Sub-prime crisis is also called sub-prime crisis, sub-prime storm, sub-prime storm, Fannie Mae and Freddie Mac crisis.

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Overview of subprime mortgage crisis

The subprime mortgage crisis refers to the shock, panic and crisis in the international financial market caused by the sharp increase in the default rate of the subprime mortgage industry in the United States in the summer of 2007 and the credit crunch.

In order to alleviate various economic problems caused by the subprime mortgage crisis and the credit crunch, and stabilize the financial market, the Federal Reserve has greatly reduced the federal funds rate in recent months, and has broken the routine to provide direct loans and other financing channels for financial institutions such as investment banks. The U.S. government has also approved a stimulus package costing more than $654.38+050 billion, and relaxed the financing and reserve limit for financial institutions such as Fannie Mae and Freddie Mac (the two largest mortgage companies in the United States).

On September 7, 2008, the US Treasury Department announced that it would take over Fannie Mae and Freddie Mac, which were on the verge of bankruptcy, and it might cost as much as $200 billion.

What is secondary squeezing?

The second kind of mortgage loan is "subprime mortgage loan".

Subprime loan is a high-risk and high-yield industry. Different from the traditional standard mortgage loan, the subprime mortgage loan does not require the lender's credit record and repayment ability, and the loan interest rate is correspondingly much higher than that of the general mortgage loan. People who are rejected by banks for high-quality mortgages due to poor credit records or weak repayment ability will apply for subprime mortgages to buy houses.

When house prices rise, the subprime mortgage business is also booming. Even if the lender's cash flow is not enough to repay the loan, they can get a second loan through property appreciation to make up for the gap. However, when the house price is flat or falling, there will be a funding gap and bad debts will be formed.

Subprime mortgage loan is a kind of foreign housing mortgage loan, which is lent to people with low income or personal credit history. The reason for lending to these people is that lending institutions can charge higher mortgage interest than mortgages with good credit ratings. When housing prices skyrocket, because the value of collateral is sufficient, the loan will not go wrong; When the house price falls, the value of collateral is no longer sufficient, and the mortgagor's income is not high, it will face the situation that the loan defaults and the house is repossessed by the bank, which will lead to the increase of bad debts of the mortgagor, the increase of bankruptcy cases of the mortgagor and the increase of systemic risks in the financial market.

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What is the subprime mortgage crisis?

Sub-prime mortgage crisis: The rising interest rate leads to an increase in repayment pressure. Many users with bad credit feel that the repayment pressure is high and there is the possibility of default, which has an impact on the recovery of bank loans.

However, this high return has a great premise, that is, American housing prices are rising. House prices are rising and the property market is hot. Although the default rate of these subprime mortgages is relatively high, lending institutions can recover mortgaged houses even if they can't recover the loans, and it is also profitable to sell them again. Because the property market is hot, house prices are rising.

How did the crisis happen? It was in 2006 that the American real estate market began to turn around, and house prices began to fall, making it difficult for buyers to sell their houses or obtain financing through mortgages. Even if the lending institution can't receive the money, the mortgaged house can't make up for the loss of lending. Then, the bonds issued from it are also worthless, because the loans related to it cannot be recovered. Didn't the institutions that bought these bonds lose money? Many investment banks and hedge funds bought these bonds or their portfolios, so they suffered heavy losses.

The source of subprime mortgage crisis

Since 2002, interest rates have dropped first and then increased, but the real estate market is hot first and then cold, which leads to a large number of blue-collar workers falling into the mortgage trap [1].

Subprime mortgage refers to loans provided by some lending institutions to borrowers with poor credit and low income. In recent years, the United States and other countries have relaxed housing credit standards (no down payment, no proof of income, no concern about the quality of mortgage units, etc. ), forming a subprime mortgage market. Sub-prime housing credit is estimated, combined and packaged by lending institutions and Wall Street by financial engineering methods, and then sold in the secondary mortgage market in the form of bills or securities products, attracting other financial institutions and hedge funds to buy at high interest rates.

However, the good times did not last long. In 2006, the US real estate market began to deteriorate, and the interest rate of the US dollar increased many times, which led to the increase of credit default and bad debts of subprime loans, and the price of subprime products plummeted, which directly led to the financial crisis and even bankruptcy of many financial institutions in Europe, America and Australia, which affected the global credit contraction. In order to cope with the large-scale redemption tide of customers, it is no longer feasible for some funds to close their positions in yen and invest heavily. The only way is to sell cash, that is, the so-called yen carry trade to open positions, which has caused a series of domino effects and led to a sharp drop in global stock markets. [2]

Fannie Mae and Freddie Mac, which originally occupied 70% of the subprime mortgage market in the United States, were led by government agencies, packaging loans into securities and promising investors to get principal and interest rates. With the scandals of these two companies, the government restricted their business growth, and the whole subprime mortgage market began to compete for the loans purchased by these two companies. In the whole process, new market participants excessively pursue high-risk loans for profit-seeking purposes. When Fannie Mae and Freddie Mac still dominate the mortgage market, they usually set clear loan standards and strictly stipulate what types of loans can be issued. Today, due to the intervention of thousands of hedge funds, pension funds and other fund investors with high risk preferences around the world, the original loan standard has become a dead letter in the face of high interest rates, and new market participants and Wall Street traders continue to encourage lending institutions to try different types of loans. Many lenders don't even require subprime borrowers to provide proof of financial qualifications, including tax bills. When evaluating the value of houses, lenders also rely more on mechanical computer programs than the conclusions of appraisers, and the potential risks are deeply buried in the subprime mortgage market.

In recent years, the Federal Reserve has raised interest rates by 17 times, and the federal funds rate has increased from 1% to 5.25%. Interest rates rose sharply, increasing the repayment burden of buyers, and the US housing market began to cool down sharply. As a result, many borrowers in the subprime mortgage market cannot repay their loans on time, which makes it difficult for buyers to sell their houses or obtain financing through mortgages. As a result, the credit of ordinary residents decreased, and the evaluation price of bonds related to real estate loans fell. The Impact of Sub-prime Mortgage Crisis on American Economy

The crisis in the US subprime mortgage market showed signs of deterioration, which triggered violent turmoil in the US stock market. Investors are worried that the crisis in the subprime mortgage market will spread to the whole financial market, affecting consumer credit and corporate financing, and thus damaging US economic growth. However, many analysts believe that at present, the subprime mortgage market crisis is expected to be contained in a local scope and is unlikely to pose a major threat to the overall US economy.

The dependence on the housing market is not high.

First of all, the American economy is not highly dependent on the housing market. After 200 1 economic recession, the American housing market was highly prosperous under the stimulation of ultra-low interest rates, which played an important role in economic recovery and subsequent sustained growth, but this did not mean that the American economic growth depended heavily on the housing market. In fact, during the normal operation of the American economy, the employment creation capacity of the housing market was relatively low. The cooling of the housing market has limited impact on personal consumption expenditure, which accounts for about two-thirds of the gross domestic product of the United States. The data shows that although the US housing market has cooled sharply since last year, personal consumption expenditure continues to grow.

David, chief economist of Bear Stearns, an American investment institution? Malpas pointed out that compared with the housing market, employment is much more important to the American economy. For many people, the value of future employment greatly exceeds the value of their existing housing assets. A strong job market means that the possibility of unemployment is reduced, employment opportunities are increased, personal income is stable and may increase in the future. Housing assets are limited, and employment income may be endless.

The actual situation in the past few quarters also shows that although the housing market continues to cool sharply, the American economy has not stagnated. The growth of consumption and investment offset the adverse effects of the cooling of the housing market and supported the sustained economic expansion.

Second, the fundamentals of the American economy are strong, and there is no lack of motivation to continue to grow. Judging from the employment situation, in the first seven months of this year, the United States added an average of136,000 jobs per month. Employment in the construction and manufacturing industries decreased, but employment in the service industry continued to increase. Since last September, the unemployment rate has remained at 4.4% to 4.6%. Economists point out that even if the unemployment rate rises to about 5% by the end of this year, it is still at a historical low.

Judging from the economic situation, the US service industry grew for the 52nd consecutive month in July. The service industry accounts for more than 80% of American economic activities and has a decisive impact on economic growth and employment. At the same time, the American manufacturing industry got rid of the previous downturn and achieved the sixth consecutive month of growth in July.

Emerging markets have provided strong support.

From the external environment, the International Monetary Fund recently raised its global economic growth forecast for this year and next to 5.2% from 4.9% in April this year. The organization estimates that the economic growth of Japan, the euro zone and many emerging markets and developing countries will be better than the original estimate. Strong economic growth in other regions has provided favorable conditions for the United States to expand its exports, which is undoubtedly a strong supporting factor for the sustained economic growth of the United States.

Finally, the crisis in the subprime mortgage market is expected to be controlled. Compared with the whole American housing loan market, the subprime mortgage loan market itself is very small. In addition, the US financial system is relatively mature, the market is developed, and it has various hedging tools and channels, which provides conditions for preventing the crisis from erupting in depth.

In addition, the Fed injected a large amount of funds into the financial system in time, which increased liquidity and reduced the possibility of systemic crisis caused by the deterioration of local problems. At the same time, the Federal Reserve said it would take all necessary measures to promote the orderly operation of financial markets. The actions and determination of the monetary authorities should help to calm the panic of investors and limit the amplification effect of market panic on the economy.

The International Monetary Fund believes that the crisis in the US subprime mortgage market is still "under control". Some economists believe that the subprime mortgage market is adjusting itself, squeezing the long-lasting financial bubble, and the current adjustment is still within an acceptable range. Recently, the Federal Reserve pointed out that the crisis in the subprime mortgage market has increased the risks that economic growth may face, but it still expressed its belief that the economy will continue to grow moderately in the next few quarters.

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The impact of subprime mortgage crisis on global economy

Bankers of the world's major central banks have been concentrating on preventing the shortage of liquidity in the money market caused by the subprime mortgage crisis in the United States, and have injected a lot of cash. Not only that, the Fed also lowered the discount rate. These efforts have achieved initial results, and the money market has stabilized. However, many bond products, especially asset-backed securities, are still depressed. In addition to worrying about the chaos in the credit market again, central bank governors are most worried about the impact of the credit market turmoil on the global economy.

It is generally believed that the United States, the birthplace of the subprime mortgage crisis, will be the most affected. At first glance, the American economy has not been affected by the subprime mortgage crisis: the economic growth in the second quarter was very strong; Business spending seems to be very active; Wage growth is very stable; The price of gasoline, which reduces consumer spending, is falling. But on closer analysis, the prospect is not so bright. The latest issue of The Economist pointed out that the strong economy in the second quarter was attributed to one-off factors such as the company's inventory adjustment to some extent, while the consumption growth dropped sharply during the same period, and the downturn in consumption expenditure in some areas continued into the summer. Statistics show that car sales in July fell to the lowest point in nine years. More importantly, the weakest link in the American economy, the real estate market, is worse than many people realize. In July, the pace of new housing construction dropped sharply, second-hand housing sales fell for the fifth consecutive month, and house prices continued to fall. According to S&; P/Case-Shiller house price index, in the past year as of June, the average house price in major cities in the United States 10 decreased by 4. 1%.

The bursting of the real estate bubble made the American economy vulnerable before the credit market turmoil in August, and the credit dilemma made the real estate market worse. Therefore, it is not surprising that analysts have lowered their expectations for the US construction industry and housing prices. Economists in JPMorgan Chase now predict that by the end of 2008, the pace of new housing starts will be further reduced by 30%, and the average house price will be reduced by 7.5% to 15%. Economists at Goldman Sachs believe that house prices will fall by 15% to 30% in the next few years.

The bursting of the real estate bubble will continue to hinder the growth of production. The bigger question is, what impact will the factors that affect the double-digit decline in house prices have on the United States, because American consumers borrowed heavily at the peak of the real estate bubble. Optimists get some comfort from the rebound in consumer spending, but this may be a mistake. The double-digit decline in house prices will make more and more mortgage borrowers fall into financial difficulties. Other consumer debts have already gone wrong. For example, the credit card default rate is rising, and lending institutions are likely to face a more difficult situation. As homeowners feel poorer and poorer, consumer spending is bound to be curbed, especially when the stock market continues to fall.

According to the quantitative economic model analysis conducted by UBS economists, if the cost of capital rises by 1 percentage point, and the stock price and house price fall at the same time by 10%, the economic growth of the United States will be lowered by 2.6 percentage points next year, leading to the recession of the American economy. So why do many Wall Street analysts still insist that the damage caused by the difficulties in the credit market is limited? The main reason is that they expect the Fed to cut interest rates to save the market. Financial futures prices show that investors expect the Federal Reserve to cut the federal funds rate by 75 basis points to 4.5% by the end of this year. However, UBS's analysis shows that it is impossible to alleviate all the pain by cutting interest rates, and the US economic growth rate may slow down by more than 1 percentage point next year. Although UBS's analysis is not impeccable, if US housing prices face a double-digit decline, even if the Federal Reserve loosens monetary policy, the US economy is doomed to fall into weakness.

Fang Ming, a senior analyst in the global financial market department of Bank of China, said in an interview that the US economy will be affected to some extent, but it will not fall into recession. The data shows that US GDP is mainly composed of private consumption, private investment, government consumption and investment, net exports and private inventories. In 2006, private consumption, private investment, government consumption and investment accounted for 69.9%, 16.7% and 19. 1% respectively. In 2005, the proportion of American construction industry to GDP was 5. 1%, and the proportion of real estate and corresponding leasing industry to GDP was about 10. 1%. Therefore, Fang Ming believes that even if the decline in real estate sales will affect the US economy, its impact can only be within the range of 15.2%. "The decline in US real estate sales will only lead to a certain slowdown in the US economy. The GDP growth rate in the third quarter may fall below 3%, and the annual growth rate is 2.5% to 3%. However, the US economy will not fall into recession because of the slowdown in real estate and the credit crisis in the real estate financial market. " He said.

As for the impact on the economies of other parts of the world, The Economist thinks it may be very serious. In fact, at present, many people expect the global economy to withstand the slowdown in the United States. The reason is that the economic growth in the United States has been weak for more than a year, but the global economic growth has been strong. The Economist said that this optimism may have underestimated the spread of the subprime mortgage crisis to other countries. One of the transmission channels is financial communication. From Canadian to China, there have been losses of investment subprime loans all over the world. The widespread spread of losses is easy to digest, but the tension and risk aversion that spread at the same time are not so easy to eliminate. In the past financial turmoil, emerging market economies were the biggest victims. But this time it may be different. Developed countries, especially European countries whose banks are deeply involved in the US subprime mortgage crisis, may be more anxious. Many emerging market economies have benefited from huge foreign exchange reserves and current account surpluses, and can well withstand the test of large-scale withdrawal of investors. In developed countries in Europe, the investment losses of subprime loans and investors' nervousness may force banks to tighten their belts and weaken the growth of domestic spending. In August, Germany's Ifo index reflecting business confidence fell for the third consecutive month, and consumer confidence also declined. Before the credit market turmoil in August, the European Central Bank had signaled that it would raise interest rates at its regular meeting on September 6. But judging from the current situation, the central bank is likely to have to wait for some time.

Even if the direct financial contagion is controlled, the subprime mortgage crisis in the United States may produce psychological contagion, especially the revaluation of housing prices. Although the scale of reckless lending to high-risk borrowers in the United States is larger than that in other parts of the world, house price inflation has been more serious than that in the United States, and countries such as Britain and Spain are more vulnerable to the bursting of the house price bubble.

In addition, The Economist also pointed out that the ability of the global economy to resist the weakness of the US economy should not be exaggerated. Although the current account deficit in the United States has been declining, it still accounts for about 6% of GDP. Because Americans consume far more products than they produce, Americans are still one of the biggest sources of demand in other parts of the world, and their sharp decline in demand will inevitably damage the economies of other regions.

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Lessons from the subprime mortgage crisis

The subprime mortgage crisis in the United States began this spring, continued into early summer, and expanded into a global financial storm in July and August of midsummer. Although the crisis has eased through joint capital injection by central banks and the reduction of rediscount rate by the Federal Reserve, its shock wave is still spreading. Since August, domestic public opinion has paid close attention to this international financial event. After 24th, it happened that Bank of China, Industrial and Commercial Bank of China and China Construction Bank reported the number of subordinated debts held in succession, which further proved that China could not be completely involved in the crisis.

At present, it is too early to accurately estimate the losses of China financial institutions, including the three major banks, in subprime bond investment, just like the overall assessment of the overall losses of the global subprime mortgage storm. However, from a macro perspective, we can learn some lessons from the accumulation, outbreak and spread of the global subprime mortgage crisis, which is a mirror for China, where asset price bubbles are extremely high and capital controls will not go away. The reality shows that financial liberalization should essentially be the progress of the financial system, including the continuous improvement of the risk prevention system. Regulators, financial institutions, real estate and other "powerful people" should be more alert to asset bubbles and not exchange today's happiness for tomorrow's pain.

When analyzing the financial turmoil, international observers generally believe that the Fed's long-term low interest rate policy, the derivative market being too far away from the real economy and the lack of improvement in financial culture are the three major reasons for the financial turmoil. Especially the first one.

After the end of the longest economic boom in the United States, the bursting of the Internet bubble and the "9 1 1 incident" forced the Federal Reserve to cut interest rates continuously. There is no reason to criticize the general direction of this economic stimulus policy. However, in practice, the Fed's monetary policy still has something to reflect on. The interest rate cut in the previous two years was too large, and the real interest rate was sometimes even negative; Since then, although the interest rate has been raised by 17 times and the federal funds rate has been raised from 1% to 5.25%, the dollar is still in a long-term depreciation stage. According to the inflation index, after the initial success, the monthly CPI rose slightly from the second half of 2003 to the second half of 2005, and even reached 4.7% in September 2005. The Fed is too cautious in raising interest rates and slow to respond, which is hard to blame for the global excess liquidity and the root cause of this round of financial turmoil. Therefore, it is very important for the monetary authorities to correctly judge the situation and take decisive measures.

The derivatives market chain is too long, ignoring the fundamentals and amplifying the risks. The subprime mortgage credit in the United States was originally based on the actual demand of housing, but it was derived from the investment varieties of different levels of fund providers. However, the repayment guarantee of subprime customers is out of touch with the repayment ability of customers, which is more based on the assumption of rising house prices. When the real estate market is booming, banks get high interest income, and financial institutions flock to mortgage derivatives. Once the real estate market enters the downward cycle, default appears and the crisis breaks out. Because the chain is too long, the self-discipline and external supervision of the market have become quite difficult; Because most of the intermediate links are "other people's money", players' risk awareness is quite weak. Although the long chain widely disperses risks, the * * * shock effect after the crisis may be even more tragic.

The subprime mortgage crisis also shows that even in a country with a highly developed financial industry like the United States, the financial culture at the mass level still needs to be improved. Various reports show that many borrowers applying for subprime mortgage in the United States don't even know what compound interest is and can't calculate the future mortgage cost, but they still apply for mortgage loans that they can't afford and live in houses that they can't afford. Many people do this. However, mass madness can never overcome the iron law of market ups and downs. The sudden bursting of the bubble will inevitably bring great pain to the economy and society, and the vulnerable groups who mistakenly entered the bubble cluster bear the brunt.

The subprime mortgage crisis has also posed many challenges to the existing American financial system. It is conceivable that in the long run, the crisis will inevitably become a major opportunity for the market to innovate. The measures taken by American regulatory authorities to deal with the crisis should also be given more attention and interpretation in the dual sense of palliative and permanent cure. On July 18, Federal Reserve Chairman Ben Bernanke gave a detailed explanation of these measures when he testified in the US Congress. Its core is to protect the normal operation of the market, and there are two main means: one is the rule of law, amending the old law and promulgating new regulations; The second is information disclosure to crack down on fraudulent sales of financial institutions to property buyers and bond investors. On the other hand, in his speech on August 3 1, Bush announced that the Federal Housing Authority would provide guarantees for people in trouble and obtain financing at preferential interest rates. He also said that the government's job is to help buyers, not to save speculators, nor to save those who know they are unable to buy a house. The rise and fall of the market index has not become a "regulatory guide", and the will of market players cannot influence the monetary authorities, which embodies the basic principle of "the government stays away from Wall Street".

This year marks the tenth anniversary of the Asian financial crisis. In late June, Caijing published a monograph by Mr. Shen Liantao, a former senior official of Malaysian central bank and former chairman of Hong Kong Securities Regulatory Commission, with the intention of learning from the blood and tears of neighbors. Compared with the Asian financial crisis, the global subprime mortgage crisis is a wake-up call for China, which is more relevant in terms of time and case. Based on the huge pressure of RMB appreciation, China will only face a bigger asset bubble. It is an indisputable fact that the risk valuation of China's real estate market and stock market is too low and there is a lack of risk prevention. No matter how today's "theorists" comfort themselves with various statements such as "emerging markets" and "demographic dividend", sober people have no reason not to consider the future risk cost, and they no longer need to plan ahead. Moreover, with the issuance of 600 billion yuan of special treasury bonds, China's foreign exchange investment is ready to go to sea on a large scale. The warning of the subprime mortgage crisis is also of far-reaching significance to the strategic arrangement of "going out" in the future.

In this sense, the coming global subprime mortgage crisis may be a blessing for China people. Conscientiously understand the lessons of this storm, we should try our best to prevent the seeds of crisis from taking root in China and causing endless disasters in the future.

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refer to

1.= The chart is generated by data released by the Federal Reserve.

2 = August 2007, 17, financial news of TVB Emerald Channel in Hong Kong.

3 = March 5, 2007, Hong Kong TVB Emerald Channel Financial News.

4 = July 28th, 2007, Hong Kong TVB Emerald Channel Financial News.

5 = August 2007 1, now the financial channel.

6 = August 2, 2007, now the financial channel.

7 = March 5, 2007, financial news of TVB Emerald Channel in Hong Kong.

8 = August 6, 2007, financial news of TVB Emerald Channel in Hong Kong.

9 = August 2007, 1 1, financial news of TVB Jade Channel in Hong Kong.

10. = August 2007,10, Financial News of TVB Emerald Channel in Hong Kong.

11.August 2007, 15, financial news of TVB Jade Channel in Hong Kong.

August 2007, 15, news report at 6: 30.

12. = August 6, 2007 16, financial news of TVB Jade Channel in Hong Kong and news report at 6: 30.

August 2007 16, 6: 30 news report.

13. = August, 2007, 17, financial news of TVB Jade Channel in Hong Kong and news report at 6: 30.

14.= Geng Bush first responded to the "subprime mortgage crisis" and put forward a reform plan with suspicious effect. Xinhuanet

15. = Citigroup will acquire the remains of Ameriquest.

16.= Swiss banks suffered serious losses due to the subprime mortgage crisis.

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