technological heresy

Chapter 32
Zhou Jingxue stared at Ning Qing, his eyes were full of curiosity.

Ning Qing did not disappoint Mr. Zhou, and began to explain: "In fact, CDS is also very simple, it is a product launched by an insurance company. You also said that CDOs feel that the risk is already very high, so of course financial institutions will buy it. They will worry about the safety of funds, so they can find an insurance company that is willing to undertake and insure the bonds in their hands.

We know that whether it is CMS, AMS or CDO, what is essentially sold is future capital gains.As long as the borrower can repay the loan on time, no matter how many hands have passed, the income of these bonds can be guaranteed.But in the event of an economic downturn, problems could also arise.But it's different if you buy insurance.

Every year, financial institutions spend a sum of money to purchase this kind of insurance. If the bonds in hand are not thunderstormed and are still cashing in normally, the insurance company will lose the money.In the same way, if there is a problem in the economy and the income of some bonds is thunderous, then the insurance company will be asked to compensate the customer for the loss according to the insurance contract.

Zhou Jingxue shook his head and said, "You still think too simply. I think this product is useless to policyholders and insurance companies. For financial institutions, if the insurance price is too high, it will cover the bonds. The rate of return itself is completely meaningless. For insurance companies, if the price is too low, the risk is too high, and it is difficult to strike a balance between the two.”

Ning Qing smiled, and replied: "So there must be innovation here again. Your idea is that only those who have bonds on hand can buy insurance. But what if this product is for everyone? That is to say Those institutions in the market, no matter whether they have bought bonds or not, can they bet against insurance companies?
As long as you feel that these bonds are about to default, you can buy this product even if you don’t have a dime bond on hand. If the bond defaults, you can earn premiums.Of course, if there is no breach of contract within one year, the money will be earned by the insurance company for nothing.

It’s as if you live next door to an uncle Wang. You think his health is very poor and he won’t live long, so if you can buy him a one-year life insurance, and the beneficiary writes his name, Wang If the uncle dies within this year, you can get a sum of money, but if the uncle Wang survives this year, your insurance premium will be for nothing.

The insurance company found through the inspection that Uncle Wang is in good health, and it will not be a problem to live another seven or eight years.Do you think the insurance company dares to collect your money?Okay, you said that the money is too little and the insurance company doesn't like it, so what if everyone in the whole community is willing to buy insurance for Uncle Wang?Do you think insurance companies will not be interested? "

Zhou Jingxue was stunned.

No wonder it's not called insurance, but a VAM agreement.This is to make the plate bigger out of thin air, allowing countless funds to pour into one big plate.

Those who are proficient in mathematics are very sensitive to these.Zhou Jingxue is very keenly aware that when these products reach a certain scale, if the economic situation is good, all bonds can be cashed out on time, and almost half of the people on the entire line can make money. Of course, hello, hello, everyone.

But if this kind of game is really played all the time, if a certain risk is triggered one day, once the thunderstorm starts, it will be a super large series of mines.Just thinking about Zhou Jingxue felt chills down his spine.

"And you can't just focus on these product innovations. You are thinking about it. Starting from CDO layered packaging, every product that is launched requires a third-party organization to carry out layering and grading, and financial institutions to endorse it. With sales, how many opportunities will this create? When it comes to stratification, there are also priority, equity, intermediate, etc....how many profit points can this create?"

Ning Qing explained again casually.

At this moment, Zhou Jingxue looked at Ning Qing differently again.Is this something that a high school student can come up with?
If the world's financial market is a big casino, Ning Qing's so-called innovations can directly expand the scale of this casino by a hundred or even a thousand or ten thousand times.

What's even more frightening is that at the last step, the underlying logic of many products is almost impossible to explore, and all asset collateral is a mess, and there is no way to completely clear it up.As for CDS, it is exaggerated to the point that it can affect the whole body in the end.Think about it, countless people bought CDS, and then the bond defaulted. The insurance company, which was supposed to be the last layer of protection, would collapse with a high probability.

The reason is simple. If the financial field believes in human nature and believes that so-called management can limit greed, it is a joke.

When this kind of financial product that cannot explore the underlying logic at all appears, the entire bond market will undoubtedly become a huge casino.

Crazy, really, Zhou Jingxue felt that he was going crazy.

What kind of thing did the bilingual No. [-] middle school cultivate?If these financial products are really developed, Zhou Jingxue can hardly imagine what the world will become.

"So my consideration is, if I enter the national competition, I will design a mathematical model about the security baseline of these new financial products. I think this topic must be innovative enough. What do you think?" Ning Qing asked Zhou Jingxue sentence.

Zhou Jingxue looked at Ning Qing, then shook his head resolutely, and said seriously: "I don't know. But I think it's not necessarily a good thing if the things you said today come true."

Ning Qing tilted his head, looked at Zhou Jingxue rather strangely, and said, "Mr. Zhou, are you thinking too much? We are just discussing whether the mathematical modeling competition can win the prize. You don't really think that I choose this The problem will be noticed, right? Moreover, the financial environment of the Yonghan Republic will most likely not allow this kind of completely unrestricted innovation. As for whether those countries in the west will be interested, that is not something we can decide Yes. If you really want to learn it, maybe it can make the economy prosper again?"

"Huh..." Zhou Jingxue let out a heavy breath, and was pulled back by Ning Qing's words.

Yes, the two were clearly discussing the Mathematical Modeling Contest, why did he have that strange feeling just now?But soon Zhou Jingxue figured it out, probably because the design given by Ning Qing was too clear, and pointed directly at the most greedy weakness of capital.

In other words, once these financial innovations are spread, the possibility of being accepted and implemented is really quite high.Of course, it will definitely not be as simple as what Ning Qing said at this time, there is a high probability that many complicated rules will be designed in the process of implementation.

"Ning Qing, how did you come up with the things you said just now?"

"I figured it out in the dormitory these two days."

"You better think less about these things!"

(End of this chapter)