They’re all reborn, what’s wrong with being a little more almighty?

Chapter 256: When people sit at home, disaster comes from heaven

The bank that sold the most credit default swap contracts during the subprime mortgage crisis in history was JPMorgan Chase. One of the prototype characters in "The Big Short" bought credit default swaps from JPMorgan Chase.

It would have been reasonable to assume that JPMorgan Chase would have suffered huge losses in the end after selling so many credit default swap contracts. However, after the subprime mortgage crisis, when economists reviewed the situation, they discovered that JPMorgan Chase was actually the ultimate beneficiary!
First of all, JPMorgan Chase's direct economic losses in the subprime mortgage crisis were not actually that large. Its financial losses were mainly used to close positions in various financial products. As long as the positions were closed, it was considered a timely stop-loss. This part cost JPMorgan Chase about $10 billion in funds.

After all, JPMorgan Chase is the world's largest investment bank, and it can still take out 10 billion US dollars in funds so as not to interrupt the cash flow.

In the banking industry, as long as there is a continuous flow of funds, the industry can still survive comfortably even if there are huge losses and huge debts.

Moreover, JPMorgan Chase's daily business involves a large amount of financial risk investment, and they have to prepare a lot of funds to close positions at any time. Therefore, sufficient cash flow is the first factor for JPMorgan Chase to survive the subprime mortgage crisis.

As for the losses caused by the credit default swap contracts, they were not a huge amount of money considering the size of JPMorgan Chase.

Taking the prototype character of "The Big Short" as an example, the fund operated by the protagonist obtained a high return of 260% through credit default swap contracts. For the fund manager, with such a high rate of return, the share he received was enough for him to achieve financial freedom.

However, the fund operated by the protagonist was only worth more than 5.2 million US dollars, which means that for JPMorgan Chase, the maximum loss would be million US dollars. What's more, the million US dollars of principal was used by the protagonist to diversify investments in multiple investment banks such as JPMorgan Chase, Citigroup, Goldman Sachs, UBS, and Deutsche Federal Savings Bank. If the loss was evenly distributed, JPMorgan Chase would only lose million US dollars.

260% is already the highest rate of return, and other credit default swaps with higher ratings cannot reach this rate of return. In other words, JPMorgan Chase's actual losses on credit default swaps did not reach an exaggerated figure, but were completely within the scope of reasonable profits and losses.

JPMorgan Chase also held subprime mortgage bond products, all of which faced default risks after the subprime mortgage crisis broke out. However, JPMorgan Chase was smart enough to find buyers for these products, which meant that they were all sold.

JPMorgan Chase has been promoting that these subprime loan financial products have high returns and are also very safe. Especially in the second half of 2007, when subprime loans had already experienced widespread defaults, JPMorgan Chase deliberately concealed the news and, at the same time, collaborated with credit rating agencies to maintain high ratings for its products and sold a large number of bonds that had already defaulted to investors.

As long as all these bonds are sold, it will be others who will lose money, not JPMorgan Chase.

After talking about losses, let’s talk about profits. During the subprime mortgage crisis, Bear Stearns, one of the five largest investment banks in the United States, went bankrupt. JPMorgan Chase acquired Bear Stearns at a bargain price of $2 per share and obtained all of Bear Stearns’ assets.

As for the tens of billions of dollars of debt of Bear Stokes, JPMorgan Chase only assumed one billion dollars, and the rest was borne by the US government. JPMorgan Chase made a fortune from this acquisition alone.

The money of the US government was printed through quantitative easing and was eventually passed on to the whole world, which is equivalent to the whole world paying money to help JPMorgan Chase assume the debt of Bear Stearns.

Other investment banks were not as lucky as JPMorgan Chase. Citigroup survived only after receiving a capital injection from the Federal Reserve; Goldman Sachs and Morgan Stanley were transformed from banks into companies and needed to be regulated by the Federal Reserve; Bear Stearns and Merrill Lynch were acquired; and Lehman Brothers went bankrupt.

At this time, not only JPMorgan Chase, but other large investment banks also noticed the hot sales of credit default swap contracts, and then learned that a novel called "The Big Short" was popular on Wall Street in recent times.

Some people scoffed at this, thinking that the content of the novel is complete nonsense and that only an idiot would believe what is said in it and then do the same thing as in the novel.

Some people think that "The Big Short" is simply a bible for getting rich on Wall Street. It has told you how to get rich, and if you don't do it, you'd be an idiot!

In short, both sides think that the other side is an idiot and I am the smart one.

There were also savvy people in the big investment banks who discovered the crisis in the real estate market, but it was of no use.

This is Wall Street, and there is no shortage of gamblers. When ordinary people see a crisis, their first reaction is to stay away from it, but when Wall Street gamblers see a crisis, their first reaction is to get as much benefit as possible from it.

Take the collapse of subprime mortgage loans for example. There were many people on Wall Street who could see through this. Those investment institutions spent money to employ so many analysts, and none of them was a fool. They all graduated from prestigious universities and were all very smart.

Smart people are very conceited. They all believe that in this game of passing the parcel, they will not be the last one to take over. The subprime mortgage market will collapse sooner or later, but by that time they will have escaped.

Everyone thinks this way, and everyone feels that they are the one who benefits from it, rather than the unlucky guy who has to take the blame in the end.

So the entire Wall Street is playing dumb, pretending not to see that the accumulated bomb equivalent is getting bigger and bigger, big enough to destroy the entire world economy.

……

At Bear Stearns, the company at the tip of the subprime mortgage crisis, a copy of "The Big Short" was placed right in the middle of the marketing director's desk.

The supervisor had just finished reading the entire book, but the expression on his face was very embarrassed.

"This novel actually implies that Bear Stearns will go bankrupt? It's a joke. We are the fifth largest investment bank in the United States!" The manager looked at his subordinates in front of him with a cold face, trying hard to suppress the anger in his heart.

In the novel, Zhang Wei used the word "Bear Stearms Cos." to represent Bear Stearns, but in fact the English name of Bear Stearns is Bear Stearns Cos, and the letter in it is N, not M.

Historically, when "The Big Short" came out, the subprime mortgage crisis had already broken out and JPMorgan Chase had begun to acquire Bear Stearns. Using real names at this time was based on real events that had already happened. There was no problem with this. You can't say that real events are false, right?

When Zhang Wei published The Big Short, the subprime mortgage crisis had not yet occurred. If he had used Bear Stearns' real name, there might have been some legal disputes. If you deliberately said that an investment bank was going to go bankrupt, it would be strange if they didn't cause trouble for you!

Even though Zhang Wei just changed a letter, anyone who is not a fool can tell that the novel is talking about Bear Stearns.

How can I tolerate that you dare to imply that Bear Stearns is going to be in trouble?
Seeing the leader angry, his flatterer quickly tried to persuade him: "It's just a novel. The content of the novel is all fictional. You don't have to take it seriously."

"But this book has been very popular on Wall Street recently, and the descriptions in the book will also have a negative impact on us! If investors become suspicious of us after reading this book and stop buying our products, we will suffer heavy losses!" the supervisor continued.

"Sir, what you said makes sense. I have also read part of the book 'The Big Short'. It is pessimistic about the real estate and subprime loan markets. Several products we have recently launched are financial derivatives related to real estate subprime loans." said the flatterer.

"Not only that, I heard that the hedge fund sector has recently bought a large amount of collateralized debt obligations, and subprime loans in real estate also accounted for a large part. This is consistent with what is said in the novel!" another person said.

"That's why I said that this novel will affect our product sales and cause us losses!" The manager said, his face darkening: "I will sue this author and publisher. This book can no longer be sold and must be removed from the shelves!"

Several men looked at each other, and finally the flatterer spoke up: "In this novel, we are not called by our real names. The author is very cunning and he changed a word. In this case, the lawsuit may take a long time."

"We have a legal department, so we are not afraid of a long lawsuit! At the very least, we have to apply for an injunction from the court to temporarily remove this novel from the shelves! It must not affect the several products we are currently promoting!" the supervisor said firmly.

At this time, Bear Stearns was carrying out a bold operation. Several hedge funds under Bear Stearns invested a large amount of subprime mortgage bonds and collateralized debt obligations consisting of mortgage bonds.

Then Bear Stearns used these bonds as collateral to issue new bonds, which were then combined into new collateralized debt obligations and sold on the market again.

This is equivalent to using bonds as collateral for bonds to issue bonds, which is an infinite nesting doll rhythm.

This operation is a bit like a real estate company hoarding land. After bidding for a piece of land, they use the land as collateral to get a loan from the bank. They then use the loan to bid for new land, get a mortgage loan, and bid for more land. This cycle repeats over and over again, and before they know it, they have acquired land worth trillions of dollars, while also incurring trillions of dollars in debt.

However, in Bear Stearns' operation, it was the bank itself and could bypass the middlemen and issue bonds to raise funds. This is obviously more terrifying than real estate companies hoarding land.

If a real estate company wants to get a loan, it has to get approval from the bank, but if the bank does this on its own, isn't that letting it do whatever it wants?

In this kind of operation, each round of nesting dolls adds a layer of leverage. The more nesting dolls there are, the more assets are involved and the greater the leverage. If one day the leverage can no longer hold up, the result can be imagined.

For those who deal in finance, as long as they add leverage, they can become rich in a moment or jump off a building in a moment, and life or death can happen in a moment.

This is exactly how Bear Stearns died.

After all, Bear Stearns is the fifth largest investment bank in the United States. It has a size and a history of nearly a hundred years. Even if it loses some money temporarily, it will not collapse overnight.

The bad thing is that Bearston added leverage. You thought you lost tens of billions, but with the effect of leverage, it was actually hundreds of billions.

You may think that it is just a few hundred billion bad debts, but when it is placed in the entire financial system, it will leverage hundreds of billions of financial derivatives. When hundreds of billions of financial derivatives have problems, the confidence of the entire market will be destroyed, and the financial crisis will come.

As for nesting dolls, even if the smallest one inside starts to burn, the fire will spread outwards layer by layer and eventually burn the largest doll.

It was precisely because the leverage was too high that Bear Stearns was the first large investment bank to collapse during the subprime mortgage crisis.

At this time, Bear Stearns obviously did not expect that they would die because of leverage. The greed of capital made them ignore the risks of leverage and they were having a great time playing with the nesting dolls.

The content of "The Big Short" obviously influenced the Bear Stearns nesting doll.

Everyone says you are going bankrupt, who would dare to buy your products?

For Wall Street, you can say I have a bad heart, you can say I am ugly, you can even say I am impotent, but it can never affect my ability to make money! As long as it affects my ability to make money, I will fight you to the death!

……

In the Amazon Publishing Department, Thomas put down the manuscript of "The Three Bodies" in his hand, but his heart could not calm down for a long time and he was in shock.

"What a masterpiece! I have never seen such a shocking science fiction novel! I can't even describe the presentation of the world and the portrayal of human nature in words! This is definitely a masterpiece, and it will definitely become a world-famous masterpiece in a few years, and will be placed alongside the works of those great writers!"

The first part of The Three-Body Problem, Past Events on Earth, is indeed very much in line with the tastes of Europeans and Americans. No wonder Thomas felt so astonished after reading the novel.

After marveling at it for more than ten minutes, Thomas gradually calmed down and began to analyze this work from a business perspective.

"The content of this work is obviously more profound than The Thirst Games, but its sales will definitely not reach the level of The Thirst Games. After all, it involves a lot of physics knowledge, and the threshold for reading is relatively high. But once this book is published, it will definitely be a best-seller, and it even has the potential to hit the top of the bestseller list!"

Thinking of this, a smile appeared on Thomas' face. With these three books, the performance in the second half of the year should be stable.

At this moment, the cell phone suddenly rang. Thomas looked down and saw that it was a call from the Legal Department.

"Someone from the Legal Department, it must be up to no good reason if they come to me!" Thomas sighed helplessly, then picked up the phone.

……

Zhang Wei had a very comfortable summer vacation this year. It was the first time he had such a leisurely vacation since he entered college.

Until I received an email from Thomas saying that the book "The Big Short" had been sued.

At ten o'clock in the evening, Zhang Wei estimated that Thomas on the other side of the earth should have been at work by now, so he called Thomas and asked what had happened.

When the call was connected, the two sides did not exchange pleasantries. Thomas got straight to the point and said, "Zhang, your book The Big Short has been sued in the New York State Court. The one suing us is Bear Stearns Bank!"

"Is it because I wrote in my novel that Bear Stearns was going to go bankrupt? I have already modified the letters and thought I could avoid legal issues, but I didn't expect to be sued anyway!" Zhang Wei said.

"It's just a change of one letter. Any fool would know you're talking about Bear Stearns."

"So what did they sue me for? Infringement? Or slander?" Zhang Wei asked.

"They're suing you for stock price manipulation!" Thomas replied.

"What? Manipulating stock prices? I haven't even opened a stock account in the United States, so how can I be linked to manipulating stock prices?" Zhang Wei looked puzzled.

"Bear Stearns' lawyers believe that your novel implies that Bear Stearns will go bankrupt, which is bound to affect investors' confidence in Bear Stearns and its stock price. Bear Stearns' stock price happened to fall in the last three trading days. They believe this is related to your novel, so you are suspected of manipulating the stock price."

"You can even draw a causal connection? American lawyers are really talented!" Zhang Wei sneered, and then asked, "What does the other party's lawyer want? Compensation?"

“No, they’re asking for The Big Short to be taken down.”

"No, I won't agree!" Zhang Wei flatly refused, and then said: "Your Amazon legal department is not a white-collar worker who doesn't work for a salary! Fight the case for them to the end, and at worst, the lawyer's fees can be deducted from my royalties!"

"Well, I've discussed this with the legal department and I don't think it's necessary!" Thomas said.

"What do you mean by 'not necessary'? Do you want me to admit it?" Zhang Wei asked angrily.

"Zhang, don't worry, let me explain slowly." Thomas paused, then continued, "I have exchanged opinions with the legal department. The other party's lawyers are obviously very smart. They did not directly sue you for infringement or slander because you changed a letter in the book. They cannot win the case with this reason.

So they found this reason to manipulate the stock price, and it would be difficult for us to provide evidence for this reason. Because Bear Stearns knows more about the daily trading volume of Bear Stearns stocks, who is buying and selling, what bad and good news there is, and what impact it will have on the stock price than we do.

Moreover, they can apply to the court for a temporary injunction to prevent the sale of The Big Short before the verdict on the grounds of avoiding stock market fluctuations and protecting investors. In this case, The Big Short will have to be taken off the shelves for a long time in the future. "

Zhang Wei frowned slightly. According to Thomas' description, he was obviously at a disadvantage.

After calming down for a few seconds, Zhang Wei asked, "Thomas, does your Amazon legal department have any good suggestions?"

"Our suggestion is to temporarily remove the product from the shelves and put it back on the shelves after March 2008!" Thomas said.

"Why March 2008?" Zhang Wei asked.

"Because the timeline in your novel ends in March 2008, which is when you predicted that Bear Stearns would go bankrupt."

"You mean, you won't sue me again when Bear Stearns goes bankrupt in March 2008? Thomas, I didn't expect you to trust me so much. I just wrote in my novel that Bear Stearns would go bankrupt, but you really believed it. I am so touched by your trust!"

"Uh, Zhang, you may be overthinking it. I don't believe that Bear Stearns will go bankrupt! It's the fifth largest investment bank in the United States, how could it go bankrupt?" Thomas immediately poured cold water on him, and then continued to explain:
"The legal department's opinion is that since the other party is suing you for stock price manipulation, then wait until the timeline in your novel ends, which is March 2008. What happened after that has nothing to do with your novel, and there is no such thing as stock price manipulation."

"You can think of this method. It seems that your legal affairs are quite capable!"

Thomas continued: "At present, the sales of The Big Short are not outstanding. Even if it is removed from the shelves for a year, it will not have a big impact on your income. After discussing with the legal department, I think this is the most cost-effective solution.

Of course, Amazon will also compensate you in other ways. We have reviewed your book "Three Bodies" and it is so well written! It is simply the best science fiction novel I have ever read. We are willing to invest more resources in the promotion of "Three Bodies"! "

Zhang Wei understood. According to Thomas's meaning, the sales of "The Big Short" were average, so it would be better to take it off the shelves temporarily to avoid the trouble of litigation.

Then Amazon will increase its promotion and publicity for "Three Bodies" as compensation to Zhang Wei.

This deal is definitely a good deal!

Anyway, the real momentum of "The Big Short" will have to wait until the subprime mortgage crisis breaks out. By that time, people will find that the predictions in "The Big Short" are all true, and Amazon will definitely rush to print more copies of "The Big Short" without Zhang Wei making any requests.

Therefore, Zhang Wei is getting the powerful publicity of "Three Bodies" for free.

"Okay, Thomas, I agree with your plan. Let's take "The Big Short" off the shelves temporarily!" Zhang Wei agreed without hesitation.

(End of this chapter)