The director focused more on investment banks, thinking that pension funds and various insurance companies, which are buy-side financial institutions, should be more regulated. If you're an ordinary blue-collar worker, you certainly don't want your pension to be invested in subprime loans. But in fact they did, and there was a serious principal-agent problem. Because the management in charge of financial institutions is linked to the investment income, and the failure of investment does not have to bear the consequences, so excessive pursuit of risk and return, gradually push the entire system to the brink of collapse.
It is also an important reason that legal supervision cannot keep up with the pace of financial innovation. Before Greece entered the euro zone, in order to be able to meet the debt ratio requirements of the agreement. Goldman Sachs designed an exchange rate forward option for the Greek government. Specifically, the Greek government issued 1 billion US dollars of national debt, which was then converted into euros by Goldman Sachs, and the agreement stipulated that it should be returned at a preferential exchange rate after 10 years. In this way, Goldman Sachs lent a loan to Greece in disguise, but because there was no creditor-debt relationship, it was able to get away with accounting. The return that was supposed to be paid to Goldman Sachs in the form of interest was splendidly transformed into consulting fees. In the derivatives space, not only is it difficult for regulators to understand how they are designed, but even financial giants like AIG are unaware of the real risks of CDS. The huge loss of CITIC Australian dollar futures and the huge loss of China Aviation Oil that were exposed in China are just the recurrence of AIG.
The theoretical economics community believes that when commodities are properly priced, information is symmetrical, and competition is full, markets do not need regulation. But this libertarian principle has been oddly referenced in the process of deregulation of the financial industry. In the film, the classic red-skin textbook written by Professor Mishkin mentioned that: based on information asymmetry, adverse selection and moral hazard exist widely in the market. This is precisely why the relatively well-developed stock and bond markets have not become the explosives that detonated the crisis, and there is no arbitrage room for correct pricing. If you want to make someone else's your own, you can only use derivatives that others don't understand to design a trap.
There is a historical record of defaults in the real estate market, and a default expectation can be estimated based on the historical default probability. As long as the expectation is lower than the CDS service fee charged, then AIG is making money. There are many technologies in it, and the general brief description is like this. The long-term prosperity of the United States after the 1990s, the low mortgage default rate, so the pricing of CDS is extremely cheap.
Based on such statistical analysis, and AIG is the largest insurance company in the United States, it is normal for the rating agency to give a high level of CDS. CDO was originally a risk asset, but it became a risk-free asset after being guaranteed by CDS, and it also obtained a high-level rating. Then what? There is no longer, there is arbitrage on mispriced financial assets, and the disappearance of arbitrage is until the market rediscovers the price. Winners succeed, losers are taken over by the government.
HK HSBC sold the Knock Out Discount Accumulator in the domestic market for the wealthy a few years ago. This option is sometimes added to various buybacks and restrictive clauses, and the content is a dozen pages long. When these top-notch investment bank brokers in suits and leather shoes have made you look up, your trust will be lost.
Each of us is greedy, and there is a group of people who use the greed of others to satisfy their own greed. When the victim complains with blood and tears, they will be smart to tell you: it's all legal.
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