Coquettish Rebirth

What attracted Jia Hongjian's attention?First of all, it is the issue of the two houses. The US subprime mortgage crisis once again showed violent fluctuations in early May.First, the stock prices of Fannie Mae and Freddie Mac fell by nearly 5% within a week. If estimated at the bottom level on May 50, the stock prices of the two companies have fallen by more than 5% from their respective highest closing prices in a year.On May 15, the third largest bank failure in the history of the US banking industry-the US Thrift Administration closed IndyMac, which further severely damaged the confidence of the market.

What is this Freddie Mac?It sounds like a very Chinese institution, but in fact it's just a transliteration - Freddie Mac's English name is freddie-mac, the Federal Home Loan Mortgage Corporation!It sounds like a federal title, it feels like a state-owned enterprise, just like China's State Grid and other institutions!That's right!This Freddie Mac is also the second largest government-sponsored enterprise in the United States, second only to Fannie Mae in business scale. Approved by Congress in 1970, it was established as a means to develop the second mortgage market in the United States and increase home loan ownership and housing loan rental income.As for Fannie Mae, its English name is ae.The full name of the Chinese name translates to Federal National Mortgage Association!Founded in 2, it is the largest "U.S. government-sponsored enterprise", engaged in financial business, and a specialized agency for expanding the flow of funds in the secondary housing consumer market.

Freddie Mac and Fannie Mae appear to be U.S. government-funded organizations, but they are actually privately owned public companies.As "government-sponsored enterprises" created by federal law, they can enjoy special rights, including exemption from paying various federal and state taxes, and enjoy credit support from the US Treasury Department in the amount of 22.5 billion U.S. dollars.The two companies are jointly responsible for establishing the secondary market for real estate loans in the United States, and the total amount of mbs bonds issued by them with real estate as collateral is as high as $4 trillion.They help supplement the supply of collateral funding.And enable homebuyers to obtain financial support.In short, as a private enterprise, they can enjoy the obligations and powers of state-owned enterprises. They can have special rights, and at the same time, they must listen to the government!

The main business of Freddie Mac is to purchase housing mortgage loans from mortgage companies, banks and other lending institutions, and to package and sell some housing mortgage loans to other investors after securitization.The main purpose of Fannie Mae is to revitalize the liquidity of bank assets.Buying mortgage loans from banks and reselling them to other investors is similar to the role of the Federal Reserve.Later, everyone felt that there was only one company in the market and there was no competition, so Freddie Mac was established in 1970, and its main business was almost exactly the same as Fannie Mae.In a sense, the two companies Freddie Mac and Fannie Mae do compete in terms of business model and business philosophy, but more often they poach each other.Basically, people who have worked at Fannie Mae.His next job was at Freddie Mac, and vice versa.For decades, the two companies have been inbreeding, people from one side go there, people from that side come here.Fannie Mae and Freddie Mac are the main sources of funding for housing mortgage loans in the United States. The total housing mortgage loans handled are about 5 trillion US dollars, accounting for almost half of the total housing mortgage loans in the United States.

Affected by the US subprime mortgage crisis, the US real estate mortgage giant Freddie Mac was in a loss of US$2007 billion in May 5!While market conditions are rapidly deteriorating.The quick response of policy makers including the U.S. Treasury Department and the Federal Reserve also surprised the market.The U.S. Treasury Department said it took actions to ensure "liquidity guarantees" and "empower the Treasury Department to temporarily purchase the shares of the two companies if necessary."This effectively provides an "implied guarantee" of the two companies.The Fed opened its discount window to both companies.At the same time, the SEC exercised emergency powers to stop "naked short selling" because "there is now a substantial threat of sudden and excessive volatility in security prices that is widespread and of disruption to the operation of securities markets that could threaten a fair and orderly market." The stocks of the two companies, as well as the Fed's primary dealer, also took action "to prevent the deliberate dissemination of false information that attempts to manipulate the prices of securities."

thereafter.It is widely speculated in the industry that it is more likely that the US Congress will pass the "two room" rescue plan.On the 23rd, the U.S. House of Representatives voted to pass the housing assistance bill that includes the relief measures of the "two rooms and two rooms".According to the bill, the U.S. Treasury Department will be able to provide sufficient credit to the two institutions and, if necessary, contribute to the purchase of their stock.Together, the two institutions hold or guarantee residential mortgages of about $5.3 trillion.It accounts for nearly half of all U.S. home mortgage loans.The U.S. Congress also added some provisions, such as the government spending nearly $40 billion to help businesses that forfeit their mortgages buy back houses.According to Cox, chairman of the US Securities Regulatory Commission, the US Securities Regulatory Commission is preparing to extend the current "short limit order" to the entire securities market, and has begun to formulate rules on restricting short selling of all stocks.

The main function of Fannie Mae and Freddie Mac is to help these financial institutions work capital by purchasing hundreds of billions of mortgage loans from banks, so that they can provide more loans to future home buyers.They do not operate in the subprime sector and only purchase mortgages issued to borrowers who provide sufficient down payments and proof of income.It is worth noting that the "two rooms" are "government-supported enterprises", which means that they can enjoy privileges such as tax exemption and credit support from the Ministry of Finance.As for the root cause of the troubles of the two companies, it can be said that on the one hand, the real estate bubble in the United States is too serious, and on the other hand, the financial leverage of the two companies is too high.What makes the problem even more complicated is that, in addition to the traditional business of acquiring loans and issuing MBS, the "F&F" began to purchase MBS issued by other private financial institutions, and earn the interest difference between their own capital cost and the purchased MBS.After the outbreak of the subprime mortgage crisis, due to the increase in the default rate of the loan portfolio held by itself and the decline in the market value of MBS issued by other institutions, the "two rooms" began to show more and more losses on their books.

If the bond ratings of the "two rooms" are downgraded and the market value falls, the market value of institutional bonds in the asset portfolios of relevant Chinese institutions will also decline.If the U.S. spends a huge amount of money on rescue, the bonds of the two companies can maintain a high credit rating, but the U.S. fiscal deficit will increase, and the national debt rating may decline, because Chinese financial institutions hold a larger scale of U.S. treasury bonds.The impact on the asset portfolios of Chinese financial institutions may be even greater.At the level of the real economy, the "two houses" incident may make the recession in the US real estate market more serious and last longer, which will affect the US economy, import demand, and then affect the Chinese economy!It can be said that the subprime mortgage crisis in the United States, at such a time, really began to show its ferocious face like a huge monster.That is really possible to bring irrelevant other families closer to the abyss at any time!

A few days later, JPMorgan Chase announced the acquisition of Bear Stearns, the fifth largest investment bank in the United States, for US$2.4 million, which became another "extraordinary" news in the US subprime mortgage crisis.Why is a well-known investment bank with $5000 billion in assets sold at such a low price?According to expert analysis, because "now no one knows what is in Bear Stearns' assets, how much they are worth, and no one even knows how much they may lose in the end." That's right!No one knows exactly what happened to Bear Stearns, but it was bought because no one knew!Otherwise, it might break down and do more harm!This is the kind of concept that belongs to too big to fail!If JPMorgan Chase does not "shoot", Bear Stearns will collapse, which will trigger a financial collapse that cannot be contained.At the same time, it also makes people alert.Why doesn't the United States sell any bank, even if it is full of crises, to others at a low price?

It is a huge black hole in itself, one after another vortex, catching and blurring, even the people in the vortex don't know the details, how much loss is caused by the subprime mortgage crisis?How many investment banks and financial institutions bought how many subprime mortgage derivatives?How did the subprime mortgage crisis affect the global economy?How did the United States smooth out the subprime mortgage crisis?When will the subprime mortgage crisis bottom out? ... It is naturally more difficult for people to find definite answers to these questions.This is the terrible thing about the subprime mortgage crisis.What I can definitely feel now is that this financial turmoil is a typical "American crisis": something happened to the highly intelligent people operating in the extraordinary, virtual dreamlike modern economy, and the United States is in crisis.Other countries can't escape either, because the subprime debt has already involved everyone.Now you all have to save me, and to save me is to save yourselves.

The American dream brings the arrogance of financial innovation, the credit of the global economic engine, the expectation of high returns, and the weirdness of the virtual economic world.Leading people who are half asleep and half awake, when they wake up, the real economy of the world has been shrouded in shadow.Perhaps, such an approach in the United States is deliberately doing it badly, just to prevent others from having a good life when they are unlucky?Just to drag everyone into the water together.So that everyone must save the United States in order to save themselves?No one knows about this, but at least now it seems that there may be such a little conspiracy!

If only the subprime mortgage companies in the United States have problems, it will not necessarily lead to a subprime mortgage crisis that will affect the overall financial situation, because the scale of the subprime mortgage itself can be determined.According to statistics from the International Monetary Fund, US subprime mortgages account for 14.1% of the total real estate loans in the United States, about 1.1 trillion to 1.2 trillion US dollars, and the bad debts, according to Goldman Sachs, are 4000 billion US dollars. In 2006, with a gdp of $15 trillion in the US, a certain danger wasn't that dire.The reason why subprime mortgages led to a crisis is because subprime mortgages have already been magnified into subprime bonds through the US financial innovation tool-asset securitization, and have spread to the entire financial sector of the United States and even the world.

Mortgage companies in the United States obviously know that behind the high returns of subprime mortgages are high risks. They not only need to guard against risks, but also need to find new sources of continuous expansion of their own funds to "seize opportunities" to support larger-scale lending to obtain more market returns.Some financial institutions with "financial innovation" tools just created opportunities for them: integrate and "package" individual subprime mortgages, make them into bonds with various names, give quite attractive fixed income, and then sell them go out.As a result, banks, asset management companies, hedge funds, insurance companies, pension funds and other financial institutions, faced with such "stable and high-return products", naturally brightened their eyes and had the urge to donate generously. A steady stream of new sources of financing created new, fast-growing subprime mortgages.

These bonds were originally developed from some low-quality assets, and "financial innovation" enabled these low-quality assets to obtain a high-grade AAA rating through credit rating companies, and appeared in the bond market with a glamorous appearance.At the time, they did have an extra allure—high returns.Under great interest, there must be those who wish.It is such high returns that attract investors, such as hedge funds.The investment bank Bear Stearns bought the equity products of these subordinated debts! (To be continued..)