Too big to fail refers to the fact that a financial institution is so big that its bankruptcy will bring about a chain reaction of other financial institutions, which will be transmitted to the entire real economy and have a huge negative impact on the entire economy and society. Therefore, it cannot fail. The whole story line is to restore the 2008 financial crisis, the crisis events that occurred in the financial institutions represented by Lehman Brothers and AIG in the United States, and the process of the US government represented by the US Treasury Department in handling the financial crisis. The United States has always been the most market-oriented economy, but in the financial crisis, the government first rescued Bear Stearns. The market thought this was the first and last time. During the corporate crisis, the U.S. government chose to nationalize the two major real estate companies, while Lehman Brothers was not so lucky. On the one hand, it was due to its poor financial situation related to real estate, and on the other hand, it did not want the government to intervene. US Treasury Secretary Paulson chose to solve the problem of Lehman Brothers by looking for non-government fund mergers and acquisitions. The chairman of Lehman Brothers first refused to accept Buffett's offer, and then he was unwilling to divest real estate-related assets. When the chain fell, Paulson could only choose to let Lehman Brothers go bankrupt. The bankruptcy of Lehman was only the first step. Next, it was discovered that AIG had several trillions of CDSs in credit loans. If market sentiment deteriorated further and these CDSs were not repaid, AIG would inevitably go bankrupt, and the related banks would go bankrupt. It will suffer a devastating blow, and taxpayers’ pensions will suffer heavy losses. Modern economy and finance is a credit economy, and the financial and economic relationships are inextricably linked. Once a systemic risk occurs in the financial system, it will immediately be transmitted to the real economy and the world economy. The globalization of finance will affect the entire global economy, or even a global economic recession. Therefore, the situation before US Treasury Secretary Paulson is extremely severe. He proposed a rescue plan of 700 billion yuan and wanted to purchase non-performing assets through government funding. Although Paulson emphasized the severity of the situation at the time, the bailout plan was still not approved by the US Congress. The Paulson team had to think of other methods and finally chose to inject 125 billion into the nine major US banks. In this way, Paulson’s move is to cover those banks with poor asset quality, because injecting a few troubled banks alone is to directly tell the market that these banks’ asset conditions are worrying. In the end, under the persuasion of Paulson’s team, the assets in good condition Banks also chose to accept capital injection from the government, the US financial system was able to stop the bleeding, and the credit crisis did not spread, which provided an important foundation for the subsequent recovery of the US economy and the recovery of the global economy.
I was impressed by two scenes in the play. One was the blind self-confidence of Dick, chairman of Lehman Brothers, who still believed that the real estate market would get better when the real estate bubble had burst. Dick could not adjust his expectations in time according to the status quo. He thought that Lehman Brothers was still worth $66 per share, which made him lose financial help from Buffett and Koreans one after another, and until the eve of bankruptcy, he still had the illusion that the government would not give up Lehman. Dick's blind confidence and inability to recognize the status quo led to The immediate cause of Lehman's bankruptcy. Second, Paulson mentioned that the cornerstone of the modern economic society and financial system is credit. This is an era of excessive pre-consumption, giving people who lack the ability to repay the loan the opportunity to consume excessively, leading to the subprime mortgage crisis, and the traditional profitability of commercial banks. The model is short-term borrowing and long-term lending, which has the risk of maturity mismatch. When all depositors come to withdraw all their deposits on the same day, any bank will go bankrupt. This is the risk of running, and credit is to maintain the operation of the financial system. cornerstone.
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