September 7, 2008 is destined to be a very important day, because on this day the U.S. government announced the takeover of Fannie Mae and Freddie Mac (referred to as Freddie Mac). U.S. Treasury Secretary Paulson emphasized that the government The action was taken because Fannie Mae and Freddie Mac have a huge impact on the financial system. The failure of any one of them will cause great turmoil in the domestic and global financial markets in the United States. The failure of the two companies will also affect Americans' access to mortgages, car loans and other services. Ability to credit.
Paulson’s words are not an exaggeration. Fannie and Freddie have approximately US$5 trillion in residential mortgage loans and have issued US$5 trillion in bonds, of which US$3 trillion is in the hands of US investors, and more than US$1 trillion is in the hands of US investors. Yuan is in the hands of foreign governments and investors. If the "Family and Freddie" crisis continues to spread, the global financial market will be severely impacted. Therefore, the actual purpose of the U.S. government’s bailout of Fannie and Freddie is to maintain U.S. financial stability and restore investor confidence in various U.S. bonds. For example: when the U.S. government announced the rescue of Fannie and Freddie, it also announced that the U.S. Treasury Department had the right to purchase Fannie and Freddie MBS (mortgage-backed bonds) in the open market before December 31, 2009, and also planned to buy " Mortgage-backed securities issued by Fannie and Freddie to lower credit costs for homebuyers. To this end, the U.S. Treasury Department will also establish an investment fund to purchase MBS of "government-sponsored institutions" on the open market.
1. Fannie and Freddie are the product of the U.S. government’s response to the housing financial crisis.
Fang Fan itself is the product of the government’s response to the housing crisis, originating from the Great Depression of the 1930s.
For U.S. banks, home mortgage loans are also very important. Before the 1980s, about 50% of the banking industry’s assets were home mortgage loans. The rate of return on this asset directly affected the bank. operating conditions. Among the factors that affect mortgage loan yields, changes in interest rates are the most important. After the Great Depression in the 1930s, the U.S. banking industry was subject to "Provision Q" and deposit interest rates were restricted. The purpose of the U.S. government's restrictions on bank deposit interest rates is to protect banks' profitability, because residential mortgage loans have long maturities and are mainly fixed interest rates. If deposit interest rates are allowed to float arbitrarily, thousands of commercial banks and savings and loan institutions will Will face huge interest rate risk. For example, the mortgage interest rate in the 1950s was only about 5%, while the deposit interest rate exceeded 15% during the period of high inflation in the 1970s. The mortgage loans issued by banks in the 1950s will face negative returns in the 1970s.
But controlling deposit interest rates did not save banks from crisis. In the era of high inflation in the 1970s, U.S. market interest rates rose sharply, and the yield on government bonds even exceeded 10%, which was far higher than the "Q criterion." "When the treasury bond yield is higher than the deposit interest rate, the result is that bank deposits flow to the bond market, and the capital market flourishes while banks shrink. This is the so-called "disintermediation" phenomenon. For example, in the third quarter of 1966, the interest rate on short-term Treasury bills was 5.38%, while the interest rate paid by thrifts on time deposits was only 4%. Outflows from thrifts in that quarter amounted to $726 million, while in the previous four years, Average inflows per quarter are $2.2 billion. The massive outflow of funds left banks and savings institutions with no money to lend and a liquidity crisis.
Therefore, how to increase the liquidity of the housing finance market after the Great Depression became a major issue in the American financial field, and Fannie Mae and Freddie Mac were born. Their main business area is the housing mortgage loan market. They purchase housing mortgage loans from commercial banks or other financial institutions, and then issue bond financing. Since it is backed by the government's credit, the bond grade it issues is second only to national bonds, and the financing cost is It provides liquidity to the housing finance market by purchasing housing mortgage loans from other financial institutions, and actually acts as a "central bank" in the U.S. real estate finance market.
2. The warnings given by the "Front and Freddie" crisis
The exquisite design of the American housing finance system, which is dominated by "Front and Freddie", has amazed countless scholars. An important symbol of America’s market-led financial institutions. The ingenuity of this system is that through the intermediary of Fannie and Freddie, the risks of US real estate finance are spread to global investors. This mechanism has been operating well for more than half a century since its creation, and has withstood the test of financial "disintermediation" in the 1960s, the impact of US economic stagflation in the 1970s, and the savings and loan crisis of the 1980s. But unfortunately, this exquisite design failed to withstand the impact of the "subprime mortgage crisis". Why? What principles in this have warning significance for us?
One warning: Any real estate financial design skills have a limited effect. There is only one good way to truly ensure the stability of real estate finance, and that is to work hard to control the rate of increase in real estate prices
p>The root cause of the subprime mortgage crisis is the fall in housing prices, but the cause of the decline in housing prices is the substantial increase in housing prices. Therefore, without the substantial increase in housing prices, there would be no "subprime mortgage crisis." To prevent a real estate financial crisis from happening, the most important thing is to prevent real estate prices from rising rapidly.
These reasons are not complicated. The difficulty lies in how to overcome the short-term behavior of policymakers.
Take the United States as an example. After 2001, the Federal Reserve must have known the consequences of lowering interest rates to 1%, but it still did so. Why? To put it bluntly, it was to overcome the risk of economic downturn at that time and to achieve short-term political achievements. Without a significant reduction in interest rates, there would be no boom in the real estate market, but there would also be no current "subprime mortgage crisis." It makes sense to place the blame for the subprime mortgage crisis on Greenspan.
my country's real estate also has the hidden danger of rising too fast. House prices in many cities have doubled since 2004. Such a rise must be abnormal. What deserves particular attention is that many local governments like to push up land prices and house prices out of short-term political performance considerations, becoming the most important creators of real estate bubbles and laying great hidden dangers for my country's real estate financial risks.
Warning 2: Real estate and finance are twin brothers
From the history of financial development in the United States and the development of the "subprime mortgage" crisis, we have seen that the relationship between real estate and finance is The relationship between real estate and the financial industry has become increasingly close, and the relationship between real estate and the financial industry has become a relationship of "both will suffer losses, and both will prosper." Because: first, large companies rely more and more on the capital market for financing, and real estate has become the main business area of ??banks and other financial institutions. As a result, the U.S. banking industry is highly dependent on housing mortgage loans; second, the real estate industry accounts for a large proportion of GDP. Its position is very important. In the GDP composition of the United States, the real estate industry exceeds the manufacturing industry, accounting for about 14%. Turbulence in the real estate field will naturally cause huge fluctuations in the economy, and in turn lead to unrest in the financial market.
It should also be emphasized that since 2001, speculation in the U.S. real estate market has been too strong. Under the beautiful aura of financial product innovation, many real estate speculators have appeared in the U.S. financial market. Among the products designed, "subprime mortgage" is the most typical representative. Since they are speculators, they are of course very sensitive to price changes. When real estate prices fall, more and more borrowers choose to default. As a result, the entire credit system collapsed, making the impact of the subprime mortgage crisis greater than that of any real estate crisis since the Great Depression of the 1930s.
The relationship between my country's commercial banks and the real estate industry is also getting closer and closer. In 1998, my country's housing mortgage loans were only 40 billion yuan. By the end of 2007, the balance of housing mortgage loans had increased to more than 3 trillion yuan, and there were more than 2 trillion real estate development loans and land development loans, which are closely related to real estate. The directly related bank assets are more than 5 trillion, and there are countless small companies whose loans are secured by real estate. Therefore, the rise and fall of my country's real estate industry directly affects the financial industry, and the fluctuation risk of the real estate industry will directly evolve into financial risks.
Warning 3: Excessive financial development will increase the risks of the financial system
From the perspective of financial development rules, the emergence of new financial products and markets is generally due to risk diversification or risk avoidance needs, but excessive financial development may increase financial systemic risks, especially the development of financial derivatives.
The reason is not complicated, because every aspect of finance is based on credit, and credit is fragile in the face of interests, especially in the face of huge profits. Therefore, when opportunities for huge profits arise in the market, the credit of every link that maintains the normal operation of the market will be shaken. In the modern financial market, financial product innovations emerge one after another, and it is difficult for non-professionals to truly understand the risks involved. Information asymmetry creates a beautiful coat for the loss of credit. For example, in the process of packaging and selling subprime mortgage products, one link is credit rating. The process of rating companies issuing rating reports for financial products is based on the market's credit to the rating company. However, due to the consideration of huge commercial interests, Ratings companies have relaxed their estimates of the risks of these products. This is just one of many links. Credit loss may occur in every link, and systemic risks will inevitably accumulate over time.
On the whole, my country’s financial development lags behind, but it is also prone to the problem of excessive financial development. In the process of financial development, many people pursue “new” and “foreign”, but they are actually doing it for themselves. interests of small groups and circles. Margin lending and index futures in the capital market are typical examples.