Chapter 547 Dinosaurs on Wall Street
As early as June 7, Bear Stearns, the fifth largest investment bank in the United States, announced that two of its hedge funds would stop redemptions.
Frightened and confused investors soon discovered that these two Bear Stearns funds held large amounts of securities related to subprime mortgages.
Regarding the move to stop redemptions by two of its hedge funds, a Bear Stearns spokesman also said that this was an action to protect investors because the actual value of the asset is higher than its current market pricing.
“We believe that the fund’s investment portfolio is good and can survive until the market returns to normal. We believe that stopping redemptions will best protect the long-term interests of investors.”
Prior to this, Sowood Capital, a hedge fund that managed $3 billion in Harvard University assets, saw its asset value shrink by nearly half in just one month due to its holdings in subprime mortgage businesses.
But until this moment, Wall Street was still unaware of the coming storm...
On July 19, 2007, the Dow Jones 30 industrial stock averages hit a record high in the New York stock market. Breaking through the 1,400-point mark for the first time.
Up to this time, in the eyes of investors, the "fluctuations" in the real estate market have only affected companies related to the issuance of subprime loans, while other industries are still thriving, with stock prices Continuously rising.
Even senior executives of some investment banks and banks are not aware of how widely involved bonds related to subprime loans will be.
The current situation is like a pustule growing out of the American financial system, but no one has discovered this fact. They only think that the pain in the body only occurs occasionally. It will not cause pain until the pustule is popped and cannot be hidden. People are facing this irreversible deterioration...
Barron, all you need to do is to wait quietly for those pustules to be punctured one by one...
It's just "foreplay" now.
When banks and investment institutions find out that they own so many subprime mortgage bonds, the subprime mortgage crisis is about to officially break out.
As July approaches, secretly, something is changing.
On June 14, the two hedge funds owned by Bear Stearns declared bankruptcy.
Over the next two weeks, the publicly traded triple-B subprime mortgage bond index fell nearly 20%...
Black Swan funds profited handsomely—— It comes from their gambling agreement in CDO bonds and the expected profits from CDS bonds.
“For some time before this, they always used the excuse of ‘systemic failure’ to delay the settlement of bets on our CDO bonds, but in July, those investment banks finally started Take the initiative to find us and prepare to 'have a good talk'..."
On the phone, Phelan O'Neill, the general manager of Black Swan Fund, said this to Barron. This is also a problem encountered by some funds that are currently short-selling the subprime crisis, especially some small funds - they have held short-selling chips for too long and need to make profits to stabilize investor confidence, but for those investment banks Specifically, they believe that the previous decline in subprime mortgage-related bonds can be controlled in the short term, so they continue to use various excuses to delay the settlement of those short-selling products.
But it was not until July that they finally began to face up to this problem and found that if they continued, their losses would become greater and greater - of course, the majority of investment banks who are aware of this are not yet in the majority. These investment banks are already very responsive...
It is so ridiculous that after the bankruptcy of two of Bear Stearns' funds, many investment banks did not even realize the danger.
In the future, people will wonder how they could be so slow - but if you imagine how much business those big investment banks have, their top management cannot have time to confirm every The real situation of a business requires step-by-step bottom-up feedback, but the departments that actually incurred losses often do not report their losses to their superiors at the first opportunity, but instead find ways to cover them up in order to solve them on their own. ...
It is not until they realize that they cannot solve it alone that they can report these losses.
Just like now, some investment banks, including Goldman Sachs Group and Morgan Stanley, have finally felt pain from the tails of their dinosaurs to their heads...
On June 29, that is, when Apple publicly announced On the day IPhone1 was launched, the Black Swan Fund finally received a call from Morgan Stanley. The other party was a senior vice president of Morgan Stanley. He said that Morgan Stanley needed to confirm the current holdings of the Black Swan Fund. Some of them are related to CDO bonds. The gambling contract on securities, and whether the price of CDO in the market is "fair"...
The next day, Goldman Sachs Group also contacted the Black Swan Fund, and their attitude was more straightforward. Goldman Sachs hoped to pay the same fee. Len O'Neill talks about solving them about the gambling agreement, and Goldman Sachs stated that it hopes to purchase some short-selling chips in the hands of the Black Swan Fund - they know that the largest holder of such chips in the market is the Black Swan Fund, this previously unknown "small fund" company".
Goldman Sachs’ attitude also shows that the moment of market reversal has arrived. Goldman Sachs, the fastest-reacting company, is ready to switch lanes - the Global Alpha Fund they manage has emerged on subprime loans. With huge losses, they have decided to switch from betting on the subprime mortgage market to betting on this market as quickly as possible...
In fact, Morgan Stanley is a betting "client" of the Black Swan Fund "Among them, the one who is least willing to admit defeat.
A week before Phelan O'Neill made this call to Barron's, the Black Swan Fund had officially notified Morgan Stanley of the credit default swap product (CDS) they had sold to the Black Swan Fund more than half a year ago. ) has turned favorable for black swan funds.
The value of this batch of CDS has reached US$5 billion. According to the calculation of the Black Swan Fund’s model, Morgan Stanley currently needs to pay US$1.5 billion to the Black Swan Fund. Of course, Morgan Stanley The stalemate can still continue, but when they are notified next time, I am afraid that the amount they need to pay for this CDS bond may exceed US$2 billion, or even US$3 billion...
At the beginning When receiving this notice, Morgan Stanley did not want to believe the result at all. They claimed that the correlation of thousands of 3B-rated bonds in their batch of CDO products was very low, so there was a problem with several bonds. , does not mean they will be worthless.
“According to our model calculations, these CDS bonds have not allowed you to earn that much income, only less than 200 million US dollars at most...”
For Morgan Stanley "Hold on", Black Swan Fund did not explain too much, but told them that this was just a good-faith notice, and perhaps they could wait some more time to confirm the settlement price of the bond.
Time is on the side of the Black Swan Fund. The large amount of short-selling chips in their hands puts the Black Swan Fund in a favorable position, so they are not in a hurry. What is anxious should be the "clients" who bet against them.
Sure enough, a few days later, Morgan Stanley took the initiative to find the Black Swan Fund. At that time, Morgan Stanley already needed to pay the Black Swan Fund $2 billion for this batch of CDS...< br>
(End of this chapter)