Some people might find it strange. Are these bad buyers really able to repay their loans?
Not to mention, they really have the ability. At this time, the real estate industry in the United States was developing rapidly. The price of housing was increasing day by day. In a city, the price of housing could double within a year.
As a result, an even stranger situation occurred. After these poor homebuyers bought their houses through loans, they immediately mortgaged their houses to obtain more loans.
This loan was used to repay the loan for the house, and on the other hand, it was used to squander and enjoy a good life.
Such a business without any capital naturally made countless poor people, even proletarians and homeless people, join the buying army. The whole loan industry was thriving.
It was said that there were two explanations for the subprime crisis. The above was the first one, the explanation of subprime loans. Then, what did the second one mean?
It was very simple. It was a subprime loan that extended from these loans.
Many financial companies and funds were envious when they saw that various lending institutions had made a fortune through subprime loans. However, they didn't have the qualifications to sell loans, so they didn't have access to this market. Everyone on Wall Street felt so uncomfortable that their hearts were burning.
Fortunately, Wall Street never lacked smart people. They quickly found a way to enter the market. That was through subprime financial products.
Those banks that were able to issue loans quickly found one thing. The cash in their banks was almost shining, but there were still a lot of subprime loans coming in.
According to the financial management conditions of any country in the world, banks must first ensure their liquidity. That was to ensure that there was a large amount of untouched funds in the vault for customers who came to withdraw money. This was the most important thing to stabilize the entire banking industry. After all, once customers found that the bank's deposits could not be withdrawn, a sudden wave of bank runs would cause the entire bank to collapse completely.
However, if you let these lending institutions and banks see that they can't do this business, they would feel uncomfortable. Therefore, the geniuses of Wall Street came to the door.
They said that they could package the completed loans into a financial product, which was a wealth management fund, and sell it!
For example, a 20-year subprime loan with an annual interest rate of 5.6%. There was a stable monthly payment. This was an excellent fund project!
The bank would package the loan and sell it to the fund. Then, the bank would receive a large amount of cash. The fund would then raise the price of the loan and sell it to the investors. This way, the investors would receive a large amount of interest every year.
At the same time, because this was a mortgage, and the house was mortgaged there, there would be no situation where no one would buy the house. Therefore, this was indeed a foolproof and highly safe fund product with a very high interest rate!
What do you think? Isn't this routine very familiar?
That's right, this was the same trick Boss Jia had used to sell Daqian VCD players in the Fusang market. Now that many financial institutions had discovered it, they felt as if they had found a treasure. They were all exclaiming that Boss Jia was indeed the God of Management, God of Stories, God of Finance, and God of Games. Only Boss Jia could invent such an awesome financial product!
All of a sudden, financial products like subprime funds swept through the entire financial industry. Countless rich people and investors felt that they had found a good investment that was guaranteed to make profits. After all, it was impossible for the price of houses to fall. This was absolutely impossible!!
Therefore, as soon as these subprime funds were launched, investors would immediately rush to buy them up.
As long as you dare to sell it, I will buy it immediately. In an instant, all the financial institutions made a lot of money. Everyone's face was full of smiles.
However, there was only so many loans available from each lending institution. Very soon, all the loans were sold in the form of subprime funds. Many people who still wanted to sell subprime funds were scratching their heads.
Therefore, these people suddenly had an idea. Since subprime loans could be packaged into subprime funds, then why couldn't subprime funds be packaged again and become subprime funds?!
Yes, there was no such thing as subprime funds. No matter how many subprime loans were subprime funds, they were still subprime funds. Many investors did not care so much. When they saw subprime funds, their instincts were to make money. The annual rate of return was very high. Therefore, they bought them like crazy.
In the craziest year of 2006, some loans were even packaged and sold five or six times. In other words, one layer after another, new financial products were constantly derived. It was like cabbage.
At the financial conference on Wall Street, countless big shots touted this as the world's greatest financial product. This was the world's greatest financial innovation. This was the United States' dream. Only the United States could have such intelligent financial innovation. It could turn countless poor people into rich people with houses overnight. It could make countless rich people even richer.
Later, someone did statistics. Through these financial innovations, the output of the United States' financial industry increased by tens of trillions of dollars in a few years. It was even more than the budget deficit of the United States.
It seemed very awesome to outsiders. As expected of the people of the United States. However, anyone who was a little calmer would realize that these tens of trillions of dollars of financial products were like rootless trees, duckweed in running water. It was fine on normal days, but once the wind and rain hit, wouldn't it be …
This was the subprime crisis. One could imagine how terrifying the danger would be once such a huge financial plate collapsed.
Some people were aware of the danger, while others were not. Those who were not aware of the danger were naturally happy, and those who were aware of it felt that since they were aware of it, they would definitely run faster than those who were not aware of it. When the time came, they would take the money and run away in advance, and the losses would be borne by the other idiots. How wonderful!
The crisis began at the end of 2006. This year, the annual increase in housing prices in the United States began to slow down at the end of the year. Many areas stopped increasing their prices. Of course, this was classified as a technical adjustment.
It meant that this was only a temporary adjustment. It would continue to increase in the future.
The entire real estate industry had been rising for more than five years. Everyone believed that this adjustment was only temporary. In 2007, everything would return to normal. No one realized that this was the beginning of a storm.
The first obvious hint of this crisis came in 2007. New Century Financial Company, United States Residential Mortgage Investment Company, and Bear Stearns Bank declared bankruptcy one after another.
Those who were smart enough to realize the risk began to think of running away. However, they did not know that they could not run away.
You've already exceeded your reading limit for today. If you want to read more, please log in.
Login
Select text and click 'Report' to let us know about any bad translation.
