My Age of Investment

After Xia Jingxing finished speaking, Mack and Blankfein looked at each other, and they both saw the emotion in each other's eyes.

Blankfein laughed loudly, "Daren, you are really suitable for the financial industry, and you are very talented in designing financial derivatives."

Mack nodded with a smile, "That's right, it seems that you, Darren, have basically understood the rules of the game on Wall Street."

Peter Thiel on the side remained silent, looking as if he had realized something.

The plan proposed by Dylan is equivalent to helping the two investment banks perfectly transfer the potential subprime default risk.

In this ingeniously designed transaction, Goldman Sachs and Morgan Stanley played the role of "middlemen", which can also be said to be a channel.

In addition to earning the difference in CDS premiums, the two investment banks can also set the yield difference in the process of packaging the remaining CDS to form new bonds, earning money from ordinary investors.

In the event of a black swan incident and a default on subprime mortgage bonds, Goldman Sachs and Morgan Stanley will not have to bear any risk, because all the blame has been thrown out, and they are just intermediaries and matchmakers.

This is equivalent to a business with no loss and no risk.

Thinking of this, Peter Thiel took a deep look at Xia Jingxing.

What a formidable character, he can make a living out of nothing.

He believes that the two CEOs will definitely be tempted by this plan.

Because Mack has a very good saying, Darren has figured out the rules of the game on Wall Street.

What game rules?

The benefits are gained by oneself, and others will bear the blame.

Xia Jingxing looked at the two CEOs with a smile. He had enough confidence in the plan he proposed, and the two had absolutely no reason to refuse this kind of money delivered to their door.

Mack pondered for a moment, then said, "Daren, how many of these synthetic CDO contracts do you want to buy?"

Xia Jingxing put his head close to Mack, looked at the old man, and said in a very calm tone: "There is no upper limit, I will buy as much as you can sell."

Mack smiled, looking at the flamboyant young man in front of him, he couldn't make an accurate evaluation in his heart for a while.

At first, he felt that this young man was a little over his own strength, or that he was blindly confident, so he went to the empty house market.

Out of suspicion, he refused to bet against Xia Jingxing.

Afterwards, Xia Jingxing immediately came up with such an ingenious plan of synthesizing CDOs, which made him unable to help being overwhelmed in his heart.

When he first started to appreciate the financial talent of the young man in front of him, the other party proposed an "unlimited" All In plan.

This quickly wiped out the idea of ​​admiration that he had just raised.

Shorting the housing market with a small position, Mack can understand that this is a risk hedging method.

But at this moment, Xia Jingxing wanted to make a big move to short the housing market, and the madness and recklessness he showed made him have to believe that the young man in front of him was probably a gambler.

No matter how astonishing discoveries and confidence Envision Capital has made in the real estate market, this all-or-nothing approach is far from being a coup.

In his opinion, sooner or later Xia Jingxing will have to pay a heavy price for this kind of greed and conceit.

Obviously crooked, Ye Luzi!

Immediately, he thought that Xia Jingxing dropped out of University after not studying for two years. He probably learned all his financial knowledge by himself, and he felt relieved.

In the final analysis, I still suffered from being uneducated.

In addition, he is a super rich man worth billions of dollars at a young age, has never experienced setbacks, and is very conceited and aggressive.

"Daren, are you sure you want to buy synthetic CDO contracts without setting a limit?" Mack reminded falsely.

Xia Jingxing nodded heavily. In the market, synthetic CDOs are not particularly popular, because the returns are not high, but the risk is "relatively low".

This is relatively low, and it is necessary to design the bond layer by layer, and then find a rating agency to provide a higher credit rating, and finally package it.

To put it simply, it is deceiving, but the legal affairs and compliance of big investment banks such as Goldman Sachs and Morgan Stanley avoid all risk factors.

Even if everyone thinks they are cheating, you can't produce conclusive evidence to accuse them. You can't find any mistakes in the legal terms of the contract, product design and packaging, and sales process.

How much this product can ultimately sell depends on the capabilities of Goldman Sachs and Morgan Stanley. If they are fooled, they will sell more, and vice versa.

However, Xia Jingxing will still make a request to exclude the unlucky AIG, Bear Stearns, and Lehman, and not to buy the CDS contracts provided by these companies.

Because these institutions collapsed and went bankrupt, the compensation was lost.

Xia Jingxing thought it was a reliable way to sell the subordinated debts to ordinary investors or some banks in Europe by packaging and designing the subordinated debts layer by layer.

The most stable point of the synthetic CDO is that investors buy two types of financial products in SPV special purpose companies.

One is the premium paid by Xia Jinghang, that is, the CDS provider.

This product is paid by Xia Jingxing to the SPV premium, and the SPV does not have to pay a penny, which is equivalent to sitting and collecting money every month or every year.

It's just that the SPV has assumed a responsibility. If the subordinated bond defaults, it will be responsible for compensating Xia Jingxing.

What the SPV really invests in is another product, high-grade, safe and high-quality bonds.

for example:

The SPV issued $1 billion in bonds with a coupon rate of 6%.

The 1 billion US dollars are all bought in risk-free high-quality bonds, and the interest rate is less than 6%, maybe only 4%.

The extra 2% comes from Xia Jingxing's annual premium payment.

If there is no default on the subordinated debt, investors will safely get back the principal and 6% annual return.

If the subordinated debt defaults, I'm sorry, all the principal of 1 billion US dollars will be used to compensate Xia Jingxing's losses.

This is a classic scam of "you are greedy for other people's interest, and others are greedy for your principal".

Simply investing in high-quality bonds, the interest rate is not as high as 6%, so a thing that increases the yield-CDS is inserted into the SPV.

Most investors don't think CDS is risky, and it has been packaged by investment banks, and credit agencies such as Moody's and Fitch have given credit ratings indiscriminately.

Then, there will be fools.

For Xia Jingxing, it was equivalent to obtaining a collateral for his "potential compensation", and the collateral was the $1 billion high-quality bonds.

Once the subordinated debt defaults, the SPV needs to sell 1 billion US dollars of high-quality bonds and send the compensation to Xia Jingxing.

There is nothing immoral about doing so.

SPV investors are well aware of why the returns of the products they invest in are so high, but they just feel that the risk is very small.

Moreover, unlike Goldman Sachs and Morgan Stanley, they could see that Xia Jingxing was crazily shorting the property market, and they did not have vigilance or suspicious thoughts.

The reason why Goldman Sachs and Morgan Stanley can repeatedly make big money, or escape from the financial crisis, relies on financial information from all directions.

As for his actions of shorting the property market, Xia Jingxing didn't want to expose it to the investment bank.

Because CDO, CDS and even the subprime ABX index are all traded over-the-counter and cannot be traded in the open market like stocks.

This requires investment banks such as Goldman Sachs and Morgan Stanley to pimp around and broker gambling deals.

It is true to say that they opened casinos in subprime debt. They could have guaranteed income in droughts and floods, but Lehman and Bear Stearns disliked that the casino commissions were too small, and they had to stop playing twice if their hands were itchy.

This is a mystery that the Chinese have understood for a long time. Those who run casinos cannot go to gamble, but Americans just don’t believe in evil, or because of good financial reports and bonuses, the management began to play tricks.