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Wall Street professionals to explain the reasons for the financial crisis of 2008

In Electronic Infomation Category: R | on January   19, 2011

Now many people are asking: U.S. subprime crisis broke out in the end is how? Caused by the financial crisis, how? Pan Shiyi, I read a blog entitled, "into the center of the economic crisis," he answered many questions, it is worth reading. Also, tell us what is the "CDS" financial products?

Into the center of the economic crisis

- And Wall Street fund manager Permal President IsaacSouede Yixi Tan

We are in the book, the film is often seen on the description of many major historical events, and LT1030CS datasheet and today we are experiencing the history of this great event. The global financial tsunami is a rare big events in our lifetime, then the chance encounter may also small. To further understand the financial crisis caused by the United States and LT1030CS price and I Zhang Xinfei to New York, walked into the Wall Street - the center of the financial crisis, and LT1030CS suppliers and Wall Street fund manager of a famous President of Isaac and his wife had dinner with good sensitivity. Because the time difference, for me, this meal is equivalent to the same breakfast.

Because of the evolution of Wall Street history, there is no detailed knowledge of, nor from the time combing the development and changes over here, Ive been knowing about this financial crisis, however, not the why. Mr. Isaac simply from a historical perspective about the cause of the financial crisis.

1929 in the United States had a huge outbreak of the Great Depression. U.S. government to pass legislation to separate commercial banks and investment banks that they can not do both by the same bank commercial banks, investment banks have done. The purpose of this law is to ensure the safety of commercial banks to depositors and reduce the risk of commercial banks.

1999, the Clinton era, there have been some changes. The end of 1999 I went to Harvard who was the hottest one slogan is "the world changed because of the Internet!", The kind of fanaticism, and now in retrospect I remember so well. We think that times have changed, the industry should be integration between the large commercial banks can do investment banking business, since 1929, completely changed to commercial banks and investment banks completely separate regulations. As a result, financial leverage to get the full play. A former commercial bank leverage ratio is small, a large investment bank leverage ratio. Leverage its own funds equivalent to a multiple of loan funds to start, need to leverage a small payment of the capital, to a large amount of own funds; leverage big need only a very small equity capital to start their own funds to more more money to make money. Commercial banks involved in investment banking business, equal to the great big lever with its own funds, the risk is significantly magnified.

2000 years, or the Clinton era, there is a law in the United States is not very good regulation of credit default swaps, CDS, CDS has become the most popular financial products. Because there is no strong legal regulatory, CDS expansion of the financial products quickly.

Time to the Bush era, especially after the IT bubble burst, in order to find new energy to the U.S. economy to determine the real estate as a new economic growth point. Government to actively support the "two rooms" to 60 times leverage to do mortgage loans to low-income buyers.

2001 to 2006, the U.S. real estate market due to the support of government through mortgage loans, and soon hot up. Development to the year 2007, the Americans and the purchase of mortgage loans has been as large as the U.S. GDP. These through the "two rooms" housing loans to low-income people was not on the money quickly, and this is not on increasing the ratio of money to trigger the subprime crisis.

Time China has also encountered the same problem, the housing as a new economic growth point. Banks and private are constantly innovative new financial products. I remember on CCTV "Dialogue" program started the previous period, China Construction Bank Shanghai Branch in the program recommended by the Banks new product "zero down payment", I have been invited to participate in this program, the United States is engaged in mortgage lending "zero down payment."

The same time, this process also occurred in several things: before the Securities and Exchange Commission (SEC) regulations can only rise when short selling in the stock market can fall short. Changes in the technical aspects of the stock market decline has become the accelerator.

Addition, grew up along with the whole process of the bubble, Greenspans monetary policies continue to cut interest rates above the market very cheap money.

In the chain, the top of the social housing in low-income families, followed by a long list of leverage amplification, CDS, etc. derivatives.

These rare cause of this financial crisis is the reason for the economic crisis and pave the way, with these reasons, there will be todays results. Morgan Stanley

example we look at the results in the formation process. In this process, because the minimum equity capital requirement is reduced, they credit a lot of money, the leverage multiples up to 30 times, that is, the share capital by a dollar to 30 dollars credit loans. The cheap money in the market, the interest rate is very low, only 4% -5%, Morgan Stanleys stock was as high as 80 dollars per share. This can not last long after the bubble burst, Morgan Stanleys stock dropped to $ 8 a share more than their loan interest rates rising from 4-5% to 20%. Meanwhile, Morgan Stanley has bought a lot of CDS. After the financial crisis, first and foremost a mutual distrust between banks, their lending between banks sharply reduced lending between countries and even less. More emphasis on the crisis of confidence in all aspects of the crisis. Financial markets have no money to maintain the environment of this game changed, major crisis came.

In the past 72 hours, as the Government to inject a large amount of money banks, such as the U.S. government has injected 250 billion U.S. dollars, if you press the lever 10 times to reach 2.5 trillion U.S. dollars. While the market fundamentals stabilize, but the banks business tends to be more conservative, back to the traditional banks. The storm will cause any kind of future impact? Now simply be able to see the following:

First, the Banks business localization. No longer believe in others and other countries. Chinas influence on us is that future development on their own, others that are not on the;

Second, the Government to strengthen supervision of financial institutions. The financial crisis is triggered by the sub-prime buyers. Some people in the Chinese real estate sector continue to innovate, such as: "Paul rental sales", "no reason to check out" and "zero down payment" are not likely to evolve into regulated financial products. Fortunately Americans in China is far from engaging such a large;

Third, financial products tend to simplify complex derivative products have no market;

Fourth, the mathematical model does not believe, and also believe that his brain;

Fifth, the new invention is no longer fashionable, human experience becomes important;

Sixth, the transparency of the market is more important.

The mentality of people now on the market are the cash is king, but soon to stimulate the economy, the Government has been cutting interest rates, there will be relatively high inflation, cash will be worthless. Such as the U.S. Federal Reserve Chairman Ben Bernanke, will be on his way to punish the people with cash, such as 90 days interest on the national debt is essentially zero, and have a 3-4% inflation, the real interest rate is negative.


"CDS" What is the product?

One, certificates of deposit (CDS)

Certificates of deposit (CertificatesofDeposit) stands, CDs.

Certificates of deposit (CDs) is a relatively low risk and easily converted into cash investments.

Certificates of deposit, savings accounts generally offer higher than average interest. Unlike other investments, certificates of deposit is the first of thousands of federal deposit insurance. Generally, when investors buy CD, investors to invest in a fixed amount, fixed period of time (six months, one year, five years or longer), due in certificates of deposit, the bank will pay the investors principal plus interest. Certificates of deposit, but if investors want to back the principal before maturity, investors may have to pay the fine or give up part of the interest income.

Like many other products, now CDs have become more complex. Investors can now choose to have changed the interest rate CDs, long-term CDs, and other special properties have CDs. Some long-term, high interest rates of CDs have been "back" feature. That is the issuing bank may choose at any time for the CD expires. Only the issuing bank rather than investors can do so. For example, when interest rates fall banks due to high interest rates of CDs. However, if the investors to invest in long-term CD, and then interest rates rise, investors will be locked in low interest rate.

Second, the credit default swaps (swap) (CDS)

Credit default swaps (CreditDefaultSwap, CDS) is the worlds most widely used OTC trading of credit derivatives. ISDA (International Swaps and Derivatives Association) was founded in 1998, a standardized credit default swaps, after which, CDS trading has been rapid development. The emergence of credit default swaps to solve the credit risk of liquidity problems, making the market risk, credit risk is the same as trading, and thus transfer of security risk, but also reduce the scale of the difficulty and cost of issuing bonds.

In the CDS contract, CDS CDS seller to the buyer to pay a periodic fee, the cost is generally based on the nominal value of the fixed point with that. If the credit does not appear the main event of default, the CDS seller does not have any cash outflow; and once the main event of default of credit, CDS seller is obligated to compensate in cash, bond amount and the default value of the bond after the incident, the difference between the face value or purchasing CDS bonds held by the buyer. CDS seller may be the lead underwriter or other third party to serve as commercial banks, and can be in the interbank market or other markets for CDS transactions, which transfer their own security risks.

The introduction of corporate bond issuance in the credit default swap, you can achieve business, CDS buyers, sellers win the three parties. For businesses, through the issuance of corporate bonds with a CDS, not only can reduce the threshold for the issuance of bonds, bank guarantees to get rid of dependence, but also help improve the bonds credit rating and lower financing costs. CDS buyer from the point of view, through the payment of a fee can be achieved effectively avoid the risk of corporate credit, get a stable income. From the CDS seller of view, the corresponding costs by charging the company to realize its benefits, and can be secured through the sale of CDS hedging the risk.

The same time, the introduction of corporate bonds default swap guarantees, help to promote Chinas financial market development and improvement. First, CDS guarantee the transfer of the risk of corporate bonds, lower risk of the banking system, thereby safeguarding the security of bank assets; Secondly, CDS bond products to promote the diversity of our country, enriching the bond market investment products for the market to provide a diversified investment instruments to meet the needs of investors with different risk preferences; again, CDS of innovative financial products for the development of the real meaning of credit products, the market price of the importance of credit risk will play a positive role. The transaction will enable fixed-income products between buyers and sellers of credit risk transfer. In the transaction, CDS buyer by a certain percentage of the nominal value of underlying assets on a regular basis to make payments to the seller until the maturity or a specified event of default has occurred. The seller in the event of default or at maturity to the buyer to pay the face value of underlying assets.

Third, credit default swaps (swap) (CDS)

Credit default swaps CreditDefaultSwap


A transfer counterparty credit risk of fixed income products swap arrangements.

Credit default swaps = Loan default insurance Many terms are deliberately

name scream "tricky" show its profound

Loan default insurance contents:


A: for loans

B: lenders (banks or other financial institution)

C: insurance providers


A loan application to B, B to interest on lending to A, to lend the money out of the total risk (such as A bankrupt, unable to pay interest and principal), then C this time played by the C of B, this risk Insurance commitments to the condition that the B to C to pay a certain annual insurance costs. If bankruptcy occurs if A, then B by the C compensate the losses suffered.

Credit default swap is a new financial derivative products, like insurance contracts. Through this contract, the creditor will sell the debt risk, the contract price is premium. If you buy the credit default swap contracts priced by investors too low, when the sub-prime default rates rise, this "premium" on the rise, along with added value.

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