Subprime crisis is also called subprime crisis, which is also translated into subprime crisis. It refers to a storm caused by the bankruptcy of subprime mortgage institutions, the forced closure of investment funds and the violent shock of the stock market in the United States. It triggered an imminent liquidity crisis in major global financial markets. The "subprime mortgage crisis" in the United States began to appear gradually in the spring of 2006. In August 2007, it swept the major financial markets in the world, such as the United States, the European Union and Japan.

2. The subprime mortgage crisis.

The direct cause of the US subprime mortgage market storm is the rising interest rate in the United States and the continuous cooling of the housing market. Subprime mortgage refers to loans provided by some lending institutions to borrowers with poor credit and low income.

The rise in interest rates has led to an increase in repayment pressure. Many users with bad credit feel that repayment pressure is high and there is the possibility of default, which has an impact on the recovery of bank loans.

2. 1. Production principle

The direct cause of the US subprime mortgage market storm is the rising interest rate in the United States and the continuous cooling of the housing market. Subprime mortgage refers to loans provided by some lending institutions to borrowers with poor credit and low income.

The American subprime mortgage market usually adopts a combination of fixed interest rate and floating interest rate, that is, buyers repay their loans at a fixed interest rate in the first few years after buying a house, and then at a floating interest rate.

In the five years before 2006, due to the continuous prosperity of the US housing market and the low interest rates in previous years, the US subprime mortgage market developed rapidly.

With the cooling of American housing market, especially the increase of short-term interest rate, the repayment rate of subprime mortgage has also risen sharply, and the repayment burden of buyers has greatly increased. At the same time, the continuous cooling of the housing market also makes it difficult for buyers to sell their houses or refinance through mortgaged houses. This situation directly leads to a large number of borrowers with subprime mortgage loans can not repay on time, which in turn leads to "subprime mortgage crisis".

2.2. Top answers

In the United States, loans are a very common phenomenon, from houses to cars, from credit cards to telephone bills, loans are everywhere. Locals rarely buy a house in full, usually with long-term loans. But we also know that unemployment and re-employment are very common phenomena here. How can these people with unstable income or no income buy a house? Because their credit ratings are not up to standard, they are defined as subprime lenders, referred to as subprime lenders.

Because the house price was high before, the bank thought that although the loan was given to the subprime lender, if the lender could not repay the loan, he could use the mortgaged house to repay it, auction or sell it to recover the bank loan. However, due to the sudden drop in house prices, when the lender was unable to repay, the bank sold the house, only to find that the funds obtained could not make up for the loan+interest at that time, or even the loan amount itself, so the bank would lose money on this loan.

For a lender with two borrowers, it is ok to have such a problem, but due to the rising installment interest rate and the fact that these borrowers themselves are subprime credit lenders, a large number of borrowers are unable to repay their loans. As mentioned above, the bank repossessed the house, but failed to sell it at a high price, which led to a large-scale loss and triggered the subprime mortgage crisis.

3. The outbreak of the subprime mortgage crisis

On February 3, 2007, 13, New Century Finance issued a profit warning for the fourth quarter of 2006.

HSBC Holdings increased its bad debt reserve by $654.388+0.8 billion for its subprime mortgage business in the United States.

Facing the debt of $654.38+07.4 billion from Wall Street, New Century Financial Corp, the second largest subprime mortgage company in the United States, announced on April 2 that it filed for bankruptcy protection and laid off 54% of its employees.

On August 2nd, Societe Generale announced a profit warning, and later estimated a loss of 8.2 billion euros, because its Rhineland Fund with a scale of 654.38+0.27 billion euros and the bank itself participated in the US real estate subprime mortgage market a little, resulting in huge losses. The Bundesbank convened banks from all over the world to discuss a package plan to save the German Industrial Bank.

On August 6th, American Mortgage Investment Corporation, the largest mortgage institution in the United States, formally filed for bankruptcy protection with the court, becoming another large mortgage institution in the United States after New Century Finance Corporation.

On August 8, Bear Stearns, the fifth largest investment bank in the United States, announced that its two funds had closed down, which was also due to the subprime mortgage crisis.

On August 9th, BNP Paribas, France's largest bank, announced the freezing of its three funds, which also suffered huge losses due to their investment in American subprime bonds. This move led to a sharp drop in European stock markets.

13 In August, Mizuho Group, the parent company of Mizuho Bank, Japan's second largest bank, announced that the US subprime mortgage-related losses were 600 million yen. Japanese and Korean banks suffered losses due to the US subprime mortgage crisis. According to the estimation of UBS Securities Japan, the nine major banks in Japan hold more than one trillion yen of US subprime mortgage-backed securities. In addition, five Korean banks, including Woori, invested 565 million US dollars in CDO. Investors are worried that the subprime mortgage problem in the United States will have a strong impact on the global financial market. However, Japanese analysts are convinced that most of collateralized debt obligation invested by Japanese banks have the highest credit rating, and the impact of the subprime mortgage crisis is limited.

Later, Citigroup also announced that the losses caused by subprime mortgage in July reached 700 million US dollars, but for a financial group with an annual profit of 20 billion US dollars, this is only a small amount.

In the spring of 2007, a financial storm was brewing on Wall Street. The media in the United States and Europe began to frequently appear a relatively unfamiliar word-"subprime mortgage". In the next year or so, the financial crisis triggered by it not only shocked the global financial market, but also brought a group of "star" financial giants to the brink of bankruptcy.

On April 2, 2007, New Century Financial Company, the second largest subprime mortgage provider in the United States, declared bankruptcy. In the spring of that year, the American subprime mortgage industry collapsed, and more than 20 subprime mortgage suppliers declared bankruptcy, suffered huge losses or sought to be acquired. As a result, the well-known American subprime mortgage crisis gradually surfaced.

The so-called subprime mortgage refers to a special mortgage loan designed by American mortgage institutions for people with low income and poor credit records. Compared with low-risk "high-quality" loans, such lenders have greater risk of repayment default, so they are called "subprime loans".

From 200 1 to 2005, the housing market in the United States maintained a five-year prosperity, which also stimulated the desire of mortgage institutions for extraordinary development. Driven by interests, some banks and other lending institutions have lowered their loan standards one after another, making a large number of people with low incomes and poor credit records join the tide of buying houses with loans and become so-called "subprime buyers".

Vincent Reinhart, former director of the Monetary Affairs Bureau of the Federal Reserve, believes that an important source of the crisis is that many (American) families basically have no open way to create wealth through asset accumulation, with one exception: a large number of resources can help people leverage their investments in their houses, and the government has provided various incentives for this, such as tax relief for mortgage repayment interest. The government, enterprises and individuals * * * ignored risks and laid a hidden danger for the full-scale outbreak of the future crisis.

In August 2005, the house price in the United States reached a record high, and since then, house prices in many parts of the United States have begun to fall. By 2006, the rising momentum of house prices was stagnant, and the housing market began to cool down sharply. Falling house prices also make it difficult for buyers to sell their houses or obtain financing through mortgages.

At the same time, in order to curb inflation, the Federal Reserve kept raising interest rates, which increased the repayment burden of buyers. In the two years up to June 2006, the Federal Reserve raised interest rates for 65,438+07 times, and the interest rate rose by 4.25 percentage points.

As a result, a large number of "subprime mortgage buyers" have been unable to repay their loans on time, and the subprime mortgage crisis has begun to appear and become increasingly fierce.

Aggravation: the abuse of innovative tools has led to the rapid spread of the financial storm "fire"

After fermentation in the first few months of 2007, the subprime mortgage crisis in the United States began to spread to investors who bought subprime-backed securities.

On June 7, 2007, Bear Stearns, the fifth largest investment bank in the United States, announced that its two funds would stop redeeming. Panic-stricken and confused investors soon discovered that the two funds held a large number of securities related to subprime loans.

In the United States, individuals apply for mortgage loans from banks and other lending institutions, and then the lending institutions "sell" the mortgage loans as assets to institutions such as Fannie Mae and Freddie Mac. The latter packages all kinds of mortgage loans into asset-backed securities (ABS), which are rated by rating companies such as Standard & Poor's, and then sold to investors such as insurance companies, pension funds and hedge funds. This process is called "asset securitization".

During the boom of American housing market, the above process worked smoothly. Buyers, lenders, investment banks in charge of packaging asset-backed securities and investors who bought these securities all got what they needed, and everyone was very happy. But this speculative feast formed in the US housing bubble is doomed not to last long. As more and more subprime home buyers are unable to repay their loans, the losses begin to spread, eventually affecting all kinds of investors who hold subprime loans.

But at this time, Wall Street seems to have no idea about the coming storm. On July 19, the Dow Jones average price index of 30 industrial stocks in new york stock market reached a record high, breaking through the 14000 mark for the first time.

By August 2007, with a large number of subprime loans forming bad debts, the securities based on these subprime loans also depreciated sharply, and the subprime mortgage crisis broke out in an all-round way. With the development of financial innovation and globalization, investment banks, insurance companies, pension funds and hedge funds all over the world find themselves holding a large number of subprime-backed securities, from Citibank in the United States to Deutsche Bank in Germany, from HSBC in the United Kingdom to UBS Group AG in Switzerland. Due to the lack of liquidity of these securities, its value and risk are difficult to judge. In order to meet the requirements of capital adequacy ratio and risk control, many financial institutions began to sell assets and stopped issuing loans and reserves. The banking system was once reluctant to lend, and the liquidity of the world's major financial markets was seriously insufficient. This phenomenon is also called "credit crunch" and "credit crisis".

On August 6, 2007, the American mortgage company declared bankruptcy. 16 In August, National Finance Corporation, the largest commercial mortgage provider in the United States, was on the verge of bankruptcy. Since then, the company has dodged a bullet after obtaining an emergency loan of $ 1 10 billion from the banking group. On September 14, a bank run by depositors occurred in northumberland Bank, UK.

The above events are only a simple portrayal of the situation of many financial institutions in the credit crisis. During this period, with the decline of house prices in the United States, the default rate of mortgage loans increased, and the value of securities backed by mortgage loans shrank. Many financial institutions announced huge losses, and some declared bankruptcy or were acquired.

On September 17, 2007, Greenspan first admitted that there was a bubble in the American housing market, and warned that American housing prices might exceed most people's expectations, with a double-digit decline.

In response to the financial turmoil, the central banks of western countries, such as the Federal Reserve, began to take joint actions to inject funds into the financial market to alleviate the lack of liquidity and enhance investor confidence.

From September 2007 to April 2008, the Federal Reserve cut interest rates seven times in a row, greatly reducing the benchmark interest rate from 5.25% to 2%. In addition, the Federal Reserve also announced a reduction in the discount rate of direct commercial loans, and continued to invest in financial markets by opening discount windows and auctioning loans to investment banks.

Nevertheless, the subprime mortgage crisis began to spread to the fundamentals of the American economy: the unemployment rate rose and consumption fell. In the fourth quarter of 2007, the American economy declined by 0.2%, the worst performance since the third quarter of 200 1 year. Double "high-risk period": the five major investment banks on Wall Street suffered "historic changes".

The global financial market ushered in 2008 in turmoil, which is destined to be another "eventful autumn" on Wall Street. From the beginning of the year to now, the financial turmoil caused by the subprime mortgage crisis in the United States has roughly experienced two high-risk periods.

In the first high-risk period, Bear Stearns, the fifth largest investment bank in the United States, got into trouble and was eventually acquired by Bank of JPMorgan Chase.

On March 14, the Federal Reserve announced that it would provide emergency loans to the troubled Bear Stearns. But bear Stearns didn't succeed. Two days later, on March 16, with the help of the Federal Reserve, Bear Stearns sold itself to the Bank of JPMorgan Chase at the lowest price of $2 per share. The Federal Reserve provided about $30 billion in guarantee for the merger.

For this merger, many media described it as a "marriage at gunpoint", meaning that Bear Stearns was desperate, but suffered from a shortage of funds, and finally committed himself to JPMorgan Chase.

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson said afterwards that decisive measures and government guarantees were taken against Bear Stearns mainly because the market was not psychologically prepared for its bankruptcy at that time, and Bear Stearns was inextricably linked with other financial institutions. Once it goes bankrupt, it will cause an unpredictable blow to the whole financial system.

Although the rescue of Bear Stearns began, American public opinion questioned the use of taxpayers' money to rescue Wall Street investment banks. However, from the effect point of view, the Fed's actions eased the market's concerns to some extent. Over the next month, the subprime mortgage crisis eased, and the new york stock market showed signs of stabilization. In April, the average price index of new york Dow Jones 30 industrial stocks rose by 4.5%, the Standard & Poor's 500 stock index rose by 4.8%, and the Nasdaq Composite Index rose by 5.9%. In the same month, the heads of Citibank, Goldman Sachs and Deutsche Bank all said that the worst period of the US subprime mortgage crisis may have passed.

However, the subsequent development of the situation clearly exceeded the expectations of the outside world, which also proved that the heads of major western financial institutions were too optimistic about the financial situation at that time.

In July 2008, the financial market in the United States was tense again: investors began to worry that Fannie Mae and Freddie Mac, the giants of the American mortgage market, might be in trouble.

Fannie and Freddie are private enterprises, but as "government-authorized enterprises", they enjoy various preferential treatments. After the outbreak of the subprime mortgage crisis, Fannie Mae and Freddie Mac, which have the background of government guarantee, have become more prominent. At the same time, in order to seek a bigger market, Fannie Mae and Freddie Mac also expanded greatly, issuing more risky loan types, which led to the continuous expansion of losses and formed a crisis affecting the global financial market.

In the past year, the losses of Fannie Mae and Freddie Mac reached $654.38+04 billion. The share prices of Fannie Mae and Freddie Mac also plummeted by about 90%. On September 7, the US government stepped in again and invested 200 billion US dollars to take over Fannie Mae and Freddie Mac.

Paulson's explanation is that, considering the huge scale of Fannie Mae and Freddie Mac and their importance to the financial system, the collapse of any enterprise of Fannie Mae and Freddie Mac "will cause great turmoil in the US and global financial markets", so taking over these two companies is the "best means" to protect the market and taxpayers at present.

However, the problems of Fannie Mae and Freddie Mac are only the prelude to the second high-risk period. In less than a month, many American heavyweight financial institutions were in trouble and the situation turned into a full-scale financial crisis.

On September 15, Lehman Brothers, the fourth largest investment bank in the United States, declared bankruptcy. On the same day, Merrill Lynch, the third largest investment bank in the United States, was acquired by Bank of America. /kloc-in September of 0/7, the U.S. government was forced to provide emergency loans of up to $85 billion to the troubled insurance giant American International Group (AIG). On September 20th, the US government submitted a financial rescue plan of up to $700 billion to Congress. On February1day, the Federal Reserve announced that it approved Goldman Sachs, the largest investment bank in the United States, and Morgan Stanley, the second largest investment bank, to implement business transformation and turn them into bank holding companies, namely ordinary commercial banks. On 25th, American regulators took over Washington Mutual, the largest savings bank in the United States, and sold part of its business to Bank of JPMorgan Chase.