Rebirth of England.

Chapter 869 QE3 Arrives
As Lagarde said, before the subprime mortgage crisis, Eurohypo Real Estate Bank owned by Commerzbank was one of the largest real estate banks in Europe.

For this reason, affected by the subprime mortgage crisis, the real estate bank's property mortgage loans, especially those involving subprime loans, brought huge losses to the German Commercial Bank.

The subsequent acquisition of Dresdner Bank also increased the scale of Commerzbank's non-performing assets.

Before this, it was not that Commerzbank did not want to deal with these huge amounts of non-performing assets, but the problem was that under the current economic situation, the real estate market in Europe as a whole has not yet seen signs of a full recovery. Therefore, even if these non-performing assets involving real estate were sold, it would be difficult to get a good price.

However, things were different after William Weber Capital became the controlling shareholder of the Eurobank, which was formed by the merger of the German Commercial Bank - to be precise, it was the Cavendish Trust Fund behind William Weber Capital.

Cavendish Asset Management, a subsidiary of Cavendish Trust, has successfully implemented this model in the UK - purchasing the bank's (Standard Chartered Bank) non-performing assets involving home mortgages at a suitable price, and then handing these properties over to Grainger Property Leasing Company for renovation and rental, thereby earning stable rental income.

If the real estate industry can enter a stage of steady growth, the corresponding rents will rise steadily, which will be able to provide Cavendish Asset Management with long-term stable rental income.

Even when the leasing business gets on track, it can even be "securitized", that is, investors purchase the related debt rights of these properties, and then use the rent obtained as a stable return on their investment.

In this way, Cavendish Asset Management will be able to recover the funds invested in these properties - and if there is a general trend of rising house prices, they will be able to obtain additional property appreciation differences.

Because Barron knew that the real estate industry in Britain would have an upward cycle of more than ten years after the subprime mortgage crisis, so this model was very stable and profitable.

Similarly, France and Germany, as two core countries in Europe, are also in such a cycle of real estate recovery and growth. Therefore, the model that has been "successful" in the UK can also be used in France and Germany.

In fact, Cavendish Asset Management had previously purchased a considerable amount of "non-performing assets" from Natixis Bank and expanded the business of Granger Property Leasing from the UK to France.

Next, they can continue this process and purchase the "bad assets" related to real estate mortgages held by the former German Commercial Bank and its real estate bank Eurohypo, so as to help Eurobank digest these "burdens" that are difficult for them to cash in in the short term and revitalize their assets.

Some people may ask, then can't banks like Eurobank, which own "non-performing assets" related to real estate mortgage loans, renovate these properties themselves and rent them out?

Of course, this can be done, but if banks do this, it will involve real estate leasing business outside of their main financial business, which will inevitably require extra energy and funds to operate.

These certainly cannot be done as well as professional companies like Granger Property Leasing that already have successful experience and have developed perfect processes.

In terms of securitizing these real estate leasing businesses, companies like Cavendish Asset Management, which already have successful cases and long-term operating performance, are more trustworthy to investors than banks that are eager to deal with non-performing assets generated by blind mortgage loans. Therefore, it is not that other banks have tried to cooperate with other companies to do so, but the final effect is far from that of Cavendish Asset Management.

It is also because of Barron's confidence in Cavendish Asset Management's operating procedures that he was able to offer a price for Eurofins' non-performing assets that would satisfy Eurofins' management, which would be difficult for other companies to offer.

It can be said that in this regard, from the initial Standard Chartered Bank to the current Euronext Bank, Cavendish Asset Management is really meant to help them solve their non-performing assets, and its profits are more targeted at the recovery of the entire real estate market, not the "price difference" between these assets and the market price after excessively suppressing the price.

……

What happened next was exactly what Barron and Daisy had expected.

On September 9, in order to stimulate economic recovery and job growth, the Federal Reserve announced the start of the third round of quantitative easing policy (QE13)!
They decided to purchase $400 billion in mortgage-backed securities (MBS) per month, but did not specify the total purchase size or duration.

At the same time, the Federal Reserve will continue to implement the "reversal operation" of selling short-term Treasury bonds and buying long-term Treasury bonds, and continue to reinvest the principal of maturing agency bonds and agency mortgage-backed securities.

In other words, the Federal Reserve has not set a deadline for this asset purchase plan, which can be described as "unlimited" monetary easing.

In addition, the Federal Reserve decided to continue to maintain the federal funds rate at an ultra-low range of zero to 0.25%, and plans to maintain this level at least until mid-2015.

The Fed said in a statement that the U.S. economy continued to grow moderately after the subprime mortgage crisis, but employment growth was slow and the unemployment rate remained high. Although prices of some key commodities have risen, overall inflation pressure is moderate and long-term inflation expectations are stable.

The Federal Reserve said it will pay close attention to economic and financial data in the coming months. If the job market outlook does not improve significantly, the Federal Reserve will consider taking more asset purchases and make reasonable use of other policy tools.

But Baron knows that the Fed's third round of quantitative easing policy has not ended here. As the Fed said in its statement, it will decide whether to take further measures based on economic and financial data in the coming months.

In Barron's previous life, at the end of December, the Federal Reserve decided to further expand QE12. After the "twist operation" expired at the end of the year, in addition to continuing to purchase $3 billion in MBS each month, it would also purchase an additional approximately $400 billion in long-term Treasury bonds to replace the "twist operation." The monthly purchase quota reached $450 billion, and this purchase plan also has no time limit!
In addition, the Fed also decided to continue to keep the federal funds rate at 6.5-2.5% when the unemployment rate is above 0% and the expected inflation level in the next one to two years is no higher than 0.25%. This is the first time that the Fed has linked the interest rate setting to the unemployment rate.

(End of this chapter)