Why did the subprime mortgage crisis occur in the United States?
What are subprime mortgages?
Subprime mortgages in the United States have a long history. Bank of America divides consumers' credit ratings into prime and subprime. Consumers who can pay on time have a prime credit rating, and consumers who cannot pay on time have a subprime credit rating. Subprime consumers were those with bad credit, and over the years Bank of America had lent heavily to them in the form of mortgages. A mortgage is a mortgage payment. When purchasing high-end products such as houses, mortgage loans are usually used for installment payments. The current financial crisis in the United States occurred on subprime mortgage loans. Its English name is sub-prime mortgage crisis, so it should be more accurately called the subprime mortgage crisis. It is not accurate to call it a subprime mortgage crisis.
The ultra-loose environment that stimulates the economy has laid hidden dangers
On April 2, 2007, New Century Financial Corporation, the second largest subprime lending institution in the United States, declared bankruptcy, marking the The debt crisis broke out. The source of the subprime mortgage crisis was its early loose monetary policy. After the bursting of the new economic bubble and the "9.11" incident, in order to avoid economic recession and stimulate economic development, the U.S. government adopted low-pressure bank interest rates to encourage investment and consumption. From 2000 to 2004, the Federal Reserve cut interest rates 25 times in a row, and the federal funds rate fell all the way from 6.5% to 1%. Loans to buy houses did not require guarantees or down payments, and house prices continued to rise. The real estate market became increasingly active, which also made Greens successful. The economic boom of the late Pan era. Providing subprime mortgages was a good thing, allowing low-income people to own their own homes. For ordinary families, low interest rates and soaring real estate prices have created a bright future, and investing in housing has become a huge temptation.
Data from the Federal Reserve Bank of Savings show that the period during which subprime mortgages developed fastest was from 2003 to 2006. These years were precisely the period when interest rates were lowest. Lending institutions are reaping extraordinary profits, and lenders repeatedly sing about "appreciation." If you buy a house for $500,000, and the price rises to $600,000 two years later, the lender will use the house as a mortgage to lend money, and then you will buy several properties. House, easily profit from rising real estate prices. By the end of 2006, subprime mortgages affected 5 million American households, and the current known scale of subprime mortgages reached US$1.1 trillion to US$1.2 trillion.
Using real estate as collateral is the key to risk
U.S. subprime mortgage consumers use real estate as collateral, and the price of the real estate determines the value of the collateral. If housing prices continue to rise and mortgage prices continue to appreciate, consumers' creditworthiness and loan repayment ability will not be affected. Once house prices fall and the value of the collateral depreciates, less money can be borrowed from banks for the same house. If loan interest rates are raised, the floating interest rates on subprime mortgages will also rise, and the amount of money that needs to be repaid will greatly increase. Subprime borrowers were originally low-income earners and had to give up their property rights if they could not repay their loans. If the lending institution cannot recover the loan, it can only recover the lender's property. Not only can the recoverable property not be sold, but it also continues to depreciate and shrink in value, resulting in losses and even capital cannot be circulated. Shrinking home prices and rising interest rates are the killers of subprime mortgages.
From 2005 to 2006, in order to prevent overheating of market consumption, the Federal Reserve raised interest rates 17 times, from 1% to 5.25%, and market interest rates entered an upward cycle. Since the transmission of interest rates to the market often lags behind, U.S. subprime mortgages continued to rise in 2006. However, the effects of interest rate hikes gradually emerged, and the real estate bubble began to burst. According to a report by Standard & Poor's, U.S. housing prices fell by 8.9% in 2007, the largest decline in at least 20 years. Currently, housing prices across the United States have fallen to the lowest level since 2004. Beginning in February and March 2007, some subprime mortgage loan companies in the United States began to expose problems.
Comparatively speaking, French housing loans are based on family income rather than real estate mortgage applications; during the loan repayment period, most low-income borrowers also need to register for unemployment insurance. In this way, landlords are Borrowers who are able to repay. The repayment ability of French home loan borrowers is not determined by housing prices, but by the disposable income of their families. During the economic fluctuation cycle, the volatility of house prices is much higher than the fluctuation of disposable income. This is also an important reason why France did not have a mortgage crisis.
Germany implements a unique "deposit first, loan later" contract savings model, which accounts for about half of the total housing loans. The other 30% of housing loans come from commercial loans, and the rest comes from household savings. All mortgages in Germany implement a fixed interest rate system. The interest rate on savings mortgages is lower than the market interest rate, and the average term is 11 and a half years. This long-term mortgage interest rate cycle can compete with almost any financial market fluctuations.
The securitization of subprime loan assets exacerbated the spread of the crisis
The vast majority of home mortgage loans in the United States are regional savings banks and savings and loan associations. Commercial banks are also involved in mortgage lending. The financial strength of these institutions is not very strong, and a large amount of funds are invested in housing mortgage loans, which poses serious pressure on their capital turnover. Some financial institutions with "financial innovation" tools package these credit assets and use them as guarantees to issue tradable bonds. , giving quite attractive fixed income, and then sell it. Many banks and financial institutions such as asset managers, hedge funds, insurance companies, and pension funds invest in these bonds. Mortgage companies have a steady stream of financing channels and create rapidly growing new subprime mortgages; investment institutions gain higher returns. Since 2001, there has been a massive expansion of subprime mortgages in the United States, and the securitization of subprime mortgages has also accelerated. In 2001, the subprime mortgage securitization rate was 45.8%, which surged to 67.2% in 2004. In 2005, it further increased to 74.4%. These U.S. subordinated bonds are basically dispersed in the hands of five types of financial institutions, including banks (31%), asset management companies (22%), hedge funds (10%), insurance companies (19%) and pension funds (18%).
The financial derivatives and financial innovations in the United States are the most advanced in the world. Various financial derivatives enable the cash flow of investment institutions and daily life to be more rationally utilized, and the interests are also decomposed. Shared with ***, the risk is also shared. But everything has two sides. While the financial innovation system brings a risk diversification mechanism to family development, it will also produce a risk amplification effect. An innovation such as subprime mortgages allowed residents in the United States who did not meet the housing mortgage loan standards to buy houses. At the same time, through asset securitization, they were transformed into subprime debts, which loaded high risks with high returns and spread throughout the world. In this sense, any country that buys U.S. subprime debt will be forced to "pay" for the U.S. subprime crisis. When the real estate bubble burst and subprime lenders were unable to repay their loans, not only did mortgage companies fall into losses and were unable to pay fixed returns to the financial institutions that purchased subprime debt, but investors who bought subprime derivatives also lost money. Due to the decline in bond market prices, high returns were lost, and the company was also faced with liquidity shortages and losses. Beginning in the third quarter of 2007, financial institutions began reporting large losses, reflecting sharp declines in the value of mortgages and other assets. As of the end of January 2008, large banks and securities companies such as Huaqi, HSBC, UBS, Merlin, and Morgan Stanley had written off more than US$90 billion in losses on subprime-related assets. This list also includes France’s Société Générale and BNP Paribas, Britain’s Northern Rock, Switzerland’s UBS, and then German banks that bought a lot of bonds.
The information asymmetry of subprime loan securitization has exacerbated financial instability and
The securitization process of subprime loan assets is actually a process of asset portfolio and credit enhancement, and it is also a multi-faceted process. A process of asset overlay and credit overlay of multiple credit entities. After asset securitization, the information and related risk information disclosure of this asset securitization portfolio may become more opaque, resulting in few people in the market being able to clearly understand it. Risk institutions among them, not to mention real-time risk pricing. Due to insufficient knowledge of the true value and risk of assets, investors rely heavily on reports from rating companies to make decisions. The credit ratings of credit rating agencies have an increasingly important role and influence in the financial market. Credit ratings are also a necessary and important link in the asset securitization process. Whether credit ratings are objective and fair, whether financial instruments are truly understood, whether there are conflicts of interest and moral hazard, etc., these factors will have a major impact on the global financial market. Subprime mortgage bonds were originally developed from some low-quality assets, but "financial innovation" enabled these low-quality assets to obtain a high-grade AAAd rating from credit rating companies, which later proved to be seriously overvalued. For example, after the subprime mortgage crisis, Moody's re-evaluated the credit ratings of the first batch of subprime debt listed from 2006 to October 2007.
As a result, only 21% of the mortgage bonds originally rated A were still rated A after being rerated, 43% were downgraded from A to Baa, and 27% and 9% were downgraded to Ba, B and Caa respectively. and 1%; only 12% of Baa-rated subprime debts remained Baa after re-rating, while the proportions downgraded from Baa to Ba, B and Caa were 32%, 23% and 32% respectively. After the re-rating of Ba-rated subprime debt, only 4% of subprime debt remained at this level, 14% were downgraded to B grade, and a large number of 82% were downgraded to Caa grade. Some people accuse rating agencies and investment banks of being "complicit" in trapping a large number of investors into credit traps.
Due to information asymmetry and unknown risk and loss, once major risks and losses occur in subprime mortgage loans, the credit enhancement and credit superposition built on these securities will collapse instantly like a castle in the air in the desert. "This will inevitably cause panic in the investment confidence of the majority of investors. The instinct to avoid risks will accelerate investors' selling and intensify the turbulence of the financial market. Financial disaster will be inevitable. In the risk transmission chain of subprime mortgages, securitization, and credit derivatives, without the participation of credit rating companies, the subprime mortgage crisis might not have happened at all. Former U.S. Treasury Secretary Lawrence Summers commented, "The subprime crisis is to credit rating agencies what the Enron incident is to accounting firms."
The impact of the subprime crisis will continue
The impact of the U.S. subprime mortgage crisis was first concentrated in the financial sector. The first wave was some lending institutions engaged in the subprime mortgage business. Many subprime mortgage loan companies suffered serious losses and were even forced to apply for bankruptcy protection. Hazu, chief U.S. economist at Goldman Sachs, said that the total loss of U.S. residential mortgage loans will reach 500 billion U.S. dollars, higher than market expectations; followed by some U.S. and European banks, funds and other investments that bought such investment products Institutions were also hit hard. Bear Stearns, the fifth largest investment bank in the United States, was acquired by JPMorgan Chase. BNP Paribas suspended the transactions of three of its funds involved in the U.S. mortgage business. Citigroup in the United States suffered a loss of US$9.83 billion in the fourth quarter of 2007; it then expanded to In other financial fields, banks generally chose to increase loan interest rates and tighten standards for commercial and industrial loans, commercial mortgages, and credit card loans, resulting in insufficient liquidity in major global financial markets and sharp declines in European and U.S. stock markets. To this end, central banks in the United States, Europe, the United Kingdom, Switzerland and other countries have continuously injected liquidity into the market and taken interest rate cuts. The stormy actions of the United States have temporarily affected the financial market, but the impact of the crisis on U.S. consumption and economy is still expanding. The U.S. economic development has slowed down significantly and is on the verge of recession. The main manifestations are: first, domestic economic demand has shrunk. The U.S. GDP growth rate was 0.6% in both the fourth quarter of 2007 and the first quarter of 2008, the lowest level in five years. Personal consumption expenditures increased by only 1% in the first quarter of 2008, the smallest increase in the past seven years. Second, the housing construction and automobile sectors have fallen into decline, and other economic sectors and the labor market are also weakening. Third, economic growth in most regions has slowed down and local regional recessions have occurred. Among them, the economies of California, Nevada and other five "housing bubble weeks" (accounting for about 25% of U.S. GDP) have basically fallen into recession.
Judging from the continued decline in U.S. housing prices and the poor performance of financial institutions, the U.S. subprime mortgage crisis is far from over, and its impact will continue to expand. Compared with the Great Depression of the 1930s, the amount of defaulted loans increased sharply during the subprime mortgage crisis, financial institutions were forced to tighten credit, financial intermediary functions were severely damaged, and the economy continued to decline. The two were quite similar. Judging from historical experience, the economic adjustment caused by the collapse of the real estate market bubble takes a long time, ranging from 3 to 5 years in the short term and more than 10 years in the long term. At this time, strong inflationary pressure caused by the skyrocketing international crude oil and grain prices further weakened consumption capacity and corporate investment willingness, exacerbating the economic recession. Therefore, former Federal Reserve Chairman Greenspan said that this crisis that shook the U.S. market and the global economy may become the most serious crisis since World War II.
Why did the financial crisis happen - Enlightenment from the US financial crisis
The bankruptcy of Lehman Brothers and the acquisition of Merrill Lynch caused investors to worry about the US financial industry. The New York stock market, European stock markets plummeted, and mainland China's stock market was also greatly affected, with the Shanghai Composite Index falling below 2,000 points.
The international economic situation has suddenly become severe.
Former Federal Reserve Chairman Alan Greenspan said that the United States is falling into a once-in-a-century financial crisis, which will trigger a series of global economic turmoil. Previously, Soros also said that the outside world is still worried about the debt repayment problem of financial institutions. The financial system is on the verge of "rupture" for the first time since the 1930s.
What caused the financial crisis in the United States? To what extent will it affect the Chinese economy? What measures can we take to deal with this crisis?
It is generally believed that the causes of the financial crisis are overproduction caused by overheating of the economy, huge trade balance deficit, excessive inflow of foreign capital, inflexible exchange rate system and improper exchange rate level, or premature financial opening up, etc. . Why did the financial crisis first arise in the United States and not in other countries? This is intrinsically linked to the choice of the U.S. economic structure.
Since the end of the last century and the beginning of this century, the United States has successively used two industries as its economic engine, one is the information network industry, and the other is the financial services industry. With the bursting of the Internet economic bubble, the United States turned to vigorously develop the financial industry. In 1999, the U.S. Congress passed the Financial Services Modernization Act. This bill stipulates that as long as banks can operate sufficient capital, they are allowed to expand their service scope and broaden their business areas. The U.S. banking industry has been fully liberalized after decades of repressive control and regulation in the 1930s. Since World War II, the contribution of the added value created by the U.S. financial industry to GDP has grown steadily and continues to decline. After liberalization, the financial industry became more prosperous and new financial derivatives products continued to emerge. At the same time, the United States continues to move manufacturing offshore. At this point, the degree of virtualization of the U.S. economy has greatly increased.
There is no doubt that the virtual economy itself is an economy that is prone to bubbles. A slight oversight in supervision can easily lead to a bubble bursting - a financial crisis or economic crisis. As early as 2002, economist Cheng Siwei conducted some preliminary explorations into the deep-seated causes of the financial crisis from the perspective of virtual economy. He believed that the so-called virtual economy refers to the circulation of virtual capital mainly relying on the financial system. Sports-related economic activities are, simply put, activities that directly use money to generate money. The virtual economy is complex, high-risk, parasitic and cyclical. If the real economy is compared to a rock, the layer of snow covering it is the virtual economy. Excessive snow accumulation can lead to avalanches. In other words, if the virtual economy exceeds a certain ratio with the real economy, it will inevitably lead to a crisis. The United States has shifted away from the manufacturing industry and allowed the financial industry to develop freely. The rock formations are thin and the snow is thick, and an "avalanche" will happen sooner or later. This is where Soros' worries stem from.
Looking back at the current status of the domestic industrial structure, in recent decades, what developed countries have transferred to our country is mainly manufacturing. For a long time, manufacturing has been the bulk of GDP. It can be said that the "rock mass" of our country's economy is solid. However, due to the influence of blindly optimistic economic stimulus signals, our country also has the phenomenon of excessive growth of the virtual economy and the increase of economic bubbles. Especially since 2005, the stock market has risen sharply to 6,000 points, and real estate prices in major cities have soared. To a large extent, it deviates from the actual level of China's real economic development. From this perspective, the decline in China's stock market and housing market is a normal adjustment.
In today's era of economic globalization, China cannot be immune to the influence of the outside economy. To minimize the impact, it depends on whether we can find countermeasures as early as possible with timely and accurate judgment, and persistently improve and optimize the industrial structure rather than blindly pursue the prosperity of the virtual economy.
Wall Street financial crisis: The U.S. government shot itself in the foot
The event that has had the greatest impact on the world in the past month is undoubtedly the U.S. subprime mortgage crisis. And the financial crisis hit Wall Street. In the words of economists, it was a "financial tsunami" that occurred on Wall Street "once in a century." The financial crisis that occurred on Wall Street not only severely damaged the fragile economy of the United States, causing the U.S. stock market to collapse, but also gave other countries a (such as China) has brought great harm to the economy.
Why did a serious financial crisis occur on Wall Street? How did the financial crisis on Wall Street occur? Many economists have made some analyses: they think it is It originated from the subprime mortgage problem in the United States. The subprime mortgage problem occurred because the poor could not repay their bank debts, and the reason why they could not repay their debts was because the Federal Reserve continued to raise interest rates in order to control inflation. This greatly increased the loan debt of the poor in the United States. Reason. These views are undoubtedly correct, but in the author's opinion, these analyzes still do not touch the essence of the problem.
So what is the root cause of the financial crisis on Wall Street? In the author's opinion, this The crisis that occurred on Wall Street originated from the selfish energy strategy of the U.S. government; from the unilateral hegemonic policy pursued by the U.S. government around the world; from the Iraq war launched by the U.S. government; and from the fact that the U.S. government has made too many enemies around the world. , the battle line was too long and the burden was too heavy. In the end, it overwhelmed Wall Street.
People will not forget: In the past ten years, in order to promote its so-called absolute strategic security, the Bush administration of the United States maintained Decker's The economic interests of the Texas oil tycoons have raised the price of oil in the international market through hedge funds. It is the high oil prices that are weighing on the U.S. economy and Wall Street.
As we all know, the U.S. government is During the Clinton era, oil prices were low. In 1998, oil prices were $12 per barrel. Cheap oil prices supported the rapid growth of the U.S. economy and kept interest rates low. The U.S. stock market experienced the largest bull market in history. The Americans have enjoyed the greatest economic benefits and their national power has increased sharply. However, after the Bush administration came to power, the Americans began to be eager to show their strength around the world and pursue unilateral hegemonism. In order to suppress China's economic development, the United States began to try to control the world Petroleum and mineral resources raise the price of oil in the industrial oil futures market through hedge funds. In the eyes of U.S. government policymakers, if we control oil, we will control the Chinese economy, and if we control China, we will control the world. As everyone knows, , this short-sighted behavior of the U.S. government not only failed to control China, but also harmed the United States itself.
Oil is an important strategic resource. The plastics industry, transportation industry, and fertilizer industry are all inseparable from oil, and Oil affects even more industries. Clothing, toys, real estate, and residents' lives can be said to affect the whole body. The result of high oil prices is that on the one hand, it raises the price of American goods, and it also hits the pillar industries of the United States. The price of goods exported to the United States from around the world has increased, and the era of the United States enjoying low commodity prices in the world has ended. On the other hand, high oil prices have enhanced the strength of oil exporting countries, giving oil exporting countries the capital to confront the United States. The United States has also To maintain its hegemony, it continued to increase military spending and consume a large amount of U.S. financial resources. As a result, it continued to implement expansionary monetary and fiscal policies, which eventually caused inflation. In order to control inflation, it continued to raise bank interest rates, which finally triggered the subprime mortgage crisis. Crisis. Therefore, it can be considered that the continuous rise in commodity market prices, especially oil prices, is the fundamental cause of the "financial tsunami" on Wall Street. Although high oil prices have brought high profits to American oil companies, they have harmed the American economy. So the Wall Street financial crisis: it was the U.S. government that shot itself in the foot.
The road map for the "financial tsunami" on Wall Street:
The United States pursues hegemony_-----speculation Funds push up commodity prices (oil prices)---inflation---the Federal Reserve raises interest rates---increases the debt of the poor in the United States---poor people cannot repay their debts---banks repossess collateral (House)-----House prices plummeted-----Banks and stock markets plummeted-----Wall Street's "financial tsunami"
The author made a bold prediction: To get out of the trough, the U.S. economy needs to cut interest rates, and the conditions for interest rate cuts It is the reduction of inflation. But if the U.S. government continues to allow speculative funds to continue to do whatever they want in the commodity market, raise commodity prices (especially oil prices), and maintain high interest rates, then the U.S. economy will not fundamentally improve. The decline of the U.S. economy will It’s a foregone conclusion.