Chapter 493 Losing Paulson
“According to our investigation, John Paulson’s Paulson Hedge Fund has raised some funds, initially as much as $150 million, in July. Short selling on CDOs has begun..."
Phelan O'Neill, CEO of Black Swan Fund, said to Barron's:
"This also means that he holds the same view as us. It’s just that he entered the market earlier. The U.S. real estate market is still booming, and there are no signs of imminent recession, so until now, Paulson’s hedge fund has been losing money on it.”
The scale of the Black Swan Fund has increased from the initial investment of US$50 million by IC Capital and Blue Valley Capital to a total of US$100 million. After the two companies each added an additional US$2 billion of capital, it has exceeded US$4 billion. ……
In fact, up to now, the assets they control have exceeded 5 billion US dollars, because after the initial investment of these funds into real estate-related debt and stocks, as well as the related financial loan industry, they have already invested nearly 10 billion dollars during this period. Billions of dollars in paper profits.
Just like the Paulson hedge fund strategy, it uses a complex fund operation model to short-sell subprime loan-related debt CDOs while acquiring subprime loan insurance debt CDS which are very cheap at this time...
Prior to this, the Black Swan Fund was bullish on CDOs. Therefore, unlike the Paulson Hedge Fund, which has continued to lose money, they have made profits on the opposite side.
The CDO and CDS they mentioned are two types of bonds related to subprime loans, which are also the main reasons for the formation of the subprime mortgage crisis.
It will be very troublesome to explain this. To explain in simpler terms, in the United States, home purchase loans are divided into several grades based on the qualifications of the lender, and some lenders do not have the qualifications. Well, then you can only use subprime loans with higher interest rates - therefore, the borrowers of subprime loans have lower credit ratings and the corresponding risks will be higher.
But at the same time, banks and lending institutions are not willing to take too high risks, so what should we do? Of course, it is to use Wall Street's core technology - claims under various names to offset risks, or transfer risks.
Just like when DS Capital acquired O2 Telecom, it provided 5 billion pounds of high-interest financing to Barclays Bank and Goldman Sachs Group. At that time, these two banks used most of the loans to issue Under their joint operation, the underlying bonds are sold, and this bond can even be rated as a higher buy and has an interest rate that is much higher than the market, so it is very popular.
The same is true in the subprime loan market. Wall Street financial institutions, including investment banks such as Goldman Sachs and Morgan Stanley, used those high-interest subprime loans as collateral to issue a bond called CDOs even used financial innovation to combine originally high-risk subprime loan claims with some low-risk, high-credit bonds, and through certain means, improved the ratings of such CDO claims.
In the eyes of some uninformed investors, CDO is simply the best investment product with a high credit rating and high interest rates. What are you waiting for? Buy it now.
As for CDS claims, it can be understood as the risk hedging of CDO claims, which is the insurance purchased for those subprime loans, just like if earthquakes occur frequently in your location, then you will insure your house and The willingness to buy property insurance is high. If there has never been an earthquake in your place, then I am afraid that almost everyone will not think of spending money to buy earthquake-related insurance.
Therefore, if the real estate market continues to prosper, then housing prices will continue to rise, then the price of CDO will continue to rise, while the price of CDS will fall.
On the contrary, the price of CDO will fall and the price of CDS will rise - because if house prices fall, those home buyers who take out subprime loans at high interest rates are likely to be unable to repay their loans and thus cease supply.
Why is this happening?
Because of the current hot real estate market, too many people are buying houses, and more than just one - because house prices continue to rise, and it is too easy to obtain loans. At the hottest moment of real estate, even if In the UK, the loan ratio can reach 120%. That is, if you buy a house with a price of 1 million pounds, the bank dares to lend you 1.2 million pounds!
What’s more, in the United States, many people in such a crazy atmosphere buy houses with revolving loans. They buy a house, then go to the bank to borrow more funds, buy a house again, and then take out another loan. ……
As long as housing prices continue to rise, this method is equivalent to applying leverage and can obtain returns several times or even ten times.
It's like Phelan O'Neal told Barron something, that is, after he came to the United States, he went to a dancers club - well, it's the kind you think of, but don't think too much about it , Phelan O'Neill went to do research... During the chat, he found that even a dancer in this club said that he had bought five houses... all with loans!
This shows how hot the real estate market in the United States is now, or how dangerous it is.
Although Barron knew that the subprime mortgage crisis would not take shape until nearly the end of this year, after all, he was deeply involved in it, so in order to To prevent changes, the Black Swan Foundation began to gradually withdraw from its long positions in real estate and financial markets next month, and instead began to do what Paulson Hedge Fund is doing now-short CDO debt, and began Buy CDS debt.
At that time, we will inevitably need to make bets with those big investment banks...
...
"How are you feeling lately, honey."
Barron is in New York and He didn't stay long and soon went to Los Angeles. In the Flower of Leith Manor, he met Fan Bingbing who was still staying here.
“It’s pretty good. Although it’s a little visible now, I feel fine. I don’t have much pregnancy reaction. I just wasn’t used to eating Western food before, but it’s much better after I changed to a Chinese chef. ”
Fan Bingbing is now more than three months pregnant, and her belly is slightly bulging, but wearing a slightly wider skirt, it is not too obvious.
While Barron was away, Fan’s mother took the time to come here and stay with Fan Bingbing for two weeks.
Fan Bingbing also told her parents about the matter between Fan Bingbing and Barron. Although at the beginning, she was prepared to give birth to a child for a "foreigner" without any respect for her daughter. Her parents still couldn't accept it, but Fan Bingbing had always had his own ideas. Seeing their daughter's persistence, they finally had to accept it.
Before this, Mrs. Fan and the others also checked information about Barron and knew that he was a British Duke and was very rich, ranking fourth on the world's richest list.
But in the end, I didn’t have much feelings about these. After all, Fan Bingbing’s family has always been relatively wealthy. There is no doubt about this. After all, in that era, she could always provide for her to study art. The school, let alone being wealthy, is certainly much richer than the average person.
It wasn't until Fan's mother came to Los Angeles that she entered the Flower of Leith Manor and looked at this huge and gorgeous manor that she had never seen before, as well as Fan Bingbing's life at this time - there were more than 100 people living in the manor every day. 15 personnel of various types, including maids, chefs, medical teams, bodyguards, drivers, etc., are all serving Fan Bingbing alone. It can be said that he is receiving comprehensive care.
And these were all purchased and arranged by His Highness the Duke at will.
At this time, Fan’s mother had a deeper understanding of Barron’s status.
Now that she sees that her daughter is taken care of so well and that Barron has given her solid protection, she can finally slowly begin to accept Fan Bingbing's choice.
(End of this chapter)