The people of Hong Kong were not stupid. They were all very smart. It was impossible for Soros to speak without thinking. He suddenly accepted an interview with Fortune Magazine and even pointed out that there was a problem with Hong Kong's economy in the interview. This was clearly to directly threaten Hong Kong. He wanted to use his reputation to scare the G currency into collapsing on its own!
All of a sudden, all the elites of Hong Kong were frightened. Some of the elites immediately tried to sell Hong Kong dollars, but they realized that the exchange was not open.
Then, the elites were even more frightened. The government was not going to let them run!
Actually, it was not that they were not allowed to run. It was just that they were closing their doors to rest because of the holidays. These people were really frightened.
On the other side, it was impossible for the relevant departments of Hong Kong to sit and wait for death. In fact, they had long foreseen Soros's problem. After bitterly researching for more than half a year, they finally came up with a rather powerful response.
They believed that as long as this method was used, Soros would immediately be chased back.
Then, what was this magical method?
That was to increase the exchange rate of G currency loans.
They had studied many of Soros's cases and found that his short-selling routine was actually very fixed.
Simply put, he would first borrow the local currency from the bank, then sell these currencies immediately and exchange them for US dollars.
Next, he would use various information and methods to suppress the exchange rate of the currency. In the end, when the exchange rate dropped a lot, he would exchange the US dollars for the local currency and return it to the bank that he borrowed the money from.
This way, he would be able to earn a lot of US dollars as the middle profit.
Therefore, the relevant departments of Hong Kong were pleasantly surprised to find that as long as they raised the interest rate and made it unprofitable for Soros to borrow money, it would be fine.
To put it simply, assuming that before the interest rate was adjusted, Soros wanted to borrow from Hong Kong's bank for three months, a total of one billion GB, and he would need to pay 5% interest as the bank's income from borrowing money. Then, when the three months were up, Soros would need to return 10.5 billion GB to the bank when he returned the money.
In other words, Soros's short-selling of Hong Kong's profits had to exceed 500 million GB in order to be profitable.
However, after the relevant departments decided to raise the interest rate, for example, from 5% to 20%, then Soros would have to return 12 billion GB to the bank. In other words, he would have to earn at least 2 billion GB in profits in order to be profitable.
In this way, it would be much more difficult for Soros to make a profit. Moreover, the profits would be greatly reduced. If the various operating costs and labor costs were factored in, this business would become unprofitable.
Therefore, as long as Soros was smart enough, he would give up on his own when he saw that Hong Kong had raised the lending rate.
Not to mention, this time, the relevant departments of Hong Kong were going all out. They directly increased the interest rate from 5% to 30%, increasing it by six times. In the eyes of the people in these departments, Soros had decided not to mess with Hong Kong this time. He was here to lose money!
Needless to say, the effect was quite good. For a time, no one would go to the bank to borrow money. And if they couldn't borrow money, there would naturally be no suppression of the exchange rate. Everything was so perfect.
As for Hong Kong's society and elites, when they saw that the relevant organizations had responded so quickly, they were somewhat relieved. It seemed that Soros's calamity had passed just like that.
However, after being happy for a week or two, some people realized that something was wrong. XG's stock market began to decline quite a bit.
Then, several companies had to declare bankruptcy because of financial problems.
This caused Hong Kong, which had finally calmed down for a while, to be filled with smoke again.
Hong Kong's relevant organizations began to investigate nervously. They wanted to see if this was Soros's doing. Then, they heaved a sigh of relief because there was no Soros's problem. The decline of the stock market and the bankruptcy of the companies were all normal business problems.
However, the relevant organizations couldn't laugh because the reason why these companies closed down was because they had no money.
This seemed to be very normal. It was natural for companies to close down when they had no money.
However, these companies didn't have to close down.
One had to know that not all companies in the world were like Boss Jia's Daqian, with so much cash flow.
In fact, more than 90% of the companies on the market relied on bank loans to operate. The larger the company, the more so. This was because during the process of expansion, these companies would choose to borrow from the bank in order to pursue speed.
It was unrealistic to earn back all the loans in a short period of time. Therefore, the best way to make up for the loans was to borrow another sum of money and use the funds of the next loan to make up for the fees of the previous loan. Then, the process would be repeated.
I believe that those readers who have a lot of credit cards, who are loyal users of a series of apps such as Spend, Borrow, WeChat Loan, Xiaomi Finance, Jingdong IOU, and so on, must be very familiar with this routine.
These were normal for most companies. As long as the company could maintain its operations and have a certain amount of profit, then these accounts would not be a problem. As long as they could borrow new loans from the bank in time, they could continue to maintain the capital cycle of this Russian matryoshka doll.
Most of the large companies in the world operated like this.
However, these companies never dreamed that the interest of the bank's short-term loans would increase by six times in an instant, from 5% to 30%. This would really take the lives of these companies that relied on loans to survive.
If they borrowed money, the interest was too high. They would definitely not be able to afford it in the future. At that time, they would owe the bank even more.
If they did not borrow, then the previous loan would not be able to be repaid. The company's funds for normal operations would also be empty. The company's account would become cleaner than a beggar's rice bowl.
Faced with such a situation, many companies could not take it anymore. Since they did not want to borrow money and could not afford to pay it back, they could only declare the company bankrupt.
Of course, there were some smarter ones. They would choose to pool all the company's current funds together and then use the excuse of going abroad for an inspection. They would return next week or something and would never return to Hong Kong for the rest of their lives.
If there were only one or two such companies, it would not be a big deal. However, when more than 2% of Hong Kong's companies had similar problems, the stock market would inevitably fall.
Especially when the elites of the stock market knew the reason why a large number of companies had gone bankrupt, and it was impossible for Hong Kong's relevant institutions to withdraw their policies in a short period of time. There would be more companies that would be unable to borrow new loans as their funds expired and had no choice but to run away. The stock market would then fall wildly.
On December 28th, 1997, in just three hours, G shares fell by 3000 points. From a valuation of 15,000 points, it fell directly to 12,000 points.
When the time entered January of 1998, in this brand new year, G shares also ushered in a new low. G shares fell below 10,000 points, which was a record low in nearly five years. In an instant, the entire story was wailing like a tide.
I believe that everyone understood that just like Korea before, Hong Kong had also dug their own grave this time.
What was even more terrifying was that when some people began to carefully study the stock market, they realized that since November, there had been a lot of empty orders in the stock market. They were all buying that Hong Kong stocks would fall. These empty orders added up to a huge amount of nearly 20 billion USD, which was equivalent to one-twentieth of the market value of the entire Hong Kong stock market.
Here, I'll explain what an empty order is. In fact, the operation is the same as the exchange rate. It is that I first borrow a portion of the shares from the institutions that hold the shares and agree to return these shares after three months. Then, I'll give them an interest of about 5%.
After that, they sell it in the market and exchange it for cash.
Then, in the next three months, as long as the stock market fell, then the capital to buy the shares after three months would also fall. In the middle, after deducting the 5% interest, the rest would all be the profits of the empty party.
If the entire stock market could fall by about half, then 20 billion USD of empty orders would be able to earn 10 billion USD of profit. This was pure profit.
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