Huayu: From an ordinary person to a happy director

Chapter 108 I did not write the script for The Big Short
Shi Lei was silent for a few minutes and replied: "I need some time to think about it..."

In Hollywood, series are very valuable, not to mention series with box office revenue of over 100 million. If the box office revenue exceeds 100 million, the sales of the film in the disc market will not be bad.

So he wanted to wait until the box office of a few series of films came out, increase the market value, and then sell the shares.

Mike had anticipated this answer. It was normal to consider such an investment for a few months, and it might even take several years.

"Shi, you'd better give a specific answer this year."

"What? Is someone going to deal with Shuimitao Films?" Shi Lei asked with an inquiring look.

"Let me make it clear in advance that it's not Warner that wants to deal with Shuimi Tao, and it's not even Hollywood that wants to deal with Shuimi Tao. Some congressmen have opinions about Shuimi Tao Films." Mike was afraid that Shi Lei would misunderstand, so he first picked Warner out, and then explained: "Some people in Congress are hostile to you, and they can't tolerate you making money in North America."

After a pause, he added: "You also transferred money to the mainland, increasing the mainland's foreign exchange reserves. Some people on Wall Street cannot bear to see the mainland's foreign exchange reserves increase."

Shi Lei narrowed his eyes slightly. It was normal for some congressmen to be hostile to him. There were many people in the leadership of North America who were like this. However, it was a bit puzzling that Wall Street was hostile to him. Shuimitao Film and Television was not a listed company, and he didn't play stocks much. Wall Street hated him not because of his company, but because of the Asian financial crisis in 1997.

This made Shi Lei speechless. Wall Street hated all Chinese companies that could make money!

This is simply an unprovoked disaster!!
"Mike, I promise you that I will give Warner a satisfactory answer this year."

"Okay." Mike smiled with satisfaction.

Huana has invested in Shuimitao Film and Television. As long as the investment is successful, he will definitely be one of the employees of Shuimitao Film and Television, and he will have more opportunities to make money!
Shi Lei smiled back, and the two chatted for a while, then Shi Lei saw Mike off.

As soon as Mike left, Hans from Columbia entered his office. Hans had been waiting for a long time.

Hans's purpose is similar to Mike's, both of them are discussing equity investment. Columbia's appetite is even bigger, as it wants to acquire equity in Taolin Films in mainland China.

Compared with Warner, Sony, which is behind Columbia, is very interested in the mainland.

Regarding the shares of Shuimitao Film and Television, Shi Lei made the same promise as he did to Warner. As for Taolin Film and Television, he of course righteously refused.

He does not plan to list Taolin Film and Television, although he can take control of Taolin Film and Television through some means, but as long as it is listed, the company may become the property of foreign capitalists.

For example, Taobao and Penguin are said to be domestic, but in fact most of their shares are foreign. The two companies make money for foreigners.

Apart from having the name of a domestic company, most of the profits flow out.

If he was a native, he might need to go public to raise funds, but he is a time traveler and he knows that if the TV series or movie is a big hit, the company's profits will only snowball.

Seeing Shi Lei's firm attitude, Hans no longer mentioned the investment in Taolin Film and Television.

After the two chatted for a while, Hans said goodbye and left.

Shi Lei rejected most of the appointments and flew back home directly.

As soon as he returned to China, Shi Lei went to China Film Group Corporation with a script in his arms.

China Film Group, Han Sanpin's office, Shi Lei closed the door and then took out a script mysteriously.

"Who would I care about you? You're so sneaky when taking a script. It doesn't suit your status as a big director." Han Sanpin joked as he took the script.

"Mr. Han, you just need to take a look at this script. Once I leave this door, I will not admit that I wrote the script. I am making a contribution to the country, so please don't harm me!" Shi Lei looked very solemn.

"Hmm?" Seeing Shi Lei so serious, Han Sanpin put away his teasing thoughts and said seriously, "Let me take a look at the script first."

"The Big Short? What a strange name..."

Han Sanpin turned to the second page and continued reading. Just the first page made his expression change. Then his expression became more serious and nervous than Shi Lei. His hands turned the script faster. After reading the entire script, he was in a state of shock.

The movie "The Big Short" tells the story of the subprime mortgage crisis in 08.

This subprime mortgage crisis concerns the country's economic strategy.

Internationally, banks and financial companies have a set of leverage operating methods (refer to a certain loan).

[In order to earn huge profits, many investment banks use 20-30 times leverage. Assuming that Bank A has assets of 30 billion, 30 times leverage is 900 billion.

In other words, Bank A uses its 30 billion assets as collateral to borrow 900 billion for investment. If the investment earns 5%, then A will make a profit of 45 billion. Compared with A's own assets, this is a huge profit of 150%.

On the other hand, if the investment loses 5%, Bank A will lose all of its assets and still owe 15 billion.

CDS contracts (credit default swap) are highly risky due to leverage operations, so according to normal regulations, banks do not engage in such risky operations.

So someone came up with a solution: use leveraged investments as "insurance."

This type of insurance is called CDS. For example, in order to avoid leverage risk, Bank A found institution B.

Institution B could be another bank, or an insurance company, and so on.

A said to B, how about you help me to insure my loan against default? I will pay you insurance premium of 5 million every year for 10 consecutive years, for a total of 5 million. If my investment does not default, then you will get the insurance premium in vain. If there is a default, you have to compensate me.

A thought, if there is no breach of contract, I can earn 45 billion, and if I take out 5 million for insurance, I can still make a net profit of 40 billion.

If there is a breach of contract, there is insurance to compensate, so for A this is a business that can only make money and not lose money.

B was a smart man. He did not immediately accept A's invitation. Instead, he went back and did a statistical analysis and found that the rate of default was less than 1%.

If you do business with 100 companies, you can get a total of 500 billion in insurance money. If one of them defaults, the compensation will be no more than 50 billion. Even if two default, you can still make 400 billion.

Both A and B thought that the deal was in their interest, so they immediately agreed to the deal and everyone was happy.

After CDS market B did this insurance business, C was jealous.

C then went to B and said, how about you sell these 100 CDS contracts to me? I will give you 2 million for each contract, for a total of 200 billion.

B thought, it would take me 500 years to get my 10 billion, but now I can get 200 billion in one transaction, and there is no risk, so why not do it? Therefore, B and C immediately made the deal (which is equivalent to C receiving 500 billion in insurance money (the cost of 200 billion has been paid to Company B) and assuming the insurance liability).

In fact, after C got this batch of CDS, he did not want to wait for 10 years to earn 300 billion, but put it up for sale at a price of 220 billion;
When D saw this product, he did some calculations and found that 500 billion minus 220 billion would leave him with 280 billion to earn. This was the "original stock" and not expensive, so he bought it immediately (which was equivalent to D receiving 280 billion in insurance money and assuming the insurance liability).

After one transaction, C made 20 billion.

In this way, CDS is divided into pieces of CDS, which flow into the financial market like stocks and can even be traded and bought and sold.

Since then, these CDS have been repeatedly speculated in the market, and now the total market value of CDS has reached 62 trillion US dollars.

In terms of profits, A, B, C, D, E, and F are all making a lot of money. Fundamentally speaking, the money they earn comes from the investment of A and investors similar to A. However, no matter how deep the CDS level is, it will always stop. The investors who finally take over the CDS can only wait for the lenders to repay the loans in order to recover their investments. 】

With this set of operations, if the loan default rate remains at around 10% for 1 years, there will be no problem and all investors will be able to recover their investment.

But the key is that this 1% cannot be maintained!

After investing, I realized that this is profitable and profitable quickly.

The key to the creation of CDS is loans, so someone has to take out loans!
As the first-level bank, we have some ideas.

In order to make money, banks will take risks and lend money to people who have insufficient repayment ability (subprime mortgages). Anyway, the risk will be transferred to B, and the bank has no psychological burden.

Banks relaxed loan restrictions, which was the root cause of the subprime mortgage crisis.

The subprime mortgage crisis is closely related to the real estate crisis.

【

Subprime mortgage loan is a kind of loan with low credit and low ability to repay debts, which is in contrast to the terms "high" and "high" and "high".

In North America, loans are a very common phenomenon. Locals rarely buy houses in full and usually take out long-term loans. However, unemployment and re-employment are very common phenomena here.

These people with unstable income or even no income at all are defined as subprime borrowers, or subprime borrowers for short, because their credit rating does not meet the standards for buying a house.

North American subprime mortgage crisis Subprime mortgages are a high-risk, high-return industry that refers to loans provided by some lending institutions to borrowers with poor credit and low income.

The difference between subprime mortgages and traditional standard mortgages is that subprime mortgages do not have high requirements on the borrower's credit history and repayment ability, and the loan interest rate is correspondingly much higher than that of general mortgages.

Those who are denied prime mortgages by banks due to bad credit histories or weak repayment abilities apply for subprime mortgages to purchase homes.

The North American subprime mortgage market usually adopts a repayment method that combines fixed and floating interest rates, that is, home buyers repay the loan at a fixed interest rate in the first few years after purchasing the house, and then repay the loan at a floating interest rate.

These people's financial strength was originally only enough to buy one house of their own, but when they saw the rapid rise in housing prices, they started to think about real estate speculation. They mortgaged their own houses and took out loans to buy investment properties (in order to make money, banks don't care how many houses you own or how many loans you have, the risk is anyway with B).

The interest rate for this type of loan is above 8%-9%, which is difficult for them to afford with their own income. However, they can continue to mortgage their houses to the bank, borrow money to pay the interest, and make money out of nothing (using the appreciation of real estate to offset the loan).

In the five years before 2006, due to the continued prosperity of the North American housing market and the low interest rate level in North America in previous years, the subprime mortgage market in North America developed rapidly.

As the North American housing market cools, especially with the increase in short-term interest rates, subprime mortgage repayment rates have also risen sharply, greatly increasing the repayment burden on home buyers.

At the same time, the continued cooling of the housing market has made it difficult for homebuyers to sell their homes or refinance their mortgages.

This situation directly led to a large number of subprime borrowers being unable to repay their loans on time. Banks repossessed their homes but were unable to sell them at high prices, resulting in large-scale losses and a vicious cycle that ultimately triggered the subprime mortgage crisis.

There are many reasons for the subprime mortgage crisis in North America.

Regarding the occurrence of the North American financial crisis, the general view is that this crisis was mainly caused by the lack of a financial regulatory system. Wall Street speculators took advantage of loopholes in the system, engaged in fraud and deceived the public.

A fundamental cause of this crisis lies in the neoliberal economic policies that have been accelerated in North America over the past three decades.

The reason is that so-called neoliberalism is a set of thoughts that aims to revive traditional liberal ideals and reduce government intervention in the economy and society as its main economic policy goals.

North America's neoliberal economic policies began in the early 80s, against the backdrop of the economic stagflation crisis of the 70s. Their main contents include: reducing government intervention in financial, labor and other markets, cracking down on trade unions, and implementing economic policies that promote consumption and drive high growth through high consumption.

In order to promote economic growth, people are encouraged to spend beyond their means and indulge in crazy consumption.

Liberal economic theory has always attached importance to promoting production and economic development through consumption.

Adam Smith said that "consumption is the only end and purpose of all production."

Schumpeter believed that the capitalist mode of production and consumption "originated from a highly secularized society characterized by urban hedonistic life", that is, they believed that luxury consumption promoted production on the surface.

At the same time, social distribution relations are seriously unbalanced, and the income of the vast middle class is decreasing instead of increasing.

In the past three decades, there has been a very strange phenomenon in North American society. On the one hand, the North American people have been consuming ahead of their time, while on the other hand, their income has been on a downward trend.

According to statistics, after deducting inflation, the average hourly wage in North America is only the same as 35 years ago, and the income of a man in his 30s is 30% lower than that of a man of the same age 12 years ago.

The fruits of economic development have flowed more into the pockets of the rich. Statistics show that the income gap between the rich and the poor in North America has continued to widen over the past few decades.

The North American economy is developing rapidly, but income has not increased, which is closely related to the neoliberal policies since the Reagan administration came to power in the early 80s.

What is worse is that the financial industry is seriously lacking in regulation, which tempts ordinary people to consume ahead of time through borrowing and to speculate in the market. An important part of neoliberalism is deregulation, including financial regulation.

Since the Reagan administration came to power in the early 80s, North America has been promoting financial liberalization and so-called financial innovation by enacting and amending laws to relax restrictions on the financial industry.

For example, in 1982, North America passed the Garn-St. Germain Thrift Institutions Act, which gave thrift institutions similar business scope as banks but was not subject to regulation by the Federal Reserve.

Under the law, savings institutions can buy commercial paper and corporate bonds, make commercial mortgages and consumer loans, and even purchase junk bonds.

In addition, the North American Congress has also passed a number of laws, including the Fair Competition Banking Act of 1987, the Financial Institutions Reform, Revitalization and Implementation Plan of 1989, and the Financial Services Modernization Act of 1999, which completely abolished the basic principles of the North American Banking Act of 1933 (the Glass-Steagall Act) and eliminated the barriers between the banking industry and investment industries such as securities and insurance, thereby opening the door to so-called financial innovation and financial speculation in the financial market.

Against the background of the above-mentioned legal reforms, the speculative atmosphere on Wall Street in North America is becoming increasingly strong.

Especially since the late 90s, as interest rates have continued to fall, the pace of asset securitization and financial derivative product innovation has continued to accelerate. Coupled with the pervasive culture of luxury consumption and blind optimism about future prosperity, it has made it possible for ordinary people to borrow and consume ahead of time.

In particular, the myth that the real estate market will only rise and never fall has induced a large number of consumers who do not have the ability to repay to borrow money through mortgages and pour into the housing market.

The apparent direct cause of the turmoil in the North American subprime mortgage market was the rise in interest rates and the continued cooling of the housing market in North America.

The rise in interest rates has led to increased repayment pressure. Many users with poor credit feel the pressure to repay and are likely to default, which has affected the recovery of bank loans and has had a serious impact on many countries around the world, including China.

Some scholars pointed out that "North America, which should have gone bankrupt long ago technically, owes too much debt to other countries in the world. Creditor countries do not want to see North America go bankrupt, so not only can they not abandon North American debts, but they must even continue to subscribe to more North American debts to ensure that North America does not go bankrupt."

If North America goes bankrupt, other countries’ debts cannot be collected.

This is an alternative form of corporate bankruptcy protection, except that the object of protection is the country, and in order to regain the profits of one's own country, the North American country cannot be allowed to fall.

】

Simply put, the subprime mortgage crisis is a hole that needs to be filled by the whole world, including China.

(End of this chapter)