued a $1 billion bond with a coupon rate of 6%.

  All of the $1 billion bought risk-free high-quality bonds, the interest rate is less than 6%, perhaps only 4%.

  The extra 2% comes from the annual premium paid by Xia Jinghang.

  If the subordinated debt does not default, the investor will get back the principal and 6% of the annual return in safety.

  If the subordinated debt defaults, I'm sorry, but all of the US$1 billion principal will be used to compensate Xia Jingxing's loss.

  This is a classic scam of "you are coveting other people's interest, and people coveting your principal."

  Since investing in high-quality bonds, the interest rate is not as high as 6%, so SPV is stuffed with a profit-increasing thing-CDS.

  Most investors don’t think CDS has any risk, and it has been packaged by investment banks, and credit agencies such as Moody's and Fitch have arbitrarily rated it.

   Then, there will be fools fooled.

  For Xia Jingxing, it is equivalent to obtaining a collateral for his "potential compensation", and the collateral is the $1 billion high-quality bonds.

  In the event of a subordinated debt default, SPV will need to sell $1 billion in high-quality bonds and pay compensation to Xia Jingxing.

  In this way, there is actually no immorality.

  SPV investors know why the returns of their investment products are so high, but they just feel that the risk is small.

  Moreover, unlike Goldman Sachs and Morgan Stanley, they can see that Xia Jingxing is madly shorting the property market. There is no vigilant or suspicious idea.

  The reason why Goldman Sachs and Morgan Stanley can repeatedly make big money or successfully escape the top of the financial crisis relies on financial information from all sides.

   Regarding his own short-selling in the property market, Xia Jingxing couldn’t even expose it to investment banks.

  Because CDO, CDS and even the subordinated debt ABX index are all over-the-counter transactions, they cannot be traded on the open market like stocks.

  This requires investment banks such as Goldman Sachs and Morgan Stanley to pimp around and match up a gambling transaction.

  It’s not wrong to say that they opened casinos in subordinated debt. They could have guaranteed income due to droughts and floods. It’s just that Lehman and Bear Stearns disliked the casinos for too few draws, and they had to stop playing two if they had itchy hands.

  This is a mystery that the Chinese have long understood. Those who open casinos can’t go gambling, but the Americans don’t believe in evil, or for the sake of good-looking financial reports. In order to get bonuses, the management began to show off.

  (End of this chapter)