power bands 】 【 turn you understand how serious

!The most common of the financial crisis, the official explanation is that the subprime problems, however, but in total hundreds of billions of subprime, but the U.S. government bailout
trillion already to more than the crisis still do not see why the head? There is an article pointed out that the root of the crisis of financial institutions using That
What subprime, leverage, and what is the relationship between CDS? Between them by what kind of interaction of today's financial crisis
machine? Analysis of the many articles in the financial crisis, have not seen on these issues clear and simple explanation. This paper attempts to understand self
have an answer to these questions, for understandable reasons, we use several hypothetical examples. Are not appropriate to discuss at
welcome criticism.

one. Lever. At present, many investment banks to earn profits, with 20-30 times leverage, suppose a bank A physical assets from the
30 billion, 900 billion is 30 times the leverage. In other words, the bank A 30 billion of assets as collateral to borrow 90 billion in capital investment by
, if the investment earnings of 5%, then A to get 4.5 billion profit, compared to A's own assets, which 150% of the profits.
Conversely, if the investment losses of 5%, then the Bank lost A light all the assets of their own still owes 1.5 billion.

II. CDS contract. The leverage of high-risk, in accordance with the normal, the Bank does not run for such a risky operation
for. So someone came up with a way to get leverage to do This insurance is called CDS. For example, bank A lever to avoid the risk
found the bodies B. Body B may be another bank, it could be insurance companies, and so on. A on B said,
loans do you help me how to default insurance, the premium I pay you 5 million per year for 10 years, a total of 500 million, if I did not
a breach of the investment, then this White took the premium you, if breach of contract, you have to for my compensation. A thought, if you do not default, I can make 45
billion, which takes out 500 million used for insurance, I can a net profit of 4.0 billion. If there is breach of contract, to pay the insurance anyway. So in terms of which A is a
earn, instead of losing business. B is a shrewd man, not immediately accepted the invitation of A, but go back and do a statistical analysis,
the case of non-compliance of less than 1%. If you do a hundred schools of business, you can get 50 billion total insurance premium,power balance nz, if one of the illegal
about the amount of compensation up to but 50 million, even if the two breach of contract,power bands, they can earn 40 billion. A, B both sides believe that this sale to their advantage, because
this immediately closed the transaction, satisfaction of all.

III. CDS market. B, after doing this the insurance business, C in the next jealous. C went to B side that you put 100
CDS sold to me how to give you 200 million for each contract, a total of 200 billion. B think my 40 billion to 10 years to get, and now a hands on
200 million, and there is no risk, why not, so B and C immediately deal. As a result, CDS like the stock market as the financial flow
above, can be traded, and trading. C after the fact to get these CDS, does not want to wait another 10 years to receive 200 billion, but
put it up for sale, priced at 22 billion; D see the product, forget about the 40 billion minus 220 billion, and earn 18 billion, which is
A resale, C earned 20 billion. Since then, the CDS in the market
repeatedly copied, and now CDS market has been copying the value of 62 trillion dollars.

IV. Sub-prime. Above A, B, C, D, E, F. ... are making huge profits, then in the end from where the money came out of it?
From the root of this, said the money from A and similar investments with the A's profit. Most of their earnings from the U.S. sub-prime loans. People
said the subprime crisis is due to lend money to the poor. I disagree on this statement. In my opinion, mainly to the subprime
general U.S. real estate investors. Economic strength of these people would have enough to buy their own apartment, but saw rapid increases in house prices, moving from the idea of ​​real estate speculation
. They mortgaged their house, borrowed money to purchase investment housing. Interest on these loans to more than 8% -9%,
by their own source of revenue to deal with, but they can continue to mortgage the house to the bank, borrow money to pay interest, sleight of hand tricks. A very happy when this
, his investment for his money; B is also very pleased that the market is very low default rates, the insurance business can continue to do so; behind
C, D,balance wristband, E, F, etc., followed money.

five. Subprime mortgage crisis. Rose to a certain degree of price rise is not up, nobody answered the back plate. Real estate speculation at this time were anxious
like cat on hot bricks. Sell ​​the house, to keep paying high interest rates, and finally to the blind alley of the day, the house training and preparation
bank. At this time of default occurred. A point was a trace of regret, big profits are vain, but also less loss there, anyway, there to do security
B insurance. B do not worry about, anyway, the insurance has been sold to C. So now the CDS Insurance in there, in the G hand.
Just F G had spent 300 billion to buy the 100 CDS, have not had time to change hands, suddenly received the news, these CDS were downgraded, including 20 default, big big than the original estimate
1% to 2% default rate. Every breach of contract to pay 50 billion of insurance money, a total expenditure of 1,000 billion. CDS 300
million plus acquisition costs, G's losses totaled 130 billion. Although G is the name of the nation's top 10 large institutions, can not withstand such a huge loss
loss. Therefore G verge of collapse.

VI. Financial crisis. If the closure of G, then A cost of 500 million U.S. dollars to buy insurance on the bubble of the soup, even worse, as adopted
A leverage with the investment, according to the preceding analysis, A lose it all of the assets is not enough debt. Therefore, the risk of A bankruptcy immediately. In addition to
the A, there is A2, A3 ,..., A20, all should be prepared to close down. Therefore, G, A, A2 ,..., A20 came together before U.S. Treasury Secretary surface
, a nose a tear lobby, G must not fail, it is a failure all over. Minister of Finance, a soft heart, put G to
nationalized, then A ,..., A20 of the insurance money totaling 100 billion U.S. dollars all paid by U.S. taxpayers.

VII. U.S. dollar crisis. CDS 100 mentioned above the market price is 300 million. The GDP is 62 trillion CDS market, assuming that 10% of
breach of contract, breach of contract then there is 6 trillion CDS. This figure is 300 million 200 times. If the value of the U.S. government
300 million acquisition of CDS after the sum of the 100 billion. Then for the rest of those who default CDS, the U.S. government to bear the consequences of a 20 trillion. If you do not
lose, we should look at A20, A21, A22, and so one after another collapse. No matter what measures the U.S. dollar devaluation was inevitable.

the assumptions used in the calculation above and the number of discrepancies with the actual situation, but the U.S. can not underestimate the seriousness of the financial crisis.