American subprime crisis, also known as subprime mortgage crisis, is also translated as subprime mortgage crisis. It refers to a financial storm in the United States, which was caused by the bankruptcy of subprime mortgage institutions, the forced closure of investment funds and the violent shock of the stock market. It has led to the crisis of insufficient liquidity in major financial markets around the world. The "subprime mortgage crisis" in the United States began to emerge gradually in the spring of 26. In August 27, it began to sweep across the major financial markets in the world, such as the United States, the European Union and Japan. The subprime mortgage crisis has become a hot issue in the world.
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As for the occurrence of the financial crisis in the United States, it is generally believed that the crisis was mainly caused by the lack of financial supervision system, and Wall Street speculators exploited the loopholes of the system, practiced fraud and deceived the public. One of the fundamental reasons for this crisis lies in the neoliberal economic policy accelerated by the United States in the past three decades.
The so-called neo-liberalism is a set of thoughts with the aim of reviving traditional liberal ideals and reducing government intervention in the economy and society as the main economic policy goal. American neo-liberal economic policy began in the early 198s, and its background was the economic stagflation crisis in the 197s. Its contents mainly included: reducing government intervention in financial and labor markets, cracking down on trade unions, and promoting economic policies that promote consumption and drive high growth with high consumption.
1. In order to promote economic growth, encourage people to spend more than they can afford, and go on a spending spree.
the theory of liberal economics has always attached importance to promoting production and economic development through consumption. Adam Smith said that "consumption is the only destination and purpose of all production". Schumpeter believes that the capitalist mode of production and consumption "stems from a high secularization characterized by urban pleasure life", that is, they believe that luxury consumption promotes production on the surface.
second, the social distribution relationship is seriously unbalanced, and the income of the middle class is falling instead of rising.
In the past thirty years, there has been a strange phenomenon in American society. On the one hand, the American people have exceeded their consumption; on the other hand, their income has been declining. According to statistics, after deducting inflation, the average hourly wage in the United States is only the same as that of 35 years ago, while the income of a man in his thirties is 12% lower than that of a man of the same age 3 years ago. The fruits of economic development have flowed into the pockets of the rich. Statistics show that the income gap between the rich and the poor in the United States has been widening over the past few decades.
The American economy is developing rapidly, but its income has not increased, which is closely related to the neo-liberal policy since the Reagan administration came to power in the early 198s.
third, the financial industry is seriously lacking in supervision, which lures ordinary people to spend ahead of time and speculate in the market through borrowing.
an important part of neoliberalism is deregulation, including financial regulation. Since the Reagan administration came to power in the early 198s, the United States has been relaxing the restrictions on the financial industry and promoting financial liberalization and so-called financial innovation by enacting and amending laws. For example, in 1982, the US Congress passed the Garn-St. Germain Savings Institution Act, which gave savings institutions a business scope similar to that of banks, but was not regulated by the Federal Reserve. According to the law, savings institutions can buy commercial bills and corporate bonds, issue commercial mortgages and consumer loans, and even buy junk bonds.
In addition, the United States Congress has successively passed the Fair Competition Banking Act of 1987, the Reform, Revival and Implementation Plan of Financial Institutions of 1989, and the Financial Services Modernization Act of 1999, which completely abolished the basic principles of the Bank of America Act of 1933 (namely the Glass-Steagall Act) and separated banking from investment industries such as securities and insurance.
under the background of the above-mentioned legal reform, the speculative atmosphere on Wall Street in the United States is increasingly strong. Especially since the end of 199s, with the interest rate falling, the speed of asset securitization and financial derivatives innovation accelerating, coupled with the luxury consumption culture and blind optimism about future prosperity, it is possible for ordinary people to borrow more than they spend. In particular, through the myth that the real estate market only rises but does not fall, a large number of consumers who do not have the repayment ability are induced to borrow money into the housing market through mortgage means.
The apparent direct cause of the US subprime mortgage market storm is the rising interest rate in the United States and the continuous cooling of the housing market. The rising interest rate has led to an increase in repayment pressure. Many users with poor credit feel that repayment pressure is high, and there is a possibility of default, which has an impact on the recovery of bank loans, and has also had a serious impact on many countries around the world, including China. Some scholars have pointed out that "the United States, which should have gone bankrupt technically, owes too much debt to other countries in the world, and creditor countries do not want to see the United States go bankrupt, so they can not only abandon US treasury bonds, but even continue to subscribe for more US debt to ensure that the United States does not go bankrupt."
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On February 13th, 27, New Century Financial Company of the United States issued a profit warning for the fourth quarter of 26.
HSBC Holdings announced its performance and increased its reserve for subprime mortgage loans in the United States by US$ 7 billion, or US$ 1.573 billion, an increase of 33.6%; As soon as the news came out, the stock market plummeted that day, with the Hang Seng Index falling by 777 points, or 4%.
Facing the $17.4 billion debt from Wall Street, New Century Finance, the second largest subprime mortgage company in the United States, announced on April 2, 27 that it filed for bankruptcy protection and laid off 54% of its employees.
on August 2, 27, Deutsche Bahn announced a profit warning, and later it was estimated that there was a loss of 8.2 billion euros, because one of its funds was "Rhineland Fund" with a scale of 12.7 billion euros, and the bank itself had a small amount of participation in the US real estate subprime mortgage market. The Bundesbank convened national banks to discuss the basket plan to save the German Industrial Bank.
On August 6th, the 1th largest mortgage lending institution in the United States-American Mortgage Investment Corporation formally filed for bankruptcy protection, becoming another large mortgage lending institution in the United States after New Century Finance Corporation.
On August 8, 27, Bear Stearns, the fifth largest investment bank in the United States, announced that two of its funds had closed down, which was also due to the subprime mortgage crisis.
On August 9, 27, BNP Paribas, the largest French bank, announced that it would freeze its three funds, which also suffered huge losses because of its investment in American subprime bonds. This move led to a sharp fall in European stock markets.
On August 13th, 27, Mizuho Group, the parent company of Mizuho Bank, the second largest bank in Japan, announced that the losses related to American subprime loans were 6 million yen. Japanese and Korean banks have suffered losses due to the US subprime mortgage crisis. According to the estimation of UBS Securities Japan, the nine major Japanese banks have held more than one trillion yen of US subprime mortgage-backed securities. In addition, five Korean banks, including Woori, invested a total of $565 million in CDOs. Investors are worried that the subprime mortgage problem in the United States will have a strong impact on global financial markets. However, Japanese analysts are convinced that most of the secured debt certificates invested by Japanese banks have the highest credit rating, and the impact of the subprime mortgage crisis is limited. Subsequently, Citigroup also announced that in July 27, the losses caused by subprime loans reached 7 million US dollars.
Folding on the American economy
The crisis in the American subprime mortgage market showed signs of worsening, which caused violent turmoil in the American 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. At first, however, many analysts believed that the subprime mortgage market crisis was expected to be contained in a local scope, and it was unlikely to pose a major threat to the overall American economy. But at present, the subprime mortgage crisis has seriously affected the world economy. According to the latest data, the GDP of the United States has dropped by .5% in the second quarter, which has declared that the American economy is in recession, and it is expected that the American economy will continue to slump.
First of all, many financial institutions in the United States won the bid in this crisis, and their subprime mortgage problems far exceeded people's expectations.
secondly, the fundamentals of the American economy are strong, and there is no lack of motivation to continue to grow.
This is because the United States is still the strongest in the world in all aspects. For example, the latest world university rankings show that the scientific and technological strength and innovation of the United States are still the first in the world, and no country or organization can shake it for quite some time; Moreover, the United States has a strong self-regulation ability. For example, in the 197s, the strategic contraction of the United States effectively eased the crisis at that time.
however, some commentators believe that the economic crisis in the United States in the 197s has not been solved at all, and the debt has increased year by year, and there has been no trade surplus since 1975. Whether it is Keynesian Roosevelt's New Deal or the neo-liberalism replaced in the 197s, the United States cannot fundamentally get rid of its economic crisis without solving the gap between social distribution and total social demand and total social supply.
the collapse 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, where 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 cause more and more mortgage borrowers to fall into financial difficulties. Problems have already appeared in other consumer debts. For example, the default rate of credit cards 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 decline.
Even if the direct financial contagion is controlled, the subprime mortgage crisis in the United States may cause 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, the inflation of house prices 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 of 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 the sharp decline in their demand will inevitably damage the economies of other regions.
in October p>28, the financial stability report of the bank of England estimated that the financial bond products in Europe and America suffered losses as high as $2.8 trillion at the marked-to-market price. In January 29, the International Monetary Fund predicted that the credit losses caused by the financial crisis would eventually reach 2.2 trillion US dollars. By the beginning of January, 29, the major financial institutions in the world have reported credit and market risk losses of * * * 1 trillion US dollars (74 billion US dollars in banking and 26 billion US dollars in insurance). In 28, the wealth loss (stocks, bonds, housing market, etc.) caused by the global asset market decline added up to about $5 trillion, equivalent to the global GDP in one year. The subprime mortgage crisis in the United States, which began in early 27, has been going on for as long as a year, and has deteriorated into a subprime mortgage crisis in the United States, which has continuously caused great damage to several internationally renowned lending institutions and investment banks and faced the crisis of loss or even bankruptcy. The development of the event has a deeper and deeper impact on the global economy, which not only leads to violent fluctuations in the stock market, but also damages the entire economic level.
I. Evolution from subprime mortgage crisis to subprime debt crisis
1. The meaning of subprime mortgage
The so-called subprime mortgage loan in the United States, that is, "subprime mortgage loan", mainly refers to the loans provided by some lending institutions to borrowers with poor credit and low income, and its service targets are loan buyers with high debt-to-income ratio, low credit and high probability of default. According to the traditional credit procedure, this kind of people can not apply for preferential loans, but can only seek loans in the secondary market. All kinds of "sub-prime loan" products enable people with low incomes to repay their loans. Even if the interest rate is raised, they can't afford to repay their loans. The fiery real estate market has also brought people a beautiful illusion-as long as the house is sold, the risk is "controllable". Therefore, since 21, the amount of subprime mortgage loans in the United States has increased substantially every year, and the rate of home ownership in the United States has also increased rapidly.
2. The process of sub-prime loan becoming sub-prime debt
The new products of sub-prime mortgage loan are highly sought after by buyers with poor credit and low income, and the risk of sub-prime mortgage loan is mainly reflected in the fact that lending institutions lend a lot of loans to people with "sub-prime credit" without any credit review, but for the elite on Wall Street, the risk can be transferred out-spread the risk to those institutions willing to bear different degrees of risk. More and more investment banks buy loans from these lending institutions, and then package them into a bond, which is rated by credit rating companies such as Standard & Poor's, and then sold to funds, commercial banks or insurance companies in the bond market, or sold to commercial banks and other investors around the world. This bond product is asset-backed securities issued based on subprime mortgage loan, which is called "subprime mortgage bond" by Wall Street, which is what we call "subprime debt". As a result, "subprime loans" have evolved into so-called "subordinated debts".
3. The emergence of subprime mortgage crisis
It can be seen from the diagrams of American subprime mortgage and subprime mortgage that a simple subprime mortgage crisis has turned into a global financial storm, which is actually the result of the participation of the participants. We can see that the income and risk chain are interlocking, and once there is a problem in one link, the whole transmission will be affected.
subprime mortgage, as long as the house price continues to rise, the purchased property will appreciate, and there will be a source of repayment, which is the income of subprime mortgage. However, when the real estate fluctuated contrary to expectations, the rate of house appreciation slowed down, and the continuous interest rate hike by the Federal Reserve made many subprime borrowers unable to repay their loans, resulting in a large number of defaults. Interest rate risk and default risk worsened the quality of assets, which led to the downgrade of asset-backed securities, a sharp drop in prices and a rapid cooling of the market. At this time, bond creditors forced lending institutions to take out problematic mortgages. The tipping point appears-lending institutions are unable to recover their loans in the face of creditors' debt collection, and then a large number of loan companies are acquired or even closed down, and the vicious circle continues to intensify, resulting in a domino effect.
In the proportion of subordinated debt, banks account for the majority. By using off-balance-sheet tools to avoid regulators, banks lose control by issuing bonds such as real estate mortgage, but they fail to take necessary measures against huge systemic risks. In addition, their own capital is insufficient, resulting in excessive leverage and holding too many non-performing assets, and these assets have depreciated sharply in a short period of time, resulting in an uncontrollable situation.
during this crisis, hedge funds also suffered serious losses, mostly involving portfolio securities backed by mortgage loans, which acted as risk absorbers and used more.