The Chaebeol’s Youngest Son Chapter 280

[280]Pandemonium, Wall Street 1

In fact, the work of a bank is very simple. All there is to do is collect a fee called deposit margin (the difference between the loan interest rate and the deposit interest rate) between the person who deposits the money and the person who borrows it.

In the past, bank workers were thought of as civil servants because of the advantages of simple work that was carried out without error according to the manual, stable salary, and guaranteed retirement age. Instead, it was unable to escape its old-fashioned image.

However, there are people in any field who cannot hide their sparkling talent.

There were geniuses hidden in these simple banking circles, and their genius was focused on how to make huge amounts of money at once.

In the early 1980s, when Korea could not escape the ecology of an underdeveloped country holding gymnasium elections due to a new military coup, three geniuses in the United States, synonymous with capitalism, put their heads together and came up with an unusual way to make money.

Louis Raniere, head of the fixed income department at investment bank Salomon Brothers, Larry Fink, founder of asset management company BlackRock, and David Maxwell, CEO of the Federal Home Mortgage Corporation, created an ingenious product called Mortgage Backed Security (MBS), or mortgage-backed securities. I made it… No, I created it.

Until now, a home mortgage loan was a simple matter of lending money using your house as collateral and collecting principal and interest over 10 or 20 years. However, although it is stable from the bank’s perspective, it is just a yawn of lending a large amount of money and receiving small payments over a long period of time. Moreover, it was also a job that involved a lot of money.

These three geniuses looked at home mortgage loans from the perspective of a product, not from the perspective of a bank.

Although home equity loans are small amounts of money, they provide stable profits over a long period of time.

We discovered that this was consistent with the stable investment product desired by retired seniors, financial income earners, and asset owners who were most reluctant to lose principal, and made home mortgage loans into a product called MBS.

In fact, the reason they thought this way was because of interest rates.

In 1979, when the Federal Reserve raised interest rates, the financial sector suffered a financial crisis, and the mortgage loan market began to falter.

Because no one buys a house with a loan in this era of high interest rates.

However, politicians always side with the wealthy and protect them by law so that they never suffer losses.

On September 30, 1981, the U.S. Congress passed a clever bill to protect the financial sector.

A bill was passed that allows the financial sector to defer taxes when liquidating housing loans, and further compensates all losses incurred during this process from the national treasury.

It became a system in which money flowed in simply by selling loan bonds, and the era of so-called securitization of bonds opened.

Now, banks have started lending a lot of money using houses as collateral, collecting fees, and then passing the bonds on to others.

Worries about recovering the principal disappeared, and the loan was not tied up for a long period of time.

Banks focused on housing mortgage loans and did their best to conduct business that was a life-or-death risk.

Salomon Brothers, an investment bank, divided these bonds by risk, repackaged them, and sold them, earning huge brokerage fees.

Even by mixing one safe loan with three or four risky loans, he was able to achieve a credit rating of AAA, resulting in a net profit of over $200 million in 1983 alone.

People in financial circles no longer spend their weekends golfing. We enjoyed a party on board a luxury yacht and flew to Venice on a private plane to eat delicious pizza.

It’s almost time for their extravagant party to end, and I plan to show up at the end and claim the party fee.

Of course, the bankers don’t pay for the party. The American people will pay the cost.

The joy of meeting New York Miracle’s CEO Rachel Arief for the first time in a long time was short-lived, and her face immediately turned serious.

“So you mean to leave it to the investors’ choice?”

“yes. My judgment may not always be right. “We can continue to leave behind investors who believe MBS is stable and take out the money of investors who think it is risky.”

“What about people withdrawing their investment?”

“Let them choose that too. “There are stable government bonds and Hollywood funds.”

“Are you betting that mortgage-backed securities will plummet?”

“yes. “If there are investors who want to bet with me, that would be their choice as well.”

“I don’t think there will be any investors who will follow you?”

“What about Rachel? Where is she going to bet?”

Rachel Ariev frowned.

“I know MBS is Gorisk. But I don’t think there will be a collapse. “It will be a soft landing.”

“Because the collapse is the downfall of American finance?”

“okay. The federal government will do whatever it takes to keep it from falling. “The fall of Wall Street will sink not only the U.S. economy but also the world economy.”

At this moment, the idea that the U.S. economy is collapsing is an opinion as absurd as saying that the U.S. will change from a capitalist to a socialist country in one fell swoop.

“So Rachel sustain?”

“No, waiting. Take it all out and store it for now. “I will wait a little longer before making my next investment.”

“Then let’s send emails to customers. “By ensuring risk classification.”

“How risky do you think your investments are?”

Although it is absurd to go all-in on the decline of the U.S. economy, I guess I am genuinely curious because the person responsible for the investment was me, who has never been wrong in my predictions.

Words like certainty and certainty were not used.

“As always, it’s half and half. “Isn’t this the truth?”

“All in at 50%? “All your assets?”

“It’s not all my property, it’s my property in the United States. And I’m still young. Even if you lose everything, you have time and money to start over.”

Rachel still sighs.

“Wouldn’t Wall Street be nervous just because your money is moving? “I wonder if there has ever been such a large amount of money moved at once in the history of Wall Street.”

“Only half.”

“huh?”

“I will only put half of my assets on Wall Street.”

A smile spread across Rachel’s face.

“The odds are 50%, so you only bet half? “Isn’t this too standard?”

“What are you talking about? Didn’t you say that a little while ago? Wall Street will be nervous? So, just solve half of it so you don’t get nervous. The other half should be released in London. “You don’t think Wall Street is all about world finance, do you?”

“The City?”

The City is simply the name for the City of London. As the smallest administrative district in London, it is the center of London’s history and financial district. In addition, it is an autonomous legal region that enjoys independent autonomy.

It is a place where over 5,000 financial institutions are concentrated, including the Bank of England, JP Morgan Chaser, Goldman Sachs, Morgan Stanley, Bank of America, Citigroup, and HSBC. The area of ​​the city exactly matches that of Yeouido, but the scale of money moving is on a different level.

“yes. You should be able to digest half of it there too. “Everyone will say they’re happy that a hotgu has appeared.”

Rachel’s eyes wavered.

This is because I realized that if Wall Street crashed, I might be the one to pull the trigger.

It’s like dropping a billion-dollar bomb all at once.

* * *

The first thing to do was to recover the money buried in mortgage-backed securities.

If it is removed all at once, Wall Street will be in turmoil. I changed products little by little and sold mortgage-backed securities, being careful not to differ from normal transactions.

Since it was a popular product, there were no major problems in selling it.

“MBS has been disposed of. “What are you going to do with this money now?”

“It’s a bet. “I’m all in on the idea that all mortgage bonds will turn into toilet paper!”

“When will I know the results of that bet?”

Rachel still looked in disbelief.

“Next year.”

They look even more disbelieving because it’s coming so quickly. If I had said 10 years, you might have nodded. Even if bad debts start to arise in 10 years, it will give us time to resolve them, but it will not be possible in next year.

Impossible is just another word for a very slim probability.

“Supplies began pouring in in earnest in 2005. The interest rate is fixed at 2% for two years, but a variable interest rate will be applied starting this year. “You have to pay more than 10% interest, and American citizens can’t afford that.”

“These are people who are stable enough to own a house. “It may be dangerous, but it won’t collapse all at once, right?”

“Who is stable? Subprime is literally not prime, but below grade, candidate level. The problem is that people who cannot afford it have three or four houses. Even if you only own three houses, the interest you have to pay jumps to 30%.”

Rachel, who continued to make stable investments, failed to see the greedy nature of Wall Street.

Regardless of whether they go bankrupt or not, whether the risk is big or small, they are so obsessed with making money that they are right in front of them, so much so that they take a number and approve a home mortgage loan from anyone who shows up at the window.

“Okay, let’s say that. So how are you going to place your bet?”

“Credit Default Swap (CDS).”

A credit default swap is a type of insurance against default.

For example, if you hold 100 million won in bonds from Apple and the company goes bankrupt, those 100 million won in bonds will disappear into thin air. To avoid these risks, you take out insurance. The insurance method is also simple.

If there is bankruptcy within 10 years, the insurance company pays 200,000 won per year on the condition that the entire 100 million won is paid. The reason the insurance premium is cheap is because Apple is a very healthy company and there is no chance of it going bankrupt within 10 years.

Since there is no risk, the insurance premium is cheap.

If a company has low credit and is not sound, insurance premiums will naturally rise.

What’s interesting here is that greedy people on Wall Street have turned insurance into gambling.

Even people who do not own a 10-won Apple bond can sign up for insurance. Anyone can pay 200,000 won every year and receive 100 million won if Apple goes bankrupt within 10 years.

You can bet that Apple will fail even without any stocks or bonds. The insurance money paid every year is the betting chip, and if you win, you earn 100 million.

Rachel shook her head.

“We have never issued a credit default swap for a financial product yet. Howard, you’re saying you’re going to buy a product that doesn’t exist.”

Rachel sighed as the conclusion seemed vain.

“You can make it. People in the financial sector who believe that mortgage-backed securities are safe will welcome me with open arms, thinking that if I pay for insurance, it is empty money. “I don’t think there is a problem because it is difficult to set insurance premiums.”

“Who are the people in the financial world who would listen to such absurd stories?”

“Goldman Sachs, Deutsche Bank, Morgan Stanley, Barclays Capital, Merrill Lynch, Citigroup, Bank of America, Credit Suisse, JP Morgan, UBS. “There are countless.”

“Why are Bear Stearns and Lehman Brothers excluded? “Are they also the top group?”

When the names of the huge financial companies that dominate Wall Street came out of my mouth, Rachel said sarcastically, as if she was shocked.

“Oh, those two companies are going to go into insolvency. Even if you sign a credit default swap contract, you can’t receive it because you don’t have the money.”

Rachel’s mouth fell open when he concluded that a major financial company, which is no exaggeration to say that it will list the U.S., will fail next year.

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fantasy, modern,