This article attempts to use some basic concepts to analyze the financial crisis triggered by subprime mortgages.
First of all, I determine two main points.
The first is the law of conservation of resources: that is, within a certain time and space, the total amount of resource distribution is conserved. If you consume more at this time, you will consume less at that time; if you consume more here, you will consume less elsewhere.
Second, if someone wins, someone will lose, because the total amount of resources is constant.
On this basis, let’s look at the basic situation of subprime mortgages:
1. In order to promote prosperity, the US government has liberalized restrictions and allowed citizens to buy houses at a very low threshold.
2. The Americans purchase a house after obtaining a loan from the bank with almost zero down payment, and then use the appreciation of the house to pay the monthly payment.
3. Investment banks combine subprime mortgages with other financial products, sell them to investors, and then purchase loss insurance for these products from insurance companies.
4. The rating agency and economists demonstrated the safety of subprime mortgages and packaged a high-risk financial product into a low-risk, high-yield product.
5. Insurance companies only care about immediate benefits and underwrite subprime financial products.
6. Sovereign funds and pension funds subscribe to subprime financial products to obtain long-term income.
The safety of subprime mortgages is the basic assumption: American real estate prices will continue to rise steadily.
However, according to the law of balance of supply and demand, for products with high demand, the market supply will keep increasing, reaching the balance point of supply and demand, and the balance of supply and demand means the bursting of the demand bubble.
Greed is the driving force of the market. Below we analyze the calculations of all parties from the perspective of interest.
1. The main goal of the government's existence is to maintain the rule, and "home ownership" is one of Bush's campaign slogans. The government allows more people to own real estate to achieve greater popular support.
2. It is difficult for low-income Americans to realize their dream of buying a house, and subprime mortgages make the future within reach. Who can resist this temptation? On the other hand, the lack of education makes it difficult for them to understand the risks involved in complex financial products. Moreover, the government, experts, and institutions all guarantee the safety and reliability of this approach.
3. Due to its high threshold and high monopoly characteristics, investment banks have caused disrespect for customers in this industry. For customer agents, commission is the most important thing. He does not care about customer losses at all, not to mention when customers suffer losses. He can also profit from insurance companies.
4. The rating agencies and economists were supposed to remain neutral, but for their own interests, they finally chose to form an alliance with investment banks.
5. When insurance companies buy insurance for subprime mortgage products, they see the huge benefits in front of them, and they lack a clear understanding of their long-term risks.
6. Sovereign funds and pension funds subscribe to subprime financial products for the same reason as buying U.S. Treasury bonds, for long-term stable returns.
If someone wins and someone loses, then let's look at the wins and losses of all parties in this bet.
1. The U.S. government won votes and approval ratings in the short term, but lost its credit in the long term, causing the dollar to depreciate.
2. Low-income Americans have acquired housing property rights for several years, but just as the poor get a 10% discount on luxury goods, they seem to have earned it on the surface, but once they lose the property you own, the better they were once, the better in the future. The more painful.
3. The difference between an investment bank and a savings bank is that it collects commissions based on the amount of its product transactions, not based on the quality of its services to customers, which inevitably causes it to disrespect the interests of customers. The salary culture of investment banks has further caused bank employees to disrespect the company's interests. Therefore, investment banks have contributed to the occurrence of fraud. The actual situation is: even if the customer suffers losses, the bank makes a profit; even if the bank fails, the salesman makes a profit.
4. Rating agencies and economists have formed de facto alliances with investment banks. This is because although their comments appear to be neutral, the benefits they bring to themselves are uneven: because they are investment banks. Speaking good words can bring more benefits, so they tend to speak good words for the bank.
5. As mentioned earlier, the insurance company won one and lost one.
6. Sovereign funds and pension funds are taking a lot of money. It can be said that they were scammed by the US government, investment banks, and rating agencies. However, in a certain procedure, it can also be said that they are responsible for themselves: because they invested so much money to buy these. Product, but don’t look up the details of this product carefully. Imagine that you heard that there is a casino where everyone makes a profit without losing money. This is what you know, but what you don't know is: every time you gamble, the waiter in the casino charges a tip; every time you lose, the waiter in the casino gets a compensation from the insurance company. So will you still go in and play?
From the perspective of conservation of resources, the future benefits of resources from investors become the current benefits of home buyers and investment banks and their stakeholders. After paying all transaction costs, the two parties agree that part of the appreciation of this luxury item goes to you, but it turns out that this luxury item is not worth the current market price.
There is an implicit factor behind the subprime mortgage crisis: the uneven distribution of global resources.
The US government has chosen to occupy the high ground of technology and finance in the globalization process. These companies and employees have received much more resources than before, but this group of people is after all a minority. However, the competitiveness of a large number of employees in the manufacturing and service industries is not as good as that of emerging economies, so the resources they can obtain are very few. Therefore, Home Ownership is impractical, and the growth data obscures the fact that the growth is uneven. This is one of them.
Sovereign funds and pension funds have a large amount of currency, and the nature of these funds determines that they tend to invest in long-term stable products, or hot products. These hot products further attract more money, thus forming a positive cycle. Where there is a lot of money, bubbles are prone to occur, and the more money, the bigger the bubble. Secondly.
Another hidden factor of the subprime mortgage crisis: the imbalance of financial information.
Investment banks and rating agencies have formed an alliance of interests, but investors have been deceived.
Investors must avoid similar losses in the future. First, they must put pressure on the US government to strengthen the supervision of financial institutions. The second is to set up private institutions to attract financial loophole hunters with huge rewards, and let financial experts serve themselves rather than financial institutions, so that loopholes in financial products can be discovered as early as possible, and then financial companies can be punished.
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