The Son of Finance of the Great Age

  Chapter 524 ABX Index

  In fact, at this time, the subprime bond crisis in the US real estate industry has already begun to emerge.

On the afternoon of February 7, 2007, New Century Financial Corporation, the second largest subprime mortgage company in the United States, announced a news that was unexpected to the market. Internal accounting is still calculating gains and losses. Before that, the market generally believed that New Century Financial Corporation would make a profit in the fourth quarter, but now the situation suddenly became complicated, which immediately shocked the entire market. People have speculated that New Century Financial Company should have suffered a large loss, so the accounting department simply did not have enough time to process the statements, so the announcement of the financial statements had to be postponed.

Also on this day, the third largest subprime mortgage loan company in the United States, HSBC Bank from Europe, announced that due to the collapse of its subprime loans, the group company had to set aside tens of billions of dollars of funds as mortgage preparations. gold.

   These two pieces of news exacerbated the market's concerns about subprime mortgages.

   Prior to this, subprime mortgages had developed to a jaw-dropping level. Due to the general rise in housing prices across the United States, the loans for housing have reached an astonishing level. The threshold for many quick loan companies to issue loans is simply appalling. Most of them don't even need to check their financial income to get a mortgage. Even the more aggressive companies among them have advertised that "credit problems, bankruptcy, foreclosure, difficulty in collection, these are not problems", and these problems are all the most valued factors in the traditional loan process. .

Under such circumstances, more and more housing loans have flowed to those who cannot afford the mortgage and even have problems with their livelihood. Because of their lack of ability to pay, the risks inherent in these loans are self-evident .

   These are subprime mortgages.

   According to the repayment ability, the rating agency divides these housing mortgage loans into five levels, including AAA, AA, A, BBB, and BBB-, and housing mortgage loans at and below the BBB level are called subprime housing mortgage loans. The bonds were originally traded in Markit, an over-the-counter market comprised of U.S. interbanks with more than 1,000 institutions as members. The company that operates this market, Markit Group Limited, is composed of 16 large banks. Its main responsibility is to provide the market with standardized asset-backed securities (ABS) and secured debt obligations (CDO) trading platforms and quotations. It is composed of 15 large banks. Market makers provide quotations to buyers and sellers.

  The characteristics of this platform are that the participants are all large institutions, the amount of a single transaction is huge, the market liquidity is poor, and it is an over-the-counter market that is not subject to supervision by the regulators, so it lacks transparency.

It is such an over-the-counter market. The participating institutions have basically made a lot of money in the bond market, but Wall Street financial institutions are still not satisfied, because the liquidity of this market is so poor that they are not satisfied with it. Generous commissions are not enough. With the urging and help of investment banks, Markit launched the housing mortgage bond index ABX.HE in early 2006, which completely securitized housing mortgage loans and greatly enhanced its liquidity.

   After the launch of the ABX index, all aspects of housing mortgage loans were integrated, so the liquidity of CDOs in the entire market has been greatly enhanced. In addition to the market makers, the Wall Street financial giants have made huge profits again on the basis of the original big profits.

  In addition to banks and investment banks, hedge funds are also deeply involved in this market. In fact, since each agency needs to provide the market with a bond package of not less than US$500 million approved by a rating agency, and such agencies need at least 20 agencies with five rating levels. That is to say, there are at least $50 billion of synthetic mortgage bonds every six months (all ratings are provided), and at least $100 billion for the whole year. Although these bond packages will be made into standardized and indexed trading targets by credit derivatives trading companies, and cut into smaller components for sale, there are still prices in the millions of dollars anyway, so the ultra-high threshold prevents the vast majority of investors in the market. However, hedge funds with deep pockets don't mind this. In fact, no one dares to underestimate the hedge fund industry. Therefore, hedge funds have naturally become one of the main investment forces in this market.

  Paulson's fund entered this market in this way. After a lot of observation and analysis, he hired an Italian named Pellegrini to help him operate the CDO and CDS market. This is a handsome man, wearing suits and leather shoes all day long, his hair is always combed back shinyly, and there is always a charming smile on his handsome face, but it is this kind of guy who is becoming more and more rare in Wall Street, who has become a security guard. Ersen's most important right and left hand.

  Paulson first raised a fund, that is, the fund invested by Zhongshi that focused on real estate mortgage bonds. The initial investment direction of this fund was CDS, that is, credit default swaps. The specific operation is that when the insurance company guarantees a BBB-rated home mortgage bond, the amount of the entire bond is 100 million US dollars, and the underwriting fee is 2.4 million US dollars. When the investment bank sells these bonds and mortgage contracts as financial products, Paulson’s fund only needs to spend 2.4 million US dollars to buy this insurance policy. When the mortgage bonds default, he can steadily reap 1 million dollars in profit. If the mortgage bond hadn't defaulted, Paulson's fund would have lost $2.4 million.

  At first glance, the pay-to-return ratio is seriously asymmetrical. It seems that the Paulson Fund only needs to pay a little cost to get huge returns. But in fact, this is not the case. The actuaries of the insurance company had already calculated the probability of default and the possible cost when applying for the insurance, and only then gave the policy quotation of 2.4 million US dollars. Therefore, it seems unlikely that the Paulson Fund would like to get a bargain from it.

But Paulson did not give up. He had recognized the serious problems in the housing mortgage loan market. Therefore, after figuring out the entire financial chain, he decisively placed his bet on CDO first, borrowing housing mortgage bonds Then sell short, but also pay close attention to the CDS market.

Due to the complicated operating procedures of CDO, and it is difficult to find banks willing to borrow for profitable projects, but after the launch of ABX, related low-grade mortgage insurance has sprung up one after another, and the liquidity of the entire market has been greatly enhanced. , so whether it is CDO or CDS, Paulson can easily obtain from the market.

The result is naturally very surprising. In the past half a year, Paulson barely collected $500 million in CDS from the market, but shortly after the launch of ABX, within two days he He just bought $2 billion of CDS, which made him ecstatic.

  Faced with such strong market liquidity, Paulson strengthened his belief and bought CDS crazily while selling CDOs. However, his capital was not very sufficient, so he issued a second fund soon. But this time he found Zhong Shi again, and Zhong Shi naturally invested another 2 billion US dollars in the other party very readily. After two visits, Zhong Shi invested a total of 3 billion US dollars, which accounted for almost half of the total amount of Paulson's newly established fund. , and the money will be used in the CDO and CDS markets without exception.

  By 2006, the Paulson Fund had established a position of up to $7.2 billion, and this investment portfolio included short-selling CDOs and CDSs. Although it seems that the number is extremely alarming, but in front of the whole market, this number is only a child's play.

   On the day of February 8, the ABX index fell by 5 percentage points due to news that New Century Financial Corporation delayed the announcement of its financial statements and the collapse of HSBC's subprime loans. In front of the huge position of Paulson Fund, a drop of one percentage point means that his income reached 250 million U.S. dollars, and on that day, he made a full income of 1.25 billion U.S. dollars, which was enough to shock the entire market.

  By March, Paulson mentioned in an email to investors that in the past 2 months, their performance had increased to 66%. Some people even couldn't believe all this, thinking that the other party had typed wrong punctuation.

  The generation of "King of Making Money" is now beginning to emerge.

  …

  Zhong Shi sat in the back of the Mercedes-Benz, looking at the rows of villas that fell backwards. He didn't speak, but he was thinking about the phone call from Paulson just now.

  Beside Zhong Shi, Land Rover was sitting. He carefully observed Zhong Shi's face, and after a long while to make sure that nothing serious happened, he asked boldly, "Zhong Sheng, what happened?"

  Lu Rover keenly observed that after answering the phone, Zhong Shi was a little emotional, but soon fell into deep thought. After more than ten minutes, Zhong Shi didn't say a word. This kind of situation is quite rare. According to Lu Rover's understanding of Zhong Shi, he must have encountered some serious problem, but looking at his face, it didn't look like that, because although Zhong Shi's expression was calm, the excitement in his eyes escaped him. But Land Rover's observation.

   Slowly knocking on the painted handrail, Zhong Shi pondered for a moment, and then replied seemingly lightly: "The phone call I just received, my investment in the Paulson Fund has doubled."

"Then how much did you invest?" Lu Hu's mouth twitched slightly. Although he knew that Zhong Shi was very profitable, the doubled figure still shocked him a little. , that's nothing too scary, so he still asked a lot.

   "It's not much, just three billion dollars!" Zhong Shi shook his head slightly, and his tone was even lighter. After finishing speaking, he waved his hands and closed his eyes, as if he didn't want to say anything more.

It was just a soft sentence, but it exploded in Lu Rover's heart like a bolt from the blue. He was a little confused for a while. After shaking his head vigorously a few times, he began to count with his fingers: "Three billion dollars, Double that's $6 billion, triple that and it's... $9 billion. Man..."

  He just wanted to exclaim, but he thought that he might surprise others in the car. Although there were only four people, he thought that it might disturb Zhong Shi's meditation, so he suppressed the exclamation that came to his lips.

Although he didn't hear what the other party said clearly, Alan Anthony, who was sitting in the co-pilot seat, felt something from the visibly shaking hands of the driver. He didn't mean to speak English at all, and turned his head back silently. At the same time, his eyes began to flicker, and he didn't know what he was thinking.

At this time, Zhong Shi entrusted the funds to the "king of making money" to take care of, and he did not get involved in the CDS and CDO markets too much. He would definitely not miss such a capital feast, so he must In the pursuit of a larger pattern of profits. And what this is, Lu Rover couldn't figure it out for a while.

   "Lehman Brothers, Bear Stone, Stanley, and Goodman, how many subprime mortgage bonds do you market makers hold?" Zhong Shi, who closed his eyes, was thinking about such a question. His opponent this time is not only for making money, but also for buying shares and even defeating these Wall Street super giants.

   Thanks to ERICfmx, yangyimb, Wenhuang, huid296, kalm master and other book friends who voted monthly tickets two days ago! Last month’s updates were pitifully small, I’m really sorry everyone, I sincerely thank you for your attention to this book all the time, the new month has begun, the author will try his best to restore the normal update progress, and strengthen the concept of time, no longer delay until late at night~

  (end of this chapter)