Wall Street Financial Truth

Chapter 8 The Truth About Wall Street (6)
In fact, anyone who has ever worked in an investment bank knows that investment bankers, and even their family members, can only open all their securities trading accounts within their own company, and they are always monitored by the regulatory authorities. Securities of companies with which there will be business dealings.Before buying or selling, you must report to the regulatory authorities, and you can only trade stocks after obtaining prior approval, otherwise it is insider trading.A fine can range from a fine to a dismissal, and a jail sentence can be severe.In order to avoid trouble, the author has closed all securities trading accounts during these years of working in investment banks.Especially in the past two years, the author specializes in securities trading monitoring, and knows that Sokol's behavior is definitely insider trading, and belongs to the level of "beginners in insider trading".

This just confirms Buffett's famous saying: If you see a cockroach in the kitchen, there must be more than one!Wall Street is a world of money, and the ugly side of human nature is often unable to resist the temptation of money, which has made insider trading repeatedly banned over the years, but intensified instead.

For example, Martha Stewart, the queen of fashion and one of the most famous and authoritative American successful women, was also imprisoned for insider trading.She was a former fashion model, stockbroker, author, magazine editor, host of two popular TV shows, fashion queen, and over the past 20 years she was a leader in the publishing industry with a fortune of up to $10 billion. On the morning of December 2001, 12, the stock of a biotechnology company she held suffered a severe setback. Just the day before, she sold all the stocks in her hand.In fact, to her, that is just a mere $28, compared to a billion dollars in assets, isn't it a fraction of a fraction?As a result, she was found to be profiting from inside information, and was finally sentenced to five months in prison for obstruction of justice, plus a fine and a five-year ban from serving on the board of directors and executive chairman of a listed company.

And another insider trading case is full of spy movies. In 2001, Guttenberg, who was only 36 years old, worked in the Securities Department of UBS, as an executive director and institutional account manager, and was a member of the UBS Investment Review Committee.Every working day at 11 o'clock in the morning, the deliberative analysts of the UBS Investment Review Committee release the recommended stock upgrade and downgrade recommendations to investors so that they can make "buy", "sell" and "hold" decisions. refer to.Like the analysis recommendations of many investment banks, UBS's upgrade and downgrade recommendations are closely watched by investors and can affect the stock price trend to a certain extent.

Guttenberg is one of 80 people at UBS who can see rating recommendations ahead of meetings.Gutenberg owed his friend Eric Franklin $25000 at the time.Guttenberg figured out a way to pay off the debt for nothing.And Franklin is in charge of a hedge fund under Bear Stearns, and is the securities manager of the Qantas Capital hedge fund.The two agreed that Gutenberg would disclose the UBS stock rating information to Franklin in advance, and the latter would operate the market in advance, and the two would share the profits. $25000.

Guttenberg is not ignorant of the law, which can be seen from the "007"-colored communication between him and Franklin.There was only one day between Guttenberg's knowledge of UBS's stock review and its official release, that is to say, only a few hours from the disclosure of the news to the completion of the transaction.According to the indictment of the US Securities and Exchange Commission and the Department of Justice, Gutenberg and Franklin bought a disposable mobile phone for this purpose, and also made up a set of contact codes, and sent text messages to pass messages, arrange meetings and pay cash. Place.Unexpectedly, such transactions were unacceptable, the more times, the more involved, the larger the amount snowballed. This insider transaction was called the "Swiss Bank Conspiracy" and was finally revealed.

Morgan Stanley, another century-old investment bank on Wall Street, is a joint conspiracy of a husband and wife team, known as the "Morgan Stanley conspiracy." Randi Collotta, a 26-year-old lawyer at Morgan Stanley at the time, teamed up with her husband, Christopher Collotta, also a lawyer, to put the firm she knew News of the M&A transaction was disclosed to a close friend in Florida, Marc Jurman, who was in charge of a fund operating in Florida.The Crottas took a cut of the profits from their transactions, and in just one year from 2004 to 2005, they illegally earned $60.

However, if the above insider trading cases are compared with the alleged involvement of the world's top financial consortium UBS in manipulating the London Interbank Offered Rate (LIBOR) during the financial crisis, it is not a big deal at all.

Here, let's first analyze what is LIBOR?Anyone engaged in the financial industry knows that LIBOR is the most active interest rate in the world market and one of the most important financial indicators in the world. Interest rate futures, swap transactions, and the prices of the euro and the dollar are all determined by LIBOR.Due to London's status as a global financial center, LIBOR applies not only to the British pound, but also to the US dollar, Swiss franc, Japanese yen and Canadian dollar.Before the scandal was discovered, the rate was considered the most true reflection of the market's demand for funds.

Every morning at 11 o'clock in London time, the British Bankers Association will select from 16 banks (UBS, Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, HSBC, JPMorgan Chase, Lloyds Bank, Rabobank, The Royal Bank of Canada, the Bank of Tokyo-Mitsubishi, the Central Bank of Japan, the Royal Bank of Scotland, the West Deutsche Bank, and Société Générale (the author has worked for three of them) collected the borrowing costs of 3 currencies from the US dollar to the Swiss franc. The term of LIBOR ranges from overnight to one year, and then it is included in the statistical table, and the highest and lowest parts are removed to obtain an average value. The LIBOR of the day is determined and then sent to exchanges around the world.The rates that banks offer to each other change around the clock, while LIBOR is fixed within 10 hours.Generally speaking, the difference between the instant interest rate and the offered rate is very small, especially in a short period of time.

So, now to talk about what is the LIBOR scandal.This "mystery" lies in the conspiracy of multiple quoting banks to manipulate LIBOR. When the British Bankers Association collected the quotes and averaged them after removing the extreme quotes, it made a small move. This bad behavior lasted for a long time , causing manipulators to profit wildly from it.

For the general public, this may be very esoteric, or not easy to understand.But it is easy for people to understand that by changing and manipulating interest rates, banks can make the value of derivative products change in their own direction, thereby obtaining huge profits.Because there are more than 360 trillion US dollars of financial derivatives and corporate bonds in the world, all of which regard LIBOR as the benchmark interest rate.An artificial digital change after a decimal point, the rewards obtained are sky-high.

In the original financial capital market, the cornerstone of credit is integrity, and one party in the market must trust the other party to fulfill its promise.For example, lenders must trust that borrowers will be able to repay their loans, and investors must trust that they will see a return on their investment.Losing integrity is tantamount to losing the soul. It seems that once Newton's three laws are wrong, can modern physics based on these three laws still be trusted?Now that LIBOR is being manipulated, the $360 trillion derivatives related to it are all wrong!

The financial derivatives market is a zero-sum game (Zero-Sum Game). In the same period of time, the money earned by all winners is equal to the money lost by all losers; the derivatives market only redistributes wealth and does not create new ones. Economic Value.Banks have made huge gains from manipulating interest rates, so who is losing money?Of course, the majority of investors involved in this market.

With a deep sigh, in today's world financial market, true integrity has disappeared, and the rich on Wall Street will do anything for their high bonuses, and they have no shame at all.For example, Lehman Brothers, a Wall Street investment bank, was forced to close down by the subprime mortgage crisis. In the process of liquidation, it discovered that its company had 1 million US dollars in its account.The liquidation company is going to ask, didn't you go bankrupt, why do you still have 1 million US dollars in your account?That's money for bonuses at the end of the year, Lehman said.It's strange, you can't even keep the company, where can you get the money to pay the bonus, there is actually 1 million?Lehman replied arrogantly, we are like this on Wall Street, the 1 million bonus will be paid out, at least 1 million; if I hadn't run into bankruptcy, the bonus might be tens of billions!Subtext: If the bonus does not exceed tens of billions, it is better to buy a piece of tofu and crash to death.As for investors' losses, that's none of my business, as long as money falls into my wallet!

12. The largest Ponzi scheme - U.S. Treasury bonds

When the financial crisis broke out in the United States in 2008, Madoff, the "Wall Street investment expert" who had perfected the Ponzi scheme, was uncovered.To be honest, this scam of tens of billions of dollars is really nothing. There is a scam that is the largest in history, and it has a direct relationship with China.Allow me to speak slowly.

In a blink of an eye, with 'We can change! '(We can change) When President-elect Barack Obama came to power, the American people and even people all over the world were full of hope for him. They hoped that Obama could change the United States, and then change the whole world, fulfilling his campaign slogan.

However, it is a pity that during the past few years of Obama's administration, all his efforts have hardly achieved any results: housing prices, which have fallen for more than four years, are still falling, the unemployment rate is still high, and the government deficit is getting bigger and bigger. China's national health insurance plan will come to an end again, eager to clean up Wall Street, but Wall Street bites back.When the results of the mid-term elections came out, it was not difficult to see that the people of the United States were nostalgic for Bush Jr.'s platform.For this reason, at the end of 2010, Obama had no choice but to face the TV cameras with a livid face and announce to the public that he would extend Bush Jr.'s tax cut plan for another two years.

Going back to the old path of Bush Jr., of course, made Obama very unhappy, it was his helplessness.Since everyone likes tax refunds, let's go ahead and get refunds. Anyway, there are only two years of suffering left.However, as an ambitious president who dreams of accomplishing great things, this cannot but be said to be one of Obama's great sorrows.As a result, not only did Obama's approval rating drop sharply, he also had to implement the tax rebate policy of his political opponents, making him more and more isolated within his own party.

We all know that human desires are unlimited.If desires are not restrained, just like the US government, it has developed into not planning government spending based on how much money is in its pockets, but allowing desires to expand infinitely, borrowing money even if there is no money, and thus forming a huge fiscal deficit.What if there is no money to spend?There are only two ways, either open source, or throttle.

However, in today's economic situation, it seems impossible to increase income, such as increasing taxes, and reduce expenditure, such as layoffs and closure of public facilities.Then the only option is to borrow more money, and the government's borrowing of money for expenditure will not immediately affect the interests of citizens, so the voice of opposition is relatively weak.

As the saying goes, "If you borrow something, you must pay it back, and it is not difficult to borrow again."The U.S. government has already owed a huge amount of debt. The borrowing method of "tearing down the east wall to make up for the west wall" must be based on the economic improvement, and you must show your strength and credit so that others can lend you money with confidence.

Therefore, the Obama administration can only whitewash the domestic economy first and stimulate the economy through tax cuts and rebates, that is, individuals get tax rebates to increase consumption, and companies use tax cuts to reduce costs and hire new people.According to New Keynesianism, lowering tax brackets does not mean a reduction in national tax revenue; on the contrary, tax cuts will increase people's enthusiasm for work and innovation, and can enrich the national treasury.Only when the national treasury is sufficient, there is more room to implement a deficit fiscal policy.It sounds reasonable.

But the fact is that tax cuts are man-made tax policies. First, they distort market price information. For example, Bush’s tax cuts fueled the real estate bubble; second, tax cuts should be accompanied by fiscal deficit control and expenditure reduction , but President Bush started the war against Iraq, consumed a large amount of military spending, and left a huge debt to Obama, which increased the degree of drug addiction (borrowing consumption).

In any case, the result of tax cuts will indirectly cause the exchange rate of the US dollar to rise.Because the U.S. government can borrow huge foreign debts (such as huge debts owed to China, Japan and other countries), the government only needs to print money, and because China’s low-cost commodities are exported to the United States, American citizens can enjoy high-quality goods under the condition of low inflation. The product.In this way, the U.S. government has successfully passed on its own crisis to citizens of other countries (for example, China’s current high inflation is one of the consequences), and the debts are repaid by citizens of other countries, and then diluted with a weak dollar Debt, why not?

At present, the national debt of the United States has exceeded 14 trillion U.S. dollars, which is equivalent to 15.5 U.S. dollars (more than 100 million yuan) owed by each taxpayer in the United States.Bush owed 12 trillion U.S. dollars, and by the time Obama ends his first term, the government's debt will reach 16 trillion U.S. dollars.In other words, in the future, every child born in the United States will have a debt of 5 US dollars from birth!For a long time, the average yield of U.S. Treasury bonds has been 6%, and the interest payments alone have been nearly $1 trillion.However, the current revenue of the U.S. government is about 2 trillion U.S. dollars. If inflation is added, the revenue may reach 2.5 trillion U.S. dollars.Just imagine, the debt interest of the United States has already accounted for 40% of its income, and it will become more and more difficult to continue such a debt game in the future.

And the 16 trillion US dollars is only the debt owed by the US government. If the accumulated debts of US companies and private individuals are added, the total amount will be even more astronomical!According to the statistics of the International Organization for Economic Cooperation and Development (OECD): If calculated based on the current population of 3.05 million in the United States, the per capita debt is 70 U.S. dollars, and each family (according to a household with 3.1 people) owes 217 million U.S. dollars; equivalent to RMB, Every family is tens of millions of "negative".

(End of this chapter)