One. Lever. At present, many investment banks to earn profits, the use of 20-30 periods leverage, think a bank's own assets of A $ 3 billion, 30 periods leverage is 90 billion. In other words, the bank A 30 billion in assets as parallel to borrow 90 billion of asset for investment, whether investment income 5%, then A ambition get 4.5 billion profit, compared to A's own assets, which is 150% profits. Conversely, whether the investment losses of 5%, then the Bank lost A light all his assets still owes 1.5 billion.
two. CDS contracts. As the leverage of high risk, in agreement with the regular provisions, banks do not escape for such a dangerous operation. So something came up with a way to leverage investment to get to do This insurance is phoned CDS. For instance, Bank A pry in order to avoid the risk of detecting a body B. Organization B may be another bank, it could be insurance companies, and so on. A to B that the loans do you aid me how to default insurance, premiums I pay you 50 million a year for 10 years, a total of 500 million, if my investment does not default, then this insurance you took on the white If breach of contract, you must for my compensation. A thought, if you do not default, I can make 4.5 billion, and there come up with 500 million used for insurance, I can net 4 billion. If there is breach of contract, to pay the insurance anyway. So this is a case of A makes money business. B is a shrewd male, did not immediately agreed to the invitation of A, but go back and do a statistical analysis, the circumstance of non-compliance of less than 1%. If you do an hundred business, you can get a total of 50 billion of insurance money, if one of breach of contract, compensation up to but 50 million, even now the two breach of contract, they can earn 40 billion. A, B both believe that this sale to their convenience, it immediately closed the transaction, happy.
three. CDS mall. B, afterward the warranty commerce to do this, C in the next jealous. C went to the B side namely you put 100 CDS sold to me how, give you 200 million as each contract, a total of 200 million. B I thought of my 40 billion to 10 annuals to get, there namely now a 20 billion changed hands, and there is no hazard, why no, so B and C now aboard a deal. As a outcome, CDS stream favor stocks on the fiscal markets, trading and trading tin be. CDS to get the group C after the fact, do not want to wait distinct 10 years receive 20 billion, but put it up because sale, amount 22 billion; D to penetrate the production, forget approximately the 40 billion minus 22 billion, also earn 18 billion, which is the A resale, C earned 20 billion. Since then, the CDS in the market again copied, and now CDS mart has been copying the value of 62 trillion greenbacks.
four. Sub-prime. Above A, B, C, D,
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GHD Purple Straighteners, the money from A and A is similar with the investor's profit. And most of their profits from the U.S. sub-prime loans. People say that the subprime mortgage crisis is due to loan money to the poor. I disagree on this statement. I consider, effectively to the sub-prime U.S. real estate investment of mediocre human. The economic strength of these people had enough to buy their own set of housing, but that rapidly rising house prices, moving from the fancy of real estate speculation. They mortgaged their house, loans to buy investment property. Interest on these loans to 8% -9%,
GHD Classic Straighteners, and with their own income is tough to deal with, but they can persist to mortgage the house to the bank, borrow money to pay interest, sleight of hand tricks. A quite happy at this time, his investment for his money; B is also quite amused, the market is quite cheap default rates, the insurance business can continue to do; after the C, D, E, F, etc., along with money.
V. Subprime pledge crisis. Prices rose to a decisive degree do not work up, and none responded the behind plate. Real possession presumption at this time were anxious as cat on hot bricks. Sell the house, to stop paying tall interest rates, and finally to the blind alley of the day, the house training and arrangement of the bank. Breach took location at this time. A feel a tiny apologetic at this time, huge money vain, but also less detriment there, anyway, do B insurance. B do not fret about, anyhow the insurance has been sold to C. So now the CDS insurance, where it, in the G hands. The hands of just F G spent 30 billion to buy the 100 CDS, have not had time to alteration hands, suddenly received the information, these CDS were downgraded, with 20 defaults, far beyond the incipient estimate of 1% to 2% default rates. Every rift of contract to pay 50 billion of insurance money, a total disburse of $ 100 billion. CDS donation price and 30 billion, G losses totaling 130 billion. Although G is the appoint of the nation's altitude 10 large institutions, can not withstand such a big loss. Therefore, G verge of collapse.
6. Financial crisis. If the closure of G, then A $ 500 million spent to purchase insurance on the foam of the soup, even aggravate, for A uses leverage investment, according to the preceding analysis, A lose it always of the assets is not enough debt. So that A immediately faced the risk of bankruptcy. In counting to A, there is A2, A3 ,..., A20, ought always be ready to breakdown. Therefore, G, A, A2 ,..., A20 came to the U.S. Treasury in front of a snout a cut to lobbying, G must not breakdown, it is a failure we are finished. Minister of Finance a soft center, put G to centralize,
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seven. U.S. dollar crisis. CDS 100 mentioned above the market price is 300 million. The CDS market is worth 62 trillion, assuming that 10% of breach of contract, breach of contract then there is 6 trillion of CDS. This figure is 30 billion 200 times. If the United States * 30 billion of acquisition value after the amount of 100 billion CDS. So for those who breach the repose of the CDS, the United States * the sum of 20 trillion. If you do not pay, we must see at A20, A21, A22, and so one after another collapse. No matter what amounts the dollar devaluation is unavoidable.
the assumptions accustom in calculating the upon figures with the actual position and will differ, but the severity of the U.S. financial crisis can not be underestimated.
U.S. financial crisis causes,
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