How serious is the U.S. financial crisis in the end? Enlightened!
you know how serious the financial crisis in the U.S. do?
on the financial crisis, the official explanation is the most common subprime mortgage problems, but hundreds of billions of subprime lending in total, however, and the U.S. go-vern-ment had to rescue funds trillion or more, the crisis still do not see why the head?
There is an article that is the root of the crisis of financial institutions a Then, the sub-prime, leveraged, and what is the relationship between CDS? Between them by what kind of interaction of today's financial crisis?
is understandable reasons, we use several hypothetical examples. Are not appropriate to discuss the Department welcomes criticism.
one lever:
present, many investment banks to earn profits, with 20-30 times leverage, assuming that A's own assets, a bank of 30 million, 30 times the leverage is 900 billion. In other words, the bank A 30 billion of assets as collateral to borrow 900 billion of funds for investment, if investment earnings of 5%, then A to get 4.5 billion profit, compared to A's own assets, which is 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.
Second, CDS contracts:
the leverage of high-risk, in accordance with the normal, the Bank does not conduct such a risky operation. So someone came up with a way to get leverage to do This insurance is called CDS.
example, bank A in order to avoid the risk to find the body lever B. Body B may be another bank, it could be insurance companies, and so on.
A on B, said the 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 my investment does not default, then this insurance you White took, if the breach of contract, you have to for my compensation.
A thought, if you do not default, I can make 4.5 billion, which takes out 500 million used for insurance, I could net 40 billion. If there is breach of contract, to pay the insurance anyway. So in terms of A is an 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 of the situation of non-compliance of less than 1%. If you do a hundred schools of business, you can get 50 billion total insurance premium, if one of breach of contract, compensation up to but 50 million, even if the two breach of contract, they can earn 40 billion.
A, B both sides believe that this sale to their advantage, it immediately closed the transaction, satisfaction of all.
Third, CDS market:
B did this after 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, there is now a 200 billion changed hands, and there is no risk, why not, so B and C immediately deal.
As a result, CDS flow as the financial markets like stocks 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 22 billion, but also earn a 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.
four, sub-prime:
above the A, B, C, D, E, F. ... are making huge profits, then in the end from where the money came out of it? Basically, the money from A and similar investments with the A's profit. Most of their earnings from the U.S. sub-prime loans. People say that the subprime crisis is due to lend money to the poor.
I disagree on this statement. In my opinion, mainly to the sub-prime U.S. real estate investment of ordinary people. 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 8% -9%, and 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 at this time, 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 the C, D, E, F, etc., along with money.
five, sub-prime crisis:
prices rose to a certain extent on the rise not up, nobody answered the back plate. At this time, like real estate speculators were anxious 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 of the bank. At this time of default occurred.
at this time was a trace of regret A large profits are vain, but also less loss there, anyway, there is B to do 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. F G had just spent 300 billion to buy the hands of 100 CDS, have not had time to change hands, suddenly received the news, these CDS were downgraded, including 20 default, greatly exceeding the original estimate of 1% to 2% default rates. Every breach of contract to pay 50 billion of insurance money, a total expenditure of 1,000 billion. CDS 300 billion 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. Therefore G verge of collapse.
six, the financial crisis:
collapse if G, then A $ 500,000,000 spent to buy insurance on the bubble of the soup, even worse, because A uses leverage 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 A, there is A2, A3 ,..., A20, all should be prepared to close down. Therefore, G, A, A2 ,..., A20 came together in front of the U.S. Treasury Secretary, a nose a tear lobby, G must not fail, it is a failure all over. Minister of Finance, a soft heart, put the G to the nationalized, then A ,..., A20 of the insurance money totaling 100 billion U.S. dollars all paid by U.S. taxpayers.
July, the dollar crisis:
CDS 100 mentioned above the market price is 300 million. The GDP is 62 trillion CDS market, assuming that 10% of the breach of contract, breach of contract then there is 6 trillion CDS. This figure is 300 million 200 times. If the United States go-vern-ment value of 300 million acquisition of CDS after the sum of the 100 billion. Then for the rest of those who default CDS, the United States go-vern-ment to bear the consequences of a 20 trillion. If you do not pay, we must 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. MM
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you know how serious the financial crisis in the U.S. do?
on the financial crisis, the official explanation is the most common subprime mortgage problems, but hundreds of billions of subprime lending in total, however, and the U.S. go-vern-ment had to rescue funds trillion or more, the crisis still do not see why the head?
There is an article that is the root of the crisis of financial institutions a Then, the sub-prime, leveraged, and what is the relationship between CDS? Between them by what kind of interaction of today's financial crisis?
is understandable reasons, we use several hypothetical examples. Are not appropriate to discuss the Department welcomes criticism.
one lever:
present, many investment banks to earn profits, with 20-30 times leverage, assuming that A's own assets, a bank of 30 million, 30 times the leverage is 900 billion. In other words, the bank A 30 billion of assets as collateral to borrow 900 billion of funds for investment, if investment earnings of 5%, then A to get 4.5 billion profit, compared to A's own assets, which is 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.
Second, CDS contracts:
the leverage of high-risk, in accordance with the normal, the Bank does not conduct such a risky operation. So someone came up with a way to get leverage to do This insurance is called CDS.
example, bank A in order to avoid the risk to find the body lever B. Body B may be another bank, it could be insurance companies, and so on.
A on B, said the 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 my investment does not default, then this insurance you White took, if the breach of contract, you have to for my compensation.
A thought, if you do not default, I can make 4.5 billion, which takes out 500 million used for insurance, I could net 40 billion. If there is breach of contract, to pay the insurance anyway. So in terms of A is an 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 of the situation of non-compliance of less than 1%. If you do a hundred schools of business, you can get 50 billion total insurance premium, if one of breach of contract, compensation up to but 50 million, even if the two breach of contract, they can earn 40 billion.
A, B both sides believe that this sale to their advantage, it immediately closed the transaction, satisfaction of all.
Third, CDS market:
B did this after 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, there is now a 200 billion changed hands, and there is no risk, why not, so B and C immediately deal.
As a result, CDS flow as the financial markets like stocks 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 22 billion, but also earn a 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.
four, sub-prime:
above the A, B, C, D, E, F. ... are making huge profits, then in the end from where the money came out of it? Basically, the money from A and similar investments with the A's profit. Most of their earnings from the U.S. sub-prime loans. People say that the subprime crisis is due to lend money to the poor.
I disagree on this statement. In my opinion, mainly to the sub-prime U.S. real estate investment of ordinary people. 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 8% -9%, and 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 at this time, 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 the C, D, E, F, etc., along with money.
five, sub-prime crisis:
prices rose to a certain extent on the rise not up, nobody answered the back plate. At this time, like real estate speculators were anxious 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 of the bank. At this time of default occurred.
at this time was a trace of regret A large profits are vain, but also less loss there, anyway, there is B to do 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. F G had just spent 300 billion to buy the hands of 100 CDS, have not had time to change hands, suddenly received the news, these CDS were downgraded, including 20 default, greatly exceeding the original estimate of 1% to 2% default rates. Every breach of contract to pay 50 billion of insurance money, a total expenditure of 1,000 billion. CDS 300 billion 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. Therefore G verge of collapse.
six, the financial crisis:
collapse if G, then A $ 500,000,000 spent to buy insurance on the bubble of the soup, even worse, because A uses leverage 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 A, there is A2, A3 ,..., A20, all should be prepared to close down. Therefore, G, A, A2 ,..., A20 came together in front of the U.S. Treasury Secretary, a nose a tear lobby, G must not fail, it is a failure all over. Minister of Finance, a soft heart, put the G to the nationalized, then A ,..., A20 of the insurance money totaling 100 billion U.S. dollars all paid by U.S. taxpayers.
July, the dollar crisis:
CDS 100 mentioned above the market price is 300 million. The GDP is 62 trillion CDS market, assuming that 10% of the breach of contract, breach of contract then there is 6 trillion CDS. This figure is 300 million 200 times. If the United States go-vern-ment value of 300 million acquisition of CDS after the sum of the 100 billion. Then for the rest of those who default CDS, the United States go-vern-ment to bear the consequences of a 20 trillion. If you do not pay, we must 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. MM
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