The formation of the U.S. subprime mortgage crisis:
Firstly, asset securitization successfully opened the door to the subprime mortgage market
Secondly, credit insurance successfully broke through the credit bottleneck
Once again, many powerful institutions have entered the U.S. subprime mortgage market
Fourthly, excess liquidity has made the subprime mortgage market almost crazy
Fifthly, deception and malfeasance have brought great harm to the already established The crazy subprime mortgage market has added fuel to the fire
Sixth, official connivance has made the subprime mortgage bubble bigger and bigger.
The subprime mortgage crisis
Interpretation: ① A storm occurred in the United States, caused by the bankruptcy of subprime mortgage lenders, investment funds being forced to close, and violent stock market fluctuations. ② This resulted in a looming illiquidity crisis in the world's major financial markets, which swept through the world's major financial markets such as the United States, the European Union, and Japan in August 2007.
Allusion: The direct cause of the storm in the U.S. subprime mortgage market is the rise in U.S. interest rates and the continued cooling of the housing market. Subprime mortgages are loans provided by some lenders to borrowers with poor credit and low incomes.
Example: The subprime mortgage crisis has hit global stock markets hard. Can China be immune?
Related words: credit system mortgage loan
Subprime lending crisis
1. The concept of subprime crisis
Subprime mortgage crisis: Rising interest rates lead to increased repayment pressure. Many users with poor credit feel that repayment pressure is high, and there is a possibility of default, which has an impact on the recovery of bank loans.
The "subprime mortgage crisis" in the United States began to gradually emerge in the spring of 2006. The U.S. subprime mortgage market usually adopts a repayment method that combines fixed interest rates and floating interest rates, that is, home buyers repay the loan at a fixed interest rate in the first few years after purchasing the home, and then repay the loan at a floating interest rate. In the five years before 2006, due to the continued prosperity of the U.S. housing market and the low interest rates in the United States in the previous years, the U.S. subprime mortgage market developed rapidly. With the cooling of the U.S. housing market, especially the increase in short-term interest rates, the repayment interest rates of subprime mortgages have also risen sharply, and the loan repayment burden of home buyers has greatly increased. At the same time, the continued cooling of the housing market has made it difficult for homebuyers to sell their homes or refinance their mortgages. This situation directly led to a large number of subprime mortgage borrowers being unable to repay their loans on time, thus triggering the "subprime mortgage crisis."
2. The outbreak of the subprime crisis
On February 13, 2007, New Century Finance issued a profit warning for the fourth quarter of 2006.
HSBC Holdings has increased bad debt provisions for its U.S. subprime mortgage business by US$1.8 billion.
Facing $17.4 billion in debt pressure from Wall Street, New Century Financial Corp, the second largest subprime mortgage company in the United States, announced on April 2 that it would file for bankruptcy protection and lay off 54 people. % of employees.
On August 2, Deutsche Bank announced a profit warning, and later estimated a loss of 8.2 billion euros, because one of its 12.7 billion euros is the "Rhineland Funding" and The bank itself had a small involvement in the U.S. real estate subprime mortgage market and suffered huge losses. The Bundesbank convened the country's banks to discuss a basket plan to rescue Deutsche Bank.
American Home Mortgage Investment Corporation, the tenth largest mortgage lender in the United States, officially filed for bankruptcy protection with the court on August 6, becoming another large mortgage lender in the United States to file for bankruptcy after New Century Financial Corporation. .
On August 8, Bear Stearns, the fifth largest investment bank in the United States, announced the collapse of two of its funds, also due to the subprime mortgage crisis.
On August 9, BNP Paribas, France’s largest bank, announced the freezing of three of its funds, also because they suffered huge losses from investing in U.S. subprime mortgage bonds. The move sent European stock markets plunging.
On August 13, Mizuho Group, the parent company of Mizuho Bank, Japan’s second largest bank, announced losses related to U.S. subprime mortgages of 600 million yen. Japanese and Korean banks have already incurred losses due to the U.S. subprime mortgage crisis. UBS Securities Japan estimates that Japan's nine largest banks hold more than 1 trillion yen in U.S. subprime mortgage-backed securities.
In addition, five Korean banks, including Woori, invested a total of US$565 million in secured debt obligations (CDOs). Investors are worried that the U.S. subprime mortgage problem will have a strong impact on global financial markets. However, Japanese analysts are convinced that the vast majority of CDOs invested by Japanese banks have the highest credit ratings, and the impact of the subprime mortgage crisis will be limited.
Later, Huaqi Group also announced that losses caused by subprime mortgages in July amounted to US$700 million. However, for a financial group with an annual profit of US$20 billion, this is only a small amount.
3. The development of the subprime mortgage crisis
In April 2007, New Century Financial, the second largest subprime mortgage lender in the United States, filed for bankruptcy protection, marking a period of downturn for the U.S. real estate industry. One of the largest mortgage lender bankruptcies.
In June, news broke that two funds owned by Bear Stearns, the fifth largest investment bank in the United States, suffered losses due to their involvement in the subprime mortgage bond market.
In July, two credit rating agencies, Standard & Poor's and Moody's, downgraded the credit ratings of 612 and 399 mortgage bonds respectively.
In August, in order to prevent the U.S. subprime mortgage market crisis from triggering severe financial market turmoil, the Federal Reserve, the European Central Bank, the Bank of Japan, and the Australian Central Bank injected funds into the market.
In September, Northern Rock, the fifth largest mortgage lender in the UK, encountered financing difficulties due to the U.S. subprime mortgage crisis, and the bank encountered a run.
In October, Merrill Lynch reported a financial loss of approximately US$8 billion in the third quarter due to subprime-related investments. Merrill Lynch CEO Stan O'Neill subsequently resigned.
In November, the UAE sovereign fund Abu Dhabi Investment Authority will invest US$7.5 billion to purchase 4.9% of Citigroup's shares. Citigroup was hit hard by the subprime mortgage incident.
In December, the U.S. Treasury Department stated that the U.S. government had reached an agreement with mortgage lenders to freeze some mortgage interest rates. The "initial" interest rates of more than 2 million borrowers are expected to be frozen for five years.
In December, the central banks of the United States, Europe, the United Kingdom, Canada, and Switzerland announced that they would jointly inject capital into the short-term lending market to alleviate the global credit crunch.
4. The impact of the subprime mortgage crisis
How widespread will the impact of the "subprime mortgage crisis" in the United States be? This is an issue that the world's economic and financial circles are paying close attention to. Judging from its direct impact, the first to be affected are many home buyers with low incomes. Because they are unable to repay their loans, they will face the difficult situation of having their homes repossessed by the bank. Secondly, in the future, more subprime mortgage lending institutions will suffer serious losses due to their inability to collect loans, and may even be forced to file for bankruptcy protection. Finally, many investment funds in the United States and Europe will also be hit hard as they buy large amounts of securities derived from subprime mortgages.
This crisis has undoubtedly brought a lot of enlightenment to the domestic financial industry. In terms of financial innovation, mortgage market development and financial supervision, since the outbreak of the subprime mortgage crisis in the United States, no matter from the perspective of the fluctuations in the global capital market or the changes in the U.S. real economy, the disaster of subprime mortgages has not been tolerated in the United States and even around the world. underestimate. For China, this crisis has sounded the alarm for us to be prepared for danger in times of peace.
The banking industry was the first to be hit by the U.S. subprime mortgage crisis. Paying attention to the risks hidden behind home mortgage loans is an issue that Chinese commercial banks should pay special attention to. During the period when the real estate market is rising as a whole, residential mortgage loans are high-quality assets for commercial banks. The loan yield is relatively high, the default rate is low, and in the event of default, compensation can be obtained through the auction of the mortgaged real estate. At present, real estate mortgage loans account for a considerable proportion of the assets of Chinese commercial banks and are also one of the main sources of loan income. According to the New Basel Capital Accord, the risk provisions set aside by commercial banks for real estate mortgage loans are relatively low. However, once the general decline in real estate market prices and the rise in mortgage interest rates occur at the same time, the default rate of home buyers will increase significantly. The value of the real estate after auction may be lower than the total principal and interest or even the principal of the mortgage loan, which will cause commercial banks to The bad debt ratio has increased significantly, which has had an impact on the profitability and capital adequacy ratio of commercial banks. Although it is unlikely that China's real estate market will see a general price decline in the near future, in the long run the risk of mortgage loan issuance by the banking system cannot be ignored, and strict loan conditions and loan review systems must be implemented at this stage.
In fact, the source of the current U.S. subprime mortgage crisis is that U.S. real estate financial institutions relaxed loan conditions during the market boom and launched loan products that were first loose and then tight. Chinese commercial banks should pay full attention to the lessons of the U.S. subprime mortgage crisis. First, they should strictly ensure the implementation of down payment policies, moderately increase the ratio of loan down payments, and eliminate the phenomenon of zero down payments. Second, they should adopt strict pre-loan credit review to avoid The phenomenon of false mortgages.
Before the subprime mortgage crisis broke out, the U.S. economy had been operating on a platform of high growth, low inflation, and low unemployment for more than five years. The topic of the U.S. housing market’s “high fever” was even more intense. Lasts for several years. There are certain similarities between the economic scenarios of China and the United States before the housing market cooled down.
The biggest warning from the U.S. subprime mortgage crisis this time is that we must be wary of the impact of macroeconomic control policies formulated in response to the economic cycle on a specific market. The fundamental cause of the U.S. subprime mortgage crisis was the decline in the real estate market caused by the Federal Reserve's interest rate hikes. China is currently facing accelerating inflation. If the central bank takes countermeasures to significantly increase RMB loan interest rates in order to curb inflationary pressure, it should be wary of two impacts: First, the impact of tightening loans on real estate development companies, which may cause Developers' funds are cut off; secondly, the impact of increased repayment pressure on mortgage loan applicants may lead to an increase in mortgage loan default rates. The impact of these two aspects will eventually converge into the commercial banking system, causing an increase in the non-performing loan ratio of commercial banks and a decline in the value of real estate used as collateral, ultimately affecting the profitability and even viability of commercial banks.
People need to understand the differences in the economic cycles and housing market cycles between China and the United States. The United States is a country with a long history of market economy under the global system. It is highly cyclical and is currently in the late stage of prosperity of this economic cycle.
China has not experienced a complete economic cycle. Even counting from reform and opening up, it has only been 30 years. From the time when the market economy was proposed in 1992 and 1993 to now, it has only been 15 years. . At this stage, the key words for China's economy are the imbalance between supply and demand and the large demand for fixed investment. This is the key point that is different from the U.S. economy, which has a cycle that is close to 10 years; in addition, the cycles of the Chinese and American housing markets are also different. After China implemented housing reform, it ended the situation of no housing market for many years, and demand surged significantly. Although China's housing market is also driven by speculative factors, large demand and limited supply are the most important reasons for rising housing prices. Moreover, the government has room to regulate China's housing market.
The U.S. subprime mortgage crisis has also provided inspiration for China’s macroeconomic regulation. There are three main aspects: First, it is necessary to include asset prices as monitoring objects when the central bank implements monetary policy. Because once asset prices finally affect aggregate demand or aggregate supply through wealth effects or other channels, they will have an impact on the inflation rate. Even a central bank that implements an inflation targeting system must take the rise and fall of asset prices as an important reference for formulating monetary policies; secondly, when conducting macro-control, it must comprehensively consider the possible negative impacts of regulatory policies. For example, when the Federal Reserve raises interest rates continuously, it may not pay enough attention to the resulting pressure on the real estate market; third, the government should not easily provide relief from the crisis. Crisis is a punishment for blind investment and blind diversification. If the government provides rescue for this kind of behavior, it will lead to the breeding of moral hazard. This time the central banks of developed countries jointly inject capital into the market, which may give rise to the next bubble.