Chapter 703 Credit Default Swap
Xu Liang looked at Zheng Yunfei with some admiration, a big cow is a big cow.
This analysis is very close to the truth, but he still underestimates the madness of Wall Street.
He remembered that the size of US subprime mortgages in the previous life was US$2 trillion.
Three times as much as it is now.
"Then can we short these subprime mortgages?" Qiu Heng asked.
“No.”
Zheng Yunfei shook his head.
“To short stocks and bonds, you first have to borrow those stocks and bonds, and these mortgage bonds cannot be borrowed.
You can buy or not buy, but you can’t Use them to gamble
This is the rule of the game now. ”
What a zero-sum game, it’s so crazy.
“That is to say, if I want to buy 10 billion US dollars, I only need to pay 12 million US dollars in insurance premiums a year. That’s what it means. ? ”
If you get $100 million, the unlucky guy who sold you the credit default swap product will lose $100 million.
He is an MBA master, and he has studied in all Among all knowledge, the most core financial knowledge is risk control
Look at the name on the paper.
So, they can make huge profits. "
Knowing the subprime mortgage crisis, of course we also know about 'credit default swaps'.
The success of American International Group has attracted many imitators.
"In the beginning Yes, but now credit default swaps have become speculative products. Those reinsurance companies are just dying to have money sent to them, so they don't need it at all. ”
Xu Liang nodded, picked up the pen and paper next to him, and started writing.
After all, in the past century, there has never been a large-scale mortgage default in the United States, so subprime mortgages backed by mortgages are very safe products in the eyes of insurance giants. ”
“Is there any company willing to take such a high risk? "Qiu Heng couldn't help but said.
They are basically the top giants in the American financial industry and real estate industry.
Merrill Lynch, Citibank, Wachovia, Lehman Brothers, Bear Stearns, Freddie Mac, Fannie Mae, Washington Mutual, IndyMac Bank
What you may lose is the chips you put on the table, but if you bet correctly, you will get 30 times, 40 times, or even 50 times the capital gain. ”
This is a zero-sum bet.
“Credit default swaps.
Xu Liang asked with a smile.
Hand it to Zheng Yunfei.
This is also an asymmetric bet, just like roulette.
Including the Financial Products Department of Zurich Reinsurance Company, the Financial Products Department of Swiss Reinsurance Company, the Financial Products Department of Credit Suisse Group, and the Financial Products Department of General Reinsurance Company.
Xu Liang’s eyes lit up.
A credit default swap is an insurance policy, mainly on corporate bonds, with premiums paid semi-annually and fixed terms.
“Of course there are companies willing, and there are many.
"You have to try this to know. But I think there is a high probability that they will sell it.
But he is not very clear about the rules of the game.
"The bonds of these companies are in credit default How much does it cost for a swap? "
They are all world-class insurance giants.
"Of course, although it cannot go short, if the company wants to bet on subprime mortgages, it is not impossible. ”
"If I want to buy credit default swaps against these companies, do I need to buy these corporate bonds?"
The most famous of them is the world's largest insurance giant 'American International Group', which sells credit Default swaps have maintained amazing profits for 15 years.
If General Electric defaults on its debt repayments within the next 10 years, causing bondholders to receive nothing, you can get $100 million.
Up to now, the Financial Products Department of the American National Group can earn a net profit of US$300 million a year by selling corporate credit default swaps, accounting for 15% of the annual net profit of the American National Group.
Xu Liang couldn't help but ask: "If we come to them, will they sell us credit default swaps on subprime mortgage bonds?"
At $200,000 per year for ten years, the maximum amount you can lose is $2 million.
“What method?”
“Yes.”
“Mr. Xu, the corporate bonds of these companies are all 3A-rated. If we want to buy their credit For default swaps, according to AIG’s rate, it is only 0.12%.”
After finishing speaking, Zheng Yunfei continued after looking at Xu Liang.
In fact, it is unlikely that a large number of investment-grade companies belonging to different countries and industries will default on their debts at the same time.
For example, you could pay $200,000 per year to purchase a 10-year credit default swap on $100 million of General Electric bonds.
"Lao Xia, let the investment department purchase corporate bond default swap products from the world's top reinsurance companies through Capital Today and other shell companies under our name.
Remember , I can only buy the corporate bonds of the company on my paper."
After Xia Changsheng nodded, "Mr. Xu, how much do we want to buy?"
"There is no upper limit, you can buy as much as you want."
"I understand."
Xu Liang was moved, took the paper just now, and wrote General Motors and Chrysler Motors Go up.
After thinking for a while and not remembering any other companies, he handed the list to Xia Changsheng.
“Mr. Xu, are we still short on that sub-prime housing loan?”
Zheng Yunfei asked.
"Hongyan is not the time yet, Hanhua can start now."
Xu Liang turned his head, "Qiu Heng, how many subordinated debts does Pacific No. 2 Fund hold now? ?”
“Currently holding 79 billion U.S. dollars”
Xu Liang frowned, “That’s already so much?”
"In fact, we still have more than half of the money that we haven't spent yet," Qiu Heng said. Pacific Fund has 4 hedge funds.
No. 1, No. 3 and No. 4 each manage US$10 billion.
No. 1 is long Hua Xia Coin.
No. 3 invests in U.S. real estate subordinated debt.
No. 4 invests in luxury goods companies such as Chanel, Kering, and Richemont, as well as equity and corporate bonds in financial institutions such as Merrill Lynch, Lehman, Bear Stearns, and HSBC.
As for the fastest-growing Internet company equity and corporate bonds, Xu Liang has already obtained them and can only choose other investment targets.
No. 2 Fund manages US$15 billion to invest in five major futures categories: oil, iron ore, copper concentrate, gold and silver.
Leverage has been used five times, and after leveraging US$75 billion into the market, the current position value has exceeded US$140 billion.
The most profitable thing is oil.
When Fund No. 4 re-entered the crude oil market in June 2003, the price of oil was still around US$35 per barrel.
As a result, it has now exceeded 55 US dollars per barrel, almost doubling.
This alone increased the income of Fund No. 4 by US$22.5 billion.
Iron ore, copper ore, gold and silver are also rising in price against the background of global economic development.
So Fund No. 2 has become the new face of Pacific Fund.
"You have debts of US$79 billion before US$10 billion has been spent?" Xu Liang said.
Qiu Heng continued: "At the beginning, you asked us to buy the lowest-rated real estate subordinated debt.
Now the lowest-rated 3B lending subordinated debt in the United States, the purchase price of US$1 billion is 20 million U.S. dollars.
As long as we spend 200 million U.S. dollars, we can hold 10 billion U.S. dollars of subprime debt.
The worst 3B-rated subprime debt in the U.S. market. The scale is only about US$50 billion, of which we hold US$34.9 billion.”
Hearing this, Xu Liang couldn't help but sigh.
Too cheap.
He didn't expect it to be so cheap.
“B- and 2B-rated subordinated debt, although more expensive than 3B, is still very limited.
We only spent $2.1 billion to have $79 billion in debt .$7.9 billion remains on the books.”
Qiu Heng glanced at Xu Liang and hesitated for a moment.
"Mr. Xu, now we have become the largest holder of junk bonds on Wall Street. Wall Street and even the entire financial industry call us the 'Garbage King'."
Xu Liang smiled. .
Old Gates and others also mentioned this topic to him when they called him.
“Don’t worry about it. When we make money, we’ll see if they can still laugh.”
Qiu Heng nodded. He had previously doubted that these junk bonds could make money.
But after listening to Qiu Yunfei's analysis of the US subprime mortgage market, he became confident.
The 3B-rated subordinated debt they purchased were basically subordinated debt supported by ‘adjustable interest rate mortgages’.
What is adjustable interest rate?
Very simple.
The mortgage interest rate for the first and second years is 5%.
But in the third year it doubled to 11%.
Who holds these mortgages?
People who could not afford to buy a house.
For example, Mexican pickers, black gardeners, Oriental run dogs, etc.
The bank allowed them to accept this type of loan with adjustable interest rates with zero down payment.
Will these people breach the contract?
By the third year, there is a high probability that it will happen.
But the bank said it was not worried.
Because real estate prices are rising across the United States.
Two years later, if the interest rate has doubled and you can’t afford to replace it, it doesn’t matter. Just sign a new variable-rate loan contract with the bank.
Not only will the first house not need to be sold, but the cashed out money may also be able to buy a second house.
I have to say that American capitalists just know how to play.
On the eve of the subprime mortgage crisis.
An ordinary black maid with a monthly salary of no more than 1,000 US dollars actually owns six apartments?
There are many such people.
It’s so outrageous that his mother opened the door to outrageous people. It’s so outrageous.
The 3B-rated subprime mortgages that Hanhua currently owns are junk, but its underlying support is at least the working class.
It is much better than the homeless, beggars, and homeless people who will appear later.
Wait until these people come on stage.
These 3B bonds in his hands will definitely need to be re-rated.
The difference of one level is nearly 10 times the profit.
It’s so profitable.
“79 billion U.S. dollars.”
Xu Liang tapped his fingers on the table rhythmically and pondered for a while.
"We don't want to do default swaps on subprime debt. Find some small and medium-sized hedge funds in the United States and cooperate with them. We invest money in the direction, and they are responsible for the actions.
After making money, two Eight points, we take 80%.”
“Mr. Xu, why? We can make this money ourselves,” Qiu Heng said.
Xu Liang glanced at him.
(End of this chapter)