Even in the middle of 2008, Rector Morgan still felt that this was just a subprime mortgage crisis and would not evolve into a crisis in the United States or even the world.
Because in the United States, people who bought houses with loans were still a minority of the population, and most people still did not have a mortgage. Therefore, no matter how dangerous the subprime mortgage crisis was, its killing power and scope should be limited, and it could not cause a huge risk that would affect the entire United States.
However, even someone as strong as Rector Morgan ignored a problem, and that was that this was no longer a subprime mortgage crisis, but a financial crisis. Because those financial geniuses on Wall Street had invented financial innovations and invented various Russian nesting doll funds, which had affected financial companies and networks all over the country.
In the early part of 2008, with the collapse of three related companies, the housing prices in 286 major cities such as New York fell by more than 30%.
Especially with the launch of the Melon Seed Second-hand Houses Online, an online platform for renting and selling second-hand houses, all the real estate transactions in the United States would be registered on the website. As a result, countless people realized that almost overnight, all the cities and all the plots had a large number of houses waiting to be sold.
And these houses had one characteristic, that was, the mortgage had not been completed, and the buyer needed to continue to pay the mortgage.
At this time, it was no longer the houses of the trashiest vagrants who gave up on paying off the loan and threw it directly to the bank.
Most of the secondary users who had a certain ability to repay also ran away.
Their original idea of buying a house was to grit their teeth and buy a house. After a few years, the price of the house would rise two or three times, and then they would sell the house. This way, they would realize financial freedom in an instant.
But if the house prices did not rise, and instead began to plummet, then these people's mentality would naturally explode. At first, they still insisted, thinking that the house prices might just be a technical adjustment.
But when the house prices fell for half a year, especially when there were batches of houses on various real estate trading websites every day, and a buyer was snatched by dozens of sellers, these secondary users suddenly discovered a terrible fact.
That was, the house they originally thought would be worth 1.5 million US dollars at that time might be less than 500,000 US dollars left after the house payment was paid off, and the repayment they needed to pay in 10 years was as high as 1.2 million US dollars. If they paid the mortgage honestly, they would lose 700,000 US dollars. These people made the most correct decision, and that was to directly lose the house in their hands. Even if they had paid the loan for several years, they still gave it up without hesitation and returned it to the bank.
Yes, this kind of wise action is called cutting one's wrist.
This became the last straw that crushed the entire subprime mortgage crisis.
However, the Federal Reserve, like Rector Morgan, thought that this was just a subprime mortgage crisis. Therefore, the way they dealt with it was only to acquire the failed companies, sort out their non-performing assets, and then re-inject capital to stabilize the mentality of investors. However, they did not consider the troubles of the financial companies and banks that provided the Matryoshka Doll Fund.
When a large number of secondary users chose to give up their houses, these banks could only take back the properties and then auction them. Originally, they thought that they would not lose much money in this way.
However, when these houses appeared in the second-hand housing market through judicial auctions, it directly caused the property prices to plummet by another 30%. These banks were horrified to discover that.
Those who had loaned out one million USD and thought that their houses would be worth 1.5 million USD in the future were only left with half a million USD. They were destined to lose half a million USD.
But when the bank thought about it, it didn't seem like they were panicking. They had already packaged these things into funds and sold them to various financial companies!
In other words, although they had to bear a portion of these losses, the majority of the losses were borne by the investment banks that bought the funds. This was great!
These banks were happy, but all the investors who bought the Matryoshka Doll Fund were furious. Finally, in September 2008, the largest bank in the United States, Lehman Brothers, which played the biggest role in the subprime mortgage crisis and was also the fourth largest investment bank in the United States, announced that because of the subprime mortgage crisis, they had more than 600 billion USD in debt. None of these USD could be repaid, so Lehman Brothers declared bankruptcy.
The next day, the third largest bank, Merrill Lynch, also announced that if they could not get at least 80 billion USD in emergency loan support, Merrill Lynch would also close down.
Then, in the next few days, investment banks all over the United States announced one after another that because of the Matryoshka Doll Fund's problems caused by the subprime mortgage crisis, they were unable to cope with the huge losses and could only declare bankruptcy.
These scenes shocked all the United States investors … No, all the United States citizens were stunned.
They estimated that the entire subprime mortgage crisis was only about one trillion USD, and the assets of investment banks in the United States exceeded five trillion USD. How could they all close down because of a single subprime mortgage crisis?
Little did they know that the financial innovation of the United States and the Matryoshka Doll Fund had caused the subprime mortgage crisis to increase from one trillion USD to five trillion USD, which was equivalent to the assets of all the investment banks. These investment banks were drained of all their blood and closed down directly.
At this time, even Rector Morgan was sweating profusely. Morgan Bank, which was a subsidiary of the Morgan Financial Group, was the number one investment bank in the United States. In the subprime mortgage sector, Morgan Bank's related business exceeded 800 billion USD. If all 800 billion USD were to be destroyed, Morgan Bank would probably have to seek bankruptcy protection.
For a moment, Rector Morgan couldn't care less about the problem of Lace Electric. The entire Morgan Financial Group began to run around, trying to save Morgan Bank.
However, even if Rector Morgan was a genius, he couldn't think of a way to deal with the huge deficit of 800 billion USD. This was simply impossible in business. The only thing Rector Morgan could do seemed to be to dig a better hole for himself and let Morgan Bank die more comfortably.
Although the loss of Morgan Bank wouldn't be enough to destroy the Morgan Financial Group, Rector Morgan could forget about sitting in the position of chairman and patriarch anymore.
On the other hand, Goldman Sachs Investment Bank, which was controlled by the Rockefeller Financial Group, was facing the same problem. The old fellows of the two consortiums sat together and finally came up with a good idea. That was to change the nature of Goldman Sachs and Morgan Bank's operations from investment banks to commercial banks. This way, the two banks could directly absorb deposits from the public. With the public's deposits, the 800 billion USD hole could be filled.
This idea was too great. For example, Morgan Bank was originally a businessman who got rich by doing business. But business was risky, and the businessman was about to face the crisis of bankruptcy!
So the businessman decided to rebel. He didn't want to be a businessman anymore. He wanted to be an emperor. He wanted to form a government and collect taxes from the people directly. He wanted to rely on taxes to pay back the money.
My god, he was too damn talented.
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