Wall Street Financial Truth

Chapter 6 The Truth About Wall Street (4)
Blankfein, the record holder for an annual salary of $6790 million, has also become a target.Based on all these positive and negative reasons, the British "Financial Times" selected him as "Person of the Year" in 2009, and he seems to be a representative of investment bankers in the post-crisis era.

In my opinion, rather than saying that he is a vampire squid, it is better to say that he is more like a vulture who is keen, sharp, good at seeking advantages and avoiding disadvantages, catches rabbits and never lets go.

Over the years, Blankfein's logic has always been goal-oriented and performance-oriented.Outstanding performance allowed him to get rid of his status as a poor boy in Brooklyn, New York, and also allowed him to rise step by step in Goldman Sachs Group, which believes in the law of the jungle.

On the one hand, Blankfein has earned a steady stream of profits for shareholders; on the other hand, the criticism he has endured is more because he is working for his team—400 partners at Goldman Sachs and 3.7 analysts. Blankfein, who is outspoken in the face of government pressure, is a hero to analysts and traders fighting for pay and benefits.

"People know what happened in the past, but people don't know what will happen in the future. It's like a hurricane, and the financial crisis is like a hurricane." At the end of the hearing, Blankfein still tried to downplay the root cause of the crisis. to force majeure.This watertight lie is obviously one of the reasons why Goldman Sachs is willing to pay him an annual salary of 6950 million US dollars. However, he knows that this hurricane is not a natural disaster caused by nature, but a joint creation of him and his colleagues. man-made disaster.

Extremes lead to opposites. Although investment bankers in the post-crisis era are still full of arrogance and prejudice, and still chasing fame and fortune, more Wall Street people are beginning to realize that without the support of public opinion, the golden signs of financiers will gradually fade.When more and more people see clearly the consequences of highly leveraged risk-taking derivatives and high bonus systems, Wall Street will no longer be able to do whatever it wants in the prosperous period.This won't always be an adventurer's paradise.

Morgan Stanley Chairman Mack Jinheng-The adventurer ends
The financial crisis completely changed the values ​​​​of this investment bank veteran.From the risk kings who overly pursued leveraged profits before the crisis to the conservatives who overemphasized risk control after the crisis.Mack is quite old, can he still eat?
Compared with Blankfein, who was tit-for-tat at the hearing, Mack, a 66-year-old investment bank veteran, was much more low-key. He did not defend everything in the past, and admitted: "At that time, many financial companies were over-leveraged. The business risk is too high, and there are not enough resources to be able to effectively manage these risks in the context of rapid changes in the environment.” During the generous speeches of his peers, the Lebanese-born investment tycoon had a clear expression on his face. With indifference and disinterestedness.

On January 2010, 1, he stepped down as CEO of Morgan Morgan and only served as the chairman. He may have been tired of the disturbance in the investment bank.For him who was once called "Blade Mack" in the industry, both the best time and the worst time of his career have passed, and being able to retire normally in the post-crisis era is better than many halfway stops. The financial tycoons are much more respectable.When his successor, James Gorman, can stand alone, Mack can retire.

He has experienced two ups and downs in Morgan, and he is really Morgan's fire captain.Before the financial crisis, Mack was an adventure king who would never admit defeat.

Mack's pursuit of high risks and high profits has always been well-known on Wall Street. Like many Wall Street elites, Mack's nature of risk-taking and profit-seeking is inherent.He is an immigrant from Lebanon and the sixth child in his family.In a family that ran a grocery store for a living, Mack entered Duke University, one of the prestigious Ivy League schools, through his own hard work and talent. In 1972, Mack joined Morgan Stanley as a bond salesman.

The survival rule of Wall Street has always been that winning is king and losing is bandit.Mack's competitive character is a perfect combination with the survival rules of the Wall Street jungle.He is fierce and quick-witted, has a brilliant record in bond sales, and was promoted to vice president in just four years.After more than 4 years of training in the trading room, Mack saw that bond trading is very profitable, especially derivative bonds.He led the company to develop and sell derivative products, and often screamed loudly in the trading floor: "I smell the blood under the water, kill me quickly!"

In the past, Mack was a real financial adventurer, always chasing high returns as his goal. After 2008, his style changed rapidly, which was in stark contrast to his usual style.This financial tycoon, who previously dismissed traditional banking business, began to devote himself to reducing the risk of the company's business operations from all aspects.Morgan Stanley is redefining itself as a multi-line bank that manages risk.In this new system, Mack has stepped up the construction of a team of brokers serving individual investors, instead of just focusing on the development of corporate investment banking business.Mack understands that at the moment when the global financial crisis is imminent, although the profit of personal business is relatively thin, the risk is controllable.Compared with those high-risk businesses with ups and downs and hundreds of millions of dollars, these traditional businesses are the foundation of Morgan Stanley's survival.Mack even had the idea of ​​opening Morgan Stanley branches and setting up ATMs to facilitate the services of individual investors.

Everything has a side to it.At this time, although Mack realized that the risks should be controlled as much as possible, he became turbulent and extremely conservative in the year after the subprime mortgage crisis, so he missed many opportunities.

On the contrary, during this period, Morgan Stanley's rival Goldman Sachs resumed high-profit businesses such as bond trading and currency trading, and adjusted the maximum loss allowed by the company's business in a day to 2.45 million US dollars.During the same period, Morgan Stanley only allowed 1.54 million US dollars, and strictly controlled the leverage at more than 11 times, while the figure a year ago was 33 times.As a result, Goldman Sachs became the biggest winner after the financial crisis, taking the lead in realizing profits in the first quarter of 2009, but Morgan Stanley has not improved for a long time. In the third quarter of 2009, Morgan Stanley finally reversed its loss for three consecutive quarters, but the market condemned Mack one after another.Most agree that Morgan Stanley suffered serious losses in the fourth quarter of 2008 by chasing exorbitant profits regardless of risk when he needed to cool off.And when he needed to take risks, he was too conservative and missed many opportunities that should have belonged to Morgan Stanley. It took three full quarters for the company's profits to barely turn from negative to positive.

Beginning on January 2010, 1, Mack was no longer the CEO of Morgan Stanley.This veteran who has worked at Morgan Stanley for more than 1 years, every time he is interviewed, his favorite sentence is "My best decision was to join Morgan Stanley in 30".Yes, after so many years, Mack's name has become inseparable from Morgan Stanley.

However, when the company's performance was just improving, the 66-year-old CEO Mack announced his resignation. Some people speculated that this was an account of Morgan Stanley's board of directors for his previous "political achievements".In the field of high-risk investment, in order to obtain high profits, you must bear additional risks.Many high-profit investments are a double-edged sword. In peacetime, these investments bring banks several times higher profits than traditional businesses.When people pursue high profits endlessly and gradually reveal their greedy nature, the excessive risk may consume all the previous profits!This is the story of the Wall Street financial turmoil, and this is what those Wall Street "elites" do!

The outgoing Mack looks at his contemporaries who were discredited in the financial crisis - Lehman Brothers' Fuld, Citigroup's Prince, Merrill Lynch's O'Neill, the men with whom he contributed to the crisis , what would he think?Is it lucky or guilty?Perhaps, he will be secretly glad that after the storm, Morgan Stanley still exists, and he himself was able to step down "with dignity".

Gorman: The quiet influencer

As Mack's successor, Australian Gorman has only worked on Wall Street for 10 years, and has been doing management consulting and wealth management. Compared with Mack, he is a leader with a very different style.Mack can speak foul language, drop the phone, love office politics, and wantonly decorate the company's headquarters in Manhattan's Times Square.Suave and more data- and management-oriented, Gorman was described by colleagues as a "quiet influencer."The appreciation of Gorman's steady style shows how much effort Morgan Stanley is making to change the restless, all-or-nothing culture, the kind of risk-taking represented by Mack, which was hit by the financial crisis. culture.

In 1999, as a senior consultant in the financial industry of McKinsey, Gorman was hired by Merrill Lynch as the head of marketing. In 2006, he joined Morgan Stanley.Apparently, the new head lacks practical experience in sales, trading and investment banking (these business revenues accounted for 2009% of Morgan Stanley's revenue in the first nine months of 9), and since the promotion was announced in September 56, Gorman, who rarely speaks publicly, will face pressure to rebuild Morgan Stanley's trading business.The trading business was one of the first departments to be hit by the subprime mortgage crisis, and it was suppressed because of the risks it had to bear.

8. Can floating mortgages realize the American dream?

20 years ago, when I was a work-study student in New York, I delivered food at a Chinese restaurant.The boss's distant relative, Xiao Liu, just came from Fujian by smuggling. He doesn't know English, and he can't speak Mandarin well. He can't understand newspapers in traditional Chinese characters. He can't even deliver food.Regardless of the fact that Xiao Liu owes more than 3 US dollars due to smuggling fees, and his monthly income is only 800 US dollars, it will take at least five or six years to repay the debt with interest.But he was cheerful all day long, humming Teresa Teng's songs, full of confidence in the future.I often learn a sentence from a certain play: "Don't worry, there will be bread and milk. I will definitely have a big villa in the future and a lot of children."

Yes, how many people came to the United States from all over the world to pursue the legendary American dream.They firmly believe that as long as they work hard, their dreams will come true!

Later, Xiao Liu went from doing odd jobs to a chef's assistant, and finally made a wok, with a monthly income of 2000 US dollars. Six years later, he paid off the smuggling fee, married a female garment factory worker from his hometown, and gave birth to a boy and a girl. Ten years later, on the grounds of "one-child policy", he applied for a "asylum" green card and settled down in the United States.The only regret is that the big villa that embodies the American dream is long overdue.It is conceivable that his income and his wife’s part-time wages add up to only 6 to 10 US dollars a year. After deducting the monthly daily expenses, there is almost nothing left. Wanting to buy a large independent house, under normal circumstances, is like a fairy tale Tan.

Xiao Liu saw that many relatives and friends around him had applied for loans and bought big houses.If he wanted to be strong, he also went to the bank to apply, but was rejected by the bank.Although the bank began to loosen credit, the couple's annual income was too low, and the bank told him that they couldn't even get the most subprime loan.

In 2004, Xiao Liu’s fellow villagers rushed to tell each other: “Ultra-low interest mortgage, no income check, no credit check, everyone can buy a house!” His eyes lit up when he heard this, and he hurriedly went to the bank to apply, and it went smoothly. unimaginable!He got a loan of $40 and only paid 1.25% interest a month, or $1333, which was cheaper than their $1500 rent.He and his wife immediately bought a $40 detached house without hesitation.Although the house is a bit old and the location is not good, I finally "own" my own house.

Not long after buying the house, Xiao Liu called me and told me excitedly that the United States is really a mythical world, and he can do whatever he wants!He excitedly invited me to his new house to play.I was puzzled when I heard it. I know their income, how can they afford a $40 house?

When I arrived at Xiao Liu's house, in order to show that he really owned a big house, he actually showed me the credit information.I took a closer look and found that Xiao Liu's loan contract belonged to a new financial product at that time called "Option ARM" (optional floating rate mortgage).This kind of mortgage does not need to repay the principal in the first 5 years, but only pays low interest (just like a credit card).At that time, the floating interest rate of the mortgage was 3.25%, and Xiao Liu chose (in fact, the bank chose for him) to pay 1.25% interest per month. After 5 years, the 2% interest underpayment will be added to the principal of $40, and then the loan will be paid with interest on the principal.I can't help worrying for him, will he be able to afford it after 5 years? !

I told him the truth.He was taken aback!His wife cried on the spot.He went to the bank the next day and excitedly called me when he came back, telling me not to worry.The bank said that the housing price will definitely rise every year. A house like his may rise to 5 US dollars in five years. At that time, the big deal is to sell the house, not only to pay back the bank's money, but also to "earn" at least 80 Ten thousand dollars, what are you afraid of!
I wanted to tell him that house prices cannot keep rising, but I didn't want to hurt him, so I could only wish him good luck.

Later, my worries became reality. Compared with 2004, the housing prices in Xiaoliu's area have dropped by 25%.At present, the bank’s mortgage interest rate is 6.5%, and then all the 2% interest will be converted into the principal. His loan has increased to more than 42. Xiao Liu has to pay 2528 US dollars per month to pay the mortgage, which is almost all of their taxes. after income.

A word of caution: 'Option ARM' is the American dream of bankers, but the nightmare of low-income earners!
9. The source of high profits for the rich

At the beginning of 2011, Cohan, a former senior Wall Street banker, wrote the book "Money and Power" (Money and Power) based on his profound industry knowledge and insights in response to the current financial crisis, exposing how Goldman Sachs He controlled the lifeline of global finance, searched for global wealth by all means, and fattened 400 senior partners of Goldman Sachs Group.Of course, Goldman Sachs is only the representative of the devil of Wall Street financial capital. The British playwright Shakespeare has a famous saying to describe it: Hell is empty, and all the devils are here!

If you want to know the true face of the devil, let us start with the euro area.Since the financial crisis, the debt problem in the Eurozone has grown to an extremely dangerous level.The status of the euro as a currency that can compete with the dollar is already in jeopardy.Like the US dollar, the euro is "created" when the debt is created and destroyed when the debt is repaid, thus forming a debt currency.

Just look at the Greek debt crisis:
When the Greek government sells bonds to the European Central Bank for financing, this "borrowing" method is equivalent to increasing the money supply in disguise.In view of the characteristics of the unified currency and economic integration of the euro zone, Ireland, Spain, Portugal and Italy, which are also plagued by public debt, also "borrowed money" from the European Central Bank. of.The more money they borrow, the more interest they pay, and the more money they have to borrow to pay off previous debts.When debt is tied to money, the inevitable result is that the debt keeps growing until the debt currency is cast aside.

(End of this chapter)