The contents of the trillion-dollar crash book

Two people argue about who is better off now. One praised his new car, another praised his plasma TV, and the last one said, "I am better than you, and I owe more than your property!" " "Then another person admits defeat. This joke vividly reflects the subprime mortgage bubble hanging over the United States.

With the turmoil in the financial market, the American economic recession has gradually become a reality. The severe subprime mortgage crisis and credit crisis swept across the country, making it difficult for financial investment institutions and Wall Street. The scope of the subprime mortgage crisis is much larger than expected. Almost all European banks have investment business related to American subprime mortgage, and American subprime mortgage has also been hit by the crisis.

Greenspan was also called "Mr. Bubble" because of the crisis, and thought that the loose monetary policy and weak supervision in his last few years in power laid the groundwork for the current financial crisis and should be responsible for it.

The story of American subprime mortgage crisis can be described as twists and turns. At the beginning of 2007, an unexpected "financial hurricane" swept the Atlantic Ocean. Lending institutions represented by New Century Finance, a famous American mortgage institution, investment banks represented by Merrill Lynch, and financial supermarkets represented by Citigroup and UBS Group AG, which is famous for its global wealth management, have become the direct attractions of this "financial hurricane". At the same time, affected by this "financial hurricane", large and small hedge funds and overseas investors have suffered hurricanes.

The news that many financial institutions reported huge losses has become a hot news in American society for a time. At that time, some people thought it was just a small cold in American finance, while others thought it was a harbinger of a new round of economic crisis.

In the second half of 2007, reports and comments gradually subsided, and people seemed to have forgotten the subprime mortgage incident. However, things have not really passed. At the beginning of 2008, reports on the subprime mortgage crisis once again became the focus of media attention, and constant reports reminded people that the subprime mortgage crisis was still going on. People finally realize that this is by no means a cold to the American economy. God knows what else will happen! The subprime mortgage crisis should not be ignored, including Americans. In order to see the whole event clearly, we should review how this unprecedented "hurricane" was triggered.

The Trillion Dollar Crash was written in this context. On the basis of reviewing the major financial crisis in history, this paper makes a thorough, profound and comprehensive analysis of the current American subprime mortgage crisis and credit crisis, and forecasts the future financial market.

Shocked the troubled financial and investment institutions, Wall Street employees, the real estate industry and related people affected by this crisis. As soon as this book was published, it was rated as the first book to deeply analyze the American financial turmoil, which shocked the whole country.

In the book, the author mentions eight processes that caused billions of dollars in loopholes.

How did the American financial crisis happen? Looking back on The Road to Destruction will tell us that more villains than heroes were thrown into this road in this process.

Look back at 1979- 1982, when Paul Volcker, the chairman of the Federal Reserve, tried his best to reduce consumer inflation in the economy. The difference today is that inflation has been absorbed by real estate, stocks, bonds and office buildings, instead of paying attention to the prices of things you buy in stores. This is what is happening now.

1. The Fed fanned the flames. Disillusionment and the 9/ 1 1 incident awakened the dream, and the Federal Reserve lowered the interest rate to 1%, the lowest since 1958. After the economic growth resumed for a long time, the federal funds rate remained below the inflation rate for about two years. The actual effect is that for banks, excess liquidity has emerged.

2. Financial leverage is too strong and credit is too wide. Fiscal debt, household debt and household prices have all doubled. Big banks have changed their business model, from accepting commissions from customers to directly participating in transactions or gambling with their own loans. In 2007, the total transaction volume of Citigroup, JPMorgan Chase, Goldman Sachs and Merrill Lynch reached $65,438 +0.3 trillion.

Consumers really enjoy their consumption this time. The sharp increase in household consumption has shifted from home to ATMs. In the new millennium, consumers take out more than $4 trillion in net free cash (including financial costs and family investment) from their houses. From 2004 to 2006, this cash was absorbed by more than 7% in disposable personal income. Personal consumption rose sharply from 66% to 67% of GDP in the past to 72% in 2007, which is the highest on record.

4. The dollar storm. The current deficit in the United States exceeded $4.9 trillion from 2000 to the end of 2007, which is almost equivalent to the total value of all oil or consumer goods. (The current amount is more than the trade volume of the United States, including goods, services and capital financing. Economists including Bernanke believe that the global dollar surplus will force the world to spend 10 or 20 years to absorb these dollars. Unfortunately, their views are wrong.

5. The output drops vertically. Cash swept through all risky assets like a torrent. So many people benefit from cheap loans, and the interest rate of riskier mortgage-backed securities is only slightly higher than the safest government bonds and 50% higher than the loans purchased and traded by private equity companies. Take-over funds lend more money to their portfolios, and these portfolio companies come to fund their huge cash dividends.

6. Hedge funds peddle methamphetamine along the street. Drug-addicted investors keep putting money into hedge funds, which get high returns by gambling with borrowed money. In order to maximize the return, hedging has basically strengthened the business of high-risk mortgages such as subprime mortgages, and at the same time focused on the highest-risk bonds, which absorbed the losses in the complex portfolio of low-quality mortgages such as debt-backed bonds (CDOs). The profit from selling stocks mainly comes from risk preference shares, which exceeds the traditional risk aversion of bankers. Before 2006, high-risk loans had become very standardized in the family mortgage loan business.

7. Graded anti-gravity machine. Pension funds generally cannot invest in risky securities as the mainstream level. Therefore, banks and investment banks have created structured bonds with the illusion of security with the acquiescence of hierarchical institutions. Withdrawal of $80 million subordinated debt warrants100000 USD. Subprime loans will not cause losses unless the default rate of the fund exceeds 20%. The rating agency granted the bond an AAA rating; Investors assume that these bonds are equivalent to US Treasury bonds or blue-chip stocks that have been proved to be in default. To their shock, investors all over the world found that when fund defaults began to appear, their subordinated CDO bonds quickly lost their trading value before the actual default.

8. The tricky moment has come. Last summer, all the disguises were suddenly exposed and the market fell wildly. The federal government's response is to invest $65,438+0 trillion in new mortgage loans and authoritative institutions with diversified loans, including the Federal Housing Finance Committee and the Federal Reserve Board, as well as Fannie Mae and Freddie Mac. However, house prices are still falling relentlessly, the signals of recession are constantly spreading, and the prices of risky assets are also falling vertically.