New York 2006

Chapter 75 Chinese Celebrities and CDS
"Logic, do you need a loan?"

Luo Ji knew him. The person coming was Wu Jianmin, the chairman of Huami Bank. East West Bank mainly serves the Chinese-American and Greater China markets. It is the largest bank in the Chinese-American community in the United States, with assets reaching tens of billions of dollars.

"What's the interest rate?"

"Your album sells so well, I will give you the best interest rate. But you need to mortgage your song copyright."

Luo Ji smiled and stretched out his hand: "Okay, I may need a loan in the near future. I will contact you if I need it. Can you leave me your phone number?"

"of course."

The two communicated for a while, and a woman walked up to him.She was wearing a black evening gown and walked very elegantly. She looked at the two of them with a smile, and Wu Jianmin immediately introduced them.

"This is Kwan Yingshan, a famous American figure skater. Now she is the spokesperson of Huami Bank."

Luo Ji knew her. She was very famous in the United States.Kwan Yingshan has won 9 U.S. Figure Skating Championships and 5 World Figure Skating Championships, and also won 2 Winter Olympic medals.She has remained competitive for more than ten years and is the best figure skater in American history.

She has also signed contracts with many companies, so she will appear in many television commercials, such as Comba Soup, Coca-Cola, VISA, Kraft Foods, and Chevrolet.She is also an "advertising spokesperson" for the Walt Disney Company.

In 2006, she was interviewed by the chief minister and the President of the United States, and appeared in many mainstream newspapers.

Luo Ji greeted him with a smile: "Mr. Wu, you have found a good spokesperson. You have taken advantage of him."

"It's true that I took advantage." Wu Jianmin said with a smile.

Kwan Yingshan smiled and shook hands with Luo Ji: "No, no, I am the one who took advantage, thanks to Mr. Wu's kindness. Ronaldinho, you are much more famous than me, why don't you become the spokesperson of Huami Bank." "

Luo Ji smiled and said, "As long as Mr. Wu doesn't object, of course I have no problem. But you can imagine this scene. I am speaking on behalf of Huami Bank, and a reporter criticizes me. My direct counterattack. Fxxk you, and then give me the middle finger." "

"Hahahaha." Kwan Yingshan and Wu Jianmin laughed loudly, attracting curious eyes from the people around them.

The few of them chatted very harmoniously and talked about a lot of topics about China.

Kwan Yingshan said: "Last month, as the public diplomacy ambassador of the University of Denver, I went to China and visited many big cities. It has only been three years since I last went there. There have been earth-shaking changes. You have You must go there if you have the opportunity, it will definitely subvert the China that the American media has instilled in you."

"I have never trusted the American media. They are all fake news!" Luo Ji said harshly.

Kwan Yingshan and Wu Jianmin thought of Luo Ji's mad dog attitude in the media these days: "Hahaha."

After everyone finished laughing, Kwan Yingshan said with concern: "Ronald, it's not my sister's fault, you should also restrain your fiery temper. This is really bad for your image."

Luo Ji said helplessly: "I know this is not good for my image, but I can't help it. You should have noticed that my attitude towards the media has never been so fierce before. The main reason why I am like this now is because Universal Music forced me to Yes, no one will report me if I don’t have a fierce attitude. I will return to normal when the Universal Music matter is over.”

"Good luck."

The few chatted for a while, and Luo Ji continued to socialize at the banquet, during which he met many Chinese celebrities.

Oscar-winning director Li Eucalyptus, WuXi AppTec founder Li Ge, Kingston Technology Co., Ltd. David Sun, United Bank Holdings Co., Ltd. Wu Zhenshan, Tang Zhongying Tang Industrial, Vizio founder Wang Wei, Yahoo's Jerry Yang, C&L Restaurant Group Li Kangmin, Zhang Shanshan of McSam Hotel Group, Nvidia founder Huang Jensen, etc.

The time came to seven o'clock in the evening. The banquet had lasted for six hours since the afternoon, and Ms. Clinton and her entourage had all left.There were some Chinese celebrities left at the scene to interact with each other and exchange some business information.

Luo Ji had a good harvest today. He got to know a lot of people, initially negotiated a few advertisements, and also negotiated two investment intentions with Liu Shu and Zhu Qinqi. It was really a fruitful day.

After socializing all afternoon and performing a high-intensity performance for 30 minutes, Luo Ji was already a little tired.He walked to a chair and sat down.

Sitting next to him was a Chinese man in his 30s. He had his hair parted in a three-quarter part, hairspray on it, and a pair of round glasses. He looked very serious and decent.

"Hi, I'm Luo Ji."

"Hello, I am Xu Youyu."

"You must be exhausted after a day of socializing. I want to come here to rest."

"It's really tiring."

The two chatted for a while about family issues and discussed the Chinese celebrities present, before Luo Ji asked: "Mr. Xu, I haven't asked you what you do?"

"I'm an analyst at Deutsche Bank."

Luo Ji said in surprise: "Then you must be a mathematical genius. Big companies like Wall Street have gathered the best talents in the world."

"Haha, no, no, you're overly praised."

Luo Ji thought for a while and asked, "Do you know what opportunities there are for making money on Wall Street recently?"

The person on the other side was silent for a while, but stopped talking: "Forget it, I'd better not say it. You won't believe it if I say it."

Luo Ji suddenly became interested and said with a smile: "You didn't tell me, so how do you know I wouldn't believe it? I came from the new media and I like to accept new things."

Xu Youyu struggled for a moment, then looked at Luo Ji seriously: "Everything below is my speculation. This kind of argument is not the mainstream on Wall Street now. Logic, you have to think clearly, investment is risky."

Luo Ji also looked at Xu Youyu seriously: "Don't worry, I will make my own judgment on everything you say." Xu Youyu said, "Do you know CDS? Credit default swaps?"

Luo Ji's brain stagnated for a moment, and the abnormality he had vaguely noticed before seemed to be coming out right away.The noisy banquet hall seemed to be quiet at this time, with only Xu Youyu's voice slowly narrating.

"House prices in the United States have been rising in recent years. Many people who cannot afford to buy a house have three or four houses in their hands. They borrow money from banks and then earn the difference through rising house prices. Many people buy houses for no purpose at all. Instead of living in it, treat it as a financial product.”

Luo Ji thought of a person he met in the past: "I know this. I met a Latino taxi driver before. He said that he owned three properties. He used the increase in house prices and subtracted the interest on the loan to Then use it to make the difference.”

Xu Youyu continued: "Yes, this situation is very common, but starting from November last year, the overall housing prices in the United States began to stagnate, and even fell in some areas, so many people who speculate in houses have no hope of making money. , plus property taxes, I simply won’t repay the loan.”

Luo Ji said in surprise: "If they don't repay the mortgage, the bank will take away the house and they will become homeless. Then the bank and they will be in trouble. The bank has all the houses that cannot be sold. They will But there’s no place to live.”

Xu Youyu smiled mysteriously and said: "You are partly right. The number of homeless people will indeed increase, and banks may be unlucky, but the bank's lending department may not necessarily be unlucky."

"why?"

"Most banks in the United States are comprehensive banks. The investment department may be unlucky, but the loan department of the bank does not need to bear risks at all, because there is a financial product in the United States called CDO, a guaranteed debt security."

Luo Ji used honorifics: "Please tell me."

"The loan department of the bank directly packages the loans it lends into bonds. They sell them to other investment institutions or the investment departments within the bank. These investment institutions will sell these bonds to ordinary investors or investors in the form of financial derivatives. Financial Institutions."

Luo Ji thought for a moment: "So what you are saying is that if I buy this type of CDO, it is equivalent to buying a loan from the lender and the bank. The interest they will repay in the future will be equivalent to my income. If they do not repay the loan , then the house is mine."

Xu Youyu said with a smile: "You are very smart, that's what I mean. Therefore, the bank's loan department does not need to take any risks at all, they only need to earn the intermediate handling fees. And the bank's loan department, for the sake of profit, There is no need to review whether the borrower has the ability to repay. As long as you lend as hard as you can, you can make unlimited money without risk. When the bank's top executives see the risk-free returns, they don't even care about whether the people under them are operating in violation of regulations. "

Luo Ji was shocked and said blankly: "Is what the Latino driver said back then really true? As a minor, can I get a loan to buy a house?"

Xu Youyu laughed and said: "It should be true. I heard from my colleagues that dancers, homeless people, and people with low incomes can all get loans. He even heard that someone used a dog to get loans. The bank's lending arm secured the loan. This extremely risky loan was called a subprime loan."

Luo Ji was stunned: "Is the banking industry so crazy? What do the US regulators do for a living?"

Xu Youyu said in a deep voice: "U.S. Treasury Secretary Henry Paulson is from Wall Street. You expect him to supervise Wall Street."

Luo Ji reacted and slapped his forehead: "I didn't think of it just now. But after you said so much, do you want me to short-sell those real estate companies and lending companies in the stock market? Or those companies that have purchased large amounts of CDOs?"

Xu Youyu said: "Those who can't make much money and want to make a lot of money have to mention the CDS we just talked about."

"You continue."

"You know that when house prices rise, people's willingness to repay is very strong, and everyone wants to make money through rising house prices. So the value of these loans in previous years was similar to the interest on bank deposits. The risk is very low, we assume The value of a CDO was 100 at the beginning, so the highest and lowest fluctuations over the years were only between 102 and 98."

"Yes. I understand, please continue."

Xu Youyu continued: "These financial institutions in the United States are crazy about making money. They invented CDS. CDS is actually a legalized gambling mechanism."

"For example, for me, I think the valuation of this Hilton hotel will drop in one year, and then I can purchase CDS from insurance companies and investment institutions. I only need to pay a certain premium. If the value of this Hilton hotel is If the value drops, insurance companies and investment institutions will lose my money. I can even pay for Bill Gates's worth, whether there will be an earthquake in New York, whether the White House will be occupied by aliens, everything in this world is legal and reasonable. buy CDS."

Luo Ji understood: "So what you are saying is that I can buy CDS for these CDOs, and we bet that they will fall in the future."

Xu Youyu said with a smile: "Yes, the value of CDO has fluctuated very little over the past few decades, and its value can even be comparable to U.S. Treasury bonds. The fluctuations are so small, so the premiums are extremely cheap, but the odds are very high. "

Luo Ji thought for a moment and said, "So it's such a chain. Because of the crazy lending by the bank loan department in the past, many people with insufficient qualifications were able to get loans. They saw the rise in housing prices and wanted to make money, so they were willing to repay. But now When housing prices stagnate or even fall, these people are no longer willing to repay their mortgages and are unable to repay their mortgages. Large-scale housing defaults occur, and the value of CDOs declines thereafter."

Xu Youyu continued: "Yes, but the chain has not ended here. After the lender defaulted, the people who purchased the CDO or the investment institutions got a lot of real estate in their hands, but they could not use so many houses. , so they must sell these houses at low prices in exchange for cash flow. This will further cause housing prices to drop, and then more people will be unwilling to repay, and the value of the CDO will drop further, and then those who bought the CDO will need to lower their prices to sell them. More houses.”

Luo Ji said: "This is an infinite nesting doll. If this continues, it will cause severe financial fluctuations in the market."

"Yes." Xu Youyu said regretfully: "I discovered this problem in 2005, but at that time house prices were rising, and I reported it to the group headquarters and they didn't take it seriously. Now things have begun to leak out, but our group is still No one pays attention to it. But I heard from my colleagues that a giant is buying CDS for CDO on a large scale."

"Who?"

"John Paulson."

At this moment, Luo Ji's instinct told him to go ahead and do it.

“Where can I buy CDS?”

"Deutsche Bank, Goldman Sachs, Citibank, AIG, etc., these insurance companies and investment banks can buy it. I have the phone number of our company's CDS manager here, do you need it?"

"Of course." Luo Ji wrote down the phone number.

After the chat ended, Luo Ji encountered the same problem as before. After a moment of silence, he said, "Mr. Xu, why did you tell me about this opportunity to make money?"

Xu Youyu answered sincerely: "On the one hand, it's because of my desire to talk. After all, I was the first to discover this problem. And this is just a guess. No one knows whether it will happen. On the other hand, I introduced people to buy it. CDS also has commissions.”

Luo Ji looked out the window at the night. The entire Manhattan was brightly lit. He smiled and shook hands with Xu Youyu: "Hahaha, Wall Street capital never sleeps."

(End of this chapter)