[280] Pandemonium, Wall Street 1
In fact, the work of a bank is very simple. It is all about collecting a fee called deposit margin (the difference between the loan interest rate and the deposit interest rate) between the person who deposits money and the person who borrows money.
Because of the simple work carried out according to the manual without a single error, a stable salary and a guaranteed retirement age, former bankers thought of them as civil servants. Instead, I couldn’t escape the old-fashioned image.
However, in any field, there are people who cannot hide their sparkling talent.
There were geniuses hiding even in these simple banknotes, and their genius focused on how to make a lot of money at once.
In the early 1980s, when a new military coup occurred and South Korea was unable to escape the ecology of an underdeveloped country holding gymnasium elections, three geniuses put their heads together in the United States, synonymous with capitalism, and came up with an extraordinary way to make money.
Louis Raniere, head of the fixed income division of investment bank Salomon Brothers, Larry Pink, founder of BlackRock, an asset management company, and David Maxwell, CEO of the Federal Housing Mortgage Corporation, created a novel product called Mortgage Backed Security (MBS), or mortgage-backed securities. .no created.
Until recently, mortgage loans were a simple task of lending money against a house as collateral and receiving the principal and interest on a regular basis for 10 to 20 years. However, from the bank’s point of view, although it is stable, it is only a yawning thing to lend a large amount of money and share it with a small amount for a long period of time. In addition, it was also a job where the neck money was tied up.
These three geniuses looked at mortgage loans through the eyes of a product rather than a bank.
A home equity loan is a small amount of money, but it gives you stable returns over the long term.
It was found that this matched the stable investment product that retired senior financial income earners and asset owners who were most reluctant to lose their principal wanted, and made the mortgage loan a product called MBS.
In fact, it was the interest rate that made them think this way.
In 1979, when the Federal Reserve Board raised interest rates, the financial sector was caught in a ‘money’ vein, and the mortgage market began to shake.
Because no one buys a house with a loan in an era of high interest rates.
But politicians are always on the side of the wealthy and prevent them by law from ever losing money.
On September 30, 1981, the US Congress enacted a clever bill for the financial sector.
When the financial sector arranges housing loans, taxes are deferred, and moreover, a bill was passed that compensates all losses incurred in this process from the national treasury.
It became a system where money rolled in just by selling loans, and the so-called era of securitization of bonds was opened.
Banks now started lending out lots of money against houses, collecting fees, and passing the bonds on to other people.
Worries about retrieving the principal disappeared, and there was no tying up of loans for a long time.
The bank put forth its main focus on mortgage loans and did its best in business at the risk of life and death.
Salomon Brothers, an investment bank, raked in these bonds by risk, repackaged them, and sold them for exorbitant brokerage fees.
Even if you mix three or four risky loans with one safe loan, it even works the magic of getting an AAA credit rating.
Bankers no longer spend their weekends playing golf. They enjoyed a party on a luxury yacht and flew to Venice by private plane to eat delicious pizza.
The time has come to end their revelry, and I intend to show up and charge the bills when the party is over.
Of course, the bankers don’t pay for the party. The American people will pay for it.
New York Miracle’s CEO, Rachel Arrief, was happy to meet her for the first time in a while, and immediately turned serious.
“So you mean leaving it up to the investors to choose?”
“yes. Because my judgment may not always be right. Investors who continue to believe that MBS is stable will be left alone, and investors who think that MBS is risky will have to subtract money.”
“Who is withdrawing the investment money?”
“He also lets them choose. There are stable government bonds and there are Hollywood funds.”
“Are you betting that mortgage securities will collapse?”
“yes. If there are investors willing to bet with me, that would be their choice too.”
“I don’t think any investors will follow you?”
“What about Rachel? Where are you going to bet?”
Rachel Ariev furrowed her brow.
“I know MBS is a gorysk. But I don’t think there will be a collapse. It will make a soft landing.”
“Is the collapse the collapse of American finance?”
“okay. The federal government will do whatever it takes to keep it from falling. The downfall of Wall Street will sink the world economy, not just the United States.”
The idea that the US economy is collapsing at this moment is an absurd opinion that is no different from saying that the US will change from capitalism to socialism in one fell swoop.
“Then Rachel is Sustain?”
“No waiting. Take it all out and keep it. Next investment, after watching a little more.”
“Then we send emails to customers. Make sure to classify risk.”
“What risk rating do you think your investment is?”
It’s absurd to go all-in on the downfall of the US economy, but I guess I’m genuinely curious because I’ve never been wrong in a single prediction.
I didn’t use words like sure.
“It’s half and half, as always. Isn’t this the truth?”
“All-in at 50%? All your possessions?”
“It’s not all property, it’s property in the United States. And I’m still young. Even if you blow it all up, you have the time and money to start over.”
Rachel still sighs.
“Wall Street would be nervous just by moving your money? I wonder if there’s ever been a time in the history of Wall Street where such a large amount of money has moved.”
“Only half.”
“huh?”
“Only half of my assets will go to Wall Street.”
A smile spread across Rachel’s face.
“The probability is 50%, so I only bet half? Isn’t that too polite?”
“What are you talking about? Did I tell you a moment ago? Will Wall Street be nervous? So I’m just going to solve half of it so I don’t get nervous. The other half must be released in London. Don’t you think that the world’s finance is all about Wall Street?”
“The City?”
The City is simply the name of the City of London. As the smallest administrative district in London, it is the center of London’s history and also the center of the financial district. It is also a self-governing area that enjoys independent autonomy.
It is a place where more than 5,000 financial institutions are concentrated, including the Bank of England, JP Morgan Chaser, Goldman Sachs, Morgan Stanley America Bank, City Group, and HSBC. The size of the city is exactly the same as that of Yeouido, but the scale of moving money is different.
“yes. You should be able to digest half of it there. Everyone will be happy that a hogu appeared.”
Rachel’s eyes twinkled.
It’s because I noticed that if the collapse of Wall Street happens, the trigger may be the one I pull.
It’s like dropping a billion-dollar bomb all at once.
* * *
The first thing he had to do was retrieve the money he had buried in the mortgage-backed securities.
If you take it out at once, Wall Street will stir up. I sold my mortgage-backed securities, changing products very little, taking care not to differ from normal trading.
Since it was a popular product, there was no big problem digesting the sales volume.
“MBS has been disposed of. What are you going to do with this money now?”
“It is a bet. All-in on the fact that all mortgage bonds turn to paper!”
“When will we know the outcome of that bet?”
Rachel still looked in disbelief.
“Next year.”
It’s an expression that can’t believe it because it’s coming too fast. If I had said 10 years, I might have nodded. If it takes 10 years, it will buy time to deal with bad bonds even if they start to arise, but next year it will be impossible.
Impossible is just another word for a very slim probability.
“In 2005, the volume started pouring in earnest. It is a fixed rate of 2% for 2 years, but from this year, a variable rate is applied. You have to pay more than 10% interest, but American citizens can’t afford it.”
“They are stable enough to own a house. It may be dangerous, but it will be difficult to collapse at once, right?”
“Who is stable? Subprime Literally, it is the level of candidates below the level, not prime. The problem is that people who can’t afford it own three or four houses. Even if you only own three houses, the interest you have to pay jumps to 30%.”
Rachel, who has continued to make stable investments, has not properly seen the greedy nature of Wall Street.
Those who are in a hurry to take care of the money in front of them, whether they fail or not, whether the risk is big or small, take out a number ticket and approve a mortgage loan for anyone who shows up at the window.
“Okay that’s it. So how are you going to bet?”
“Credit Default Swap (CDS).”
A credit default swap is a type of insurance in case of default.
For example, if you have 100 million won in bonds from Apple, and if Apple goes bankrupt, the 100 million won in bonds will fly into thin air. It is to buy insurance to avoid this risk. Insurance is also simple.
If bankruptcy occurs within 10 years, the insurance company pays 200,000 won annually on the condition that the insurance company pays the entire amount of 100 million won. The reason insurance is cheap is because Apple is a very healthy company and there is no chance it will go bankrupt in 10 years.
There is no risk, so insurance is cheap.
If the credit rating is low and the company is not sound, of course, the insurance premium goes up.
The funny thing here is that greedy Wall Street people have turned insurance into a gamble.
Even people who do not have a single 10-won bond from Apple can purchase insurance. Anyone who pays 200,000 won each year can receive 100 million won if Apple goes bankrupt within 10 years.
Even if you don’t have a single stock bond of Apple, you can bet on whether or not it will go bankrupt. The insurance money paid every year is the betting chip, and if you win, you earn 100 million.
Rachel shook her head.
“We have not yet issued credit default swaps for financial products. Howard, you’re offering to buy a product that doesn’t even exist.”
As the conclusion was futile, Rachel sighed.
“You can make it. People in the financial sector who believe that mortgage-backed securities are safe will welcome it with double arms, thinking that it is free money if I pay insurance money. It’s difficult to set insurance money, so I don’t think there is a problem.”
“Who are those financial people who will listen to such an absurd story?”
“Goldman Sachs Deutsche Bank Morgan Stanley Barclays Capital Merrill Lynch Citigroup Bank of America Credit Suisse JP Morgan UBS. There are countless.”
“Why leave out Bear Stearns and Lehman Brothers? Are they also the top group?”
When the names of the super-giant financial companies that dominated Wall Street came out of my mouth, Rachel said sarcastically, as if she was full of energy.
“Oh, those two companies will be insolvent. Even if I sign a credit default swap contract, I can’t get it because I don’t have the money.”
Rachel opened her mouth wide when she concluded that the super-large financial institution, which is not an exaggeration to say that it would list the United States, would go bankrupt next year.
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