First off, this was translated, so some sentences might not make sense. so.. bear with me.
The penetrating 10 minutes let you thorough understand the current world financial crisis:
The most popular and official explanation of this financial crisis is the loan issue. however loan altogether hundreds of billions, but The US government rescued the city fund already to arrive at above 1,000,000,000,000, why did the crisis look not to the end? Some articles pointed out that crisis's root is the financial organ use “the release lever” the transaction; Another some experts pointed out that financial crisis's behind is 62,000,000,000,000 credit violations falls the time (Credit Default Swap, CDS). Then, a loan, actually between is the release lever and CDS what relates? What interaction between them has had today's financial crisis through? In the numerous financial crises analyze in the article, has not seen throughout to these question simple perspicuity explanation. This article attempts through own understanding to provide an answer for these questions, for easy to understand in order to, we have used several imaginary examples. Has the inappropriate place invite criticism discussion. 　　　　
1. Leverage. At present, many Investment banks to earn the sudden and huge profits, uses 20-30 time of release lever operations, a supposition bank A own property is 3,000,000,000, 30 time of release levers is 90,000,000,000. That is, this bank A as mortgages take 3,000,000,000 properties uses in taking advantage of 90,000,000,000 funds investing, if invests gains 5%, then A obtains 4,500,000,000 profits, is opposite says in A own property, this is 150% sudden and huge profits. In turn, if invests loses money 5%, then bank A lost everything own complete property also to owe 1,500,000,000. 　　　　
2. CDS contract. Because the release lever operates the high risk, therefore according to the normal stipulation, the bank does not move carries on such risk operation. Therefore finds out means on some people, takes away the release lever investment makes “the insurance”. This kind of insurance calls CDS. For instance, bank A to evade the release lever risk to find organization B. Organization B is possibly another bank, is also possibly the Insurance company, so forth. A said to B that you help my loan to make the violation to insure what kind, I pay your insurance premium every year 50,000,000, continuously 10 years, altogether 500,000,000, if my investment has not broken a contract, then this insurance premium you on Bai Na, if breaks a contract, you must compensate for me. A thought that if does not break a contract, I may gain 4,500,000,000, inside this puts out 500,000,000 uses for to make the insurance, I can also net gain 4,000,000,000. If has the violation, has the insurance to compensate in any case. Therefore this speaking of A is business which only gains does not compensate. B is an astute person, has not complied A immediately the invitation, but went back has made a statistical analysis, discovery violation situation less than 1%. If does 100 business, the grand total may attain 50,000,000,000 insurance moneys, if breaks a contract, the compensation volume are most 5,000,000,000, even if two break a contract, but can also gain 40,000,000,000. A, B both sides reveal this business to oneself advantageously, therefore strikes a bargain immediately, happy. 　　　　
3. CDS market. After B has done this safe business, C was jealous in side. C ran up to the B that side saying that you sold to these 100 CDS I to be what kind, each contract gave you 200,000,000, altogether 20,000,000,000. B thought that I 40,000,000,000 need 10 years to be able to attain, as soon as now hands over has 20,000,000,000, moreover does not have the risk, why not, therefore B and C finalized a deal immediately. As the matter stands, CDS looked like the stock same class to the money market above, might trade and business. After fact C attains this batch of CDS, did not think that on and so on 10 years gather again 20,000,000,000, but license it the sell, price-mark 22,000,000,000; D saw this product, considers as finished, 40,000,000,000 subtract 22,000,000,000, but also some 18,000,000,000 may gain, this is “the primitive stock”, does not calculate expensively, has bought immediately down. As soon as hands over, C has gained 20 hundred million. From now, these CDS in market repeated copying, the CDS market resultant already had copied now 62,000,000,000,000 US dollars. 　　　　
4 Loan. Above A, B, C, D, E, F….Is making money, then these money brave from there? Fundamentally speaking, these money from A as well as investor's profit which is similar with A. But their profit comes from US's secondary loan most probably. The people said that the loan crisis is because has lent the money the poor person. The author thinks otherwise to this view. The author thought that if the inferior creditor has given the ordinary American real estate investor. These person's economic potentiality only suffices to buy own set of housing originally, but saw the house price rose fast, moves the real estate congenial idea. They mortgage their house, the loan buys the investment room. This kind of loans interest must above 8%-9%, depending on theirs income very formidably, but they may continue the house mortgage to give the bank, lends money pays interest, spatial glove white wolf. A is very this time happy, his investment in makes money for him; B is also very happy, the market violation rate is very low, the safe business may continue to do; Following C, D, E, F and so on with is making money. 　　　　
5. Subprime crisis. The house price rose to certain degree cannot rise, behind nobody took over a business. The real estate congenial person is this time anxious looks like on the hot pot's ant. The house cannot sell, the high quota interest must paying, arrive finally for one day which reached end of rope, flung the house has given the bank. This time broke a contract occurs. This time A felt that regrettable, the good money could not gain, but also did not owe there, had B to make the insurance in any case. B did not worry that insured in any case had already sold to C. Then present this CDS insurance in there, in G. G just spent from F 30,000,000,000 to buy 100 CDS, has not had hands over with enough time, receives the news suddenly, this batch of CDS is degraded, the including 20 violations, surpass 1% which greatly estimated originally to 2% violations rate. Each violation must pay 5,000,000,000 insurance moneys, altogether the disbursement reaches 100,000,000,000. In addition 30,000,000,000 CDS purchase expense, the G loss grand total reaches 130,000,000,000. Although G is the entire US is situated the first 10 big organizations, also cannot withstand the so huge loss. Therefore G borders on goes out of business. 　　　　
6. Financial crisis. If G goes out of business, then A spends the insurance which 500,000,000 US dollars buy to malinger, what is worse, because A has used the lever principle investment, according to the front analysis, A loses everything the complete property also insufficiently to repay a debt. Therefore A faces bankrupt immediately the danger. Besides A, but also has A2, A3,…, A20, must prepare entirely to go out of business. Therefore G, A, A2,…, A20 arrives in front of together US minister of finance, a nasal mucus tear solicit, G cannot go out of business, as soon as it went out of business everybody. Ministry of Finance patience one soft, for has nationalized G, hereafter a,…, A20 insurance money amounts to 100,000,000,000 US dollars to pay completely by the American taxpayers. 　　　　
7. US dollar crisis. Above talk about 100 CDS current price on market is 30,000,000,000. But the CDS market resultant is 62,000,000,000,000, the supposition has 10% violations, then on some 6,000,000,000,000 violation CDS. This digit is 30,000,000,000 200 times. If after The US government purchases value 30,000,000,000 CDS, must compensate 1000 hundred million. Then regarding is left over these break a contract CDS, The US government must compensate 20,000,000,000,000. If does not compensate, must look that A20, A21, A22 and so on goes out of business one after the other. Regardless of takes any measure, US dollar big depreciation was already inevitable.
For those that didnt know and want to know, i hope this gives you a small insight. Please invest according to your own decisions and please consult a CPA before making any major decisions. DO NOT invest based on this information.
Thanks... but this is why US is swimming in debt.
The penetrating 10 minutes let you thorough understand the current world financial crisis:
The most popular and official explanation of this financial crisis is the loan issue. however loan altogether hundreds of billions, but The US government rescued the city fund already to arrive at above 1,000,000,000,000, why did the crisis look not to the end? Some articles pointed out that crisis's root is the financial organ use “the release lever” the transaction; Another some experts pointed out that financial crisis's behind is 62,000,000,000,000 credit violations falls the time (Credit Default Swap, CDS). Then, a loan, actually between is the release lever and CDS what relates? What interaction between them has had today's financial crisis through? In the numerous financial crises analyze in the article, has not seen throughout to these question simple perspicuity explanation. This article attempts through own understanding to provide an answer for these questions, for easy to understand in order to, we have used several imaginary examples. Has the inappropriate place invite criticism discussion. 　　　　
1. Leverage. At present, many Investment banks to earn the sudden and huge profits, uses 20-30 time of release lever operations, a supposition bank A own property is 3,000,000,000, 30 time of release levers is 90,000,000,000. That is, this bank A as mortgages take 3,000,000,000 properties uses in taking advantage of 90,000,000,000 funds investing, if invests gains 5%, then A obtains 4,500,000,000 profits, is opposite says in A own property, this is 150% sudden and huge profits. In turn, if invests loses money 5%, then bank A lost everything own complete property also to owe 1,500,000,000. 　　　　
2. CDS contract. Because the release lever operates the high risk, therefore according to the normal stipulation, the bank does not move carries on such risk operation. Therefore finds out means on some people, takes away the release lever investment makes “the insurance”. This kind of insurance calls CDS. For instance, bank A to evade the release lever risk to find organization B. Organization B is possibly another bank, is also possibly the Insurance company, so forth. A said to B that you help my loan to make the violation to insure what kind, I pay your insurance premium every year 50,000,000, continuously 10 years, altogether 500,000,000, if my investment has not broken a contract, then this insurance premium you on Bai Na, if breaks a contract, you must compensate for me. A thought that if does not break a contract, I may gain 4,500,000,000, inside this puts out 500,000,000 uses for to make the insurance, I can also net gain 4,000,000,000. If has the violation, has the insurance to compensate in any case. Therefore this speaking of A is business which only gains does not compensate. B is an astute person, has not complied A immediately the invitation, but went back has made a statistical analysis, discovery violation situation less than 1%. If does 100 business, the grand total may attain 50,000,000,000 insurance moneys, if breaks a contract, the compensation volume are most 5,000,000,000, even if two break a contract, but can also gain 40,000,000,000. A, B both sides reveal this business to oneself advantageously, therefore strikes a bargain immediately, happy. 　　　　
3. CDS market. After B has done this safe business, C was jealous in side. C ran up to the B that side saying that you sold to these 100 CDS I to be what kind, each contract gave you 200,000,000, altogether 20,000,000,000. B thought that I 40,000,000,000 need 10 years to be able to attain, as soon as now hands over has 20,000,000,000, moreover does not have the risk, why not, therefore B and C finalized a deal immediately. As the matter stands, CDS looked like the stock same class to the money market above, might trade and business. After fact C attains this batch of CDS, did not think that on and so on 10 years gather again 20,000,000,000, but license it the sell, price-mark 22,000,000,000; D saw this product, considers as finished, 40,000,000,000 subtract 22,000,000,000, but also some 18,000,000,000 may gain, this is “the primitive stock”, does not calculate expensively, has bought immediately down. As soon as hands over, C has gained 20 hundred million. From now, these CDS in market repeated copying, the CDS market resultant already had copied now 62,000,000,000,000 US dollars. 　　　　
4 Loan. Above A, B, C, D, E, F….Is making money, then these money brave from there? Fundamentally speaking, these money from A as well as investor's profit which is similar with A. But their profit comes from US's secondary loan most probably. The people said that the loan crisis is because has lent the money the poor person. The author thinks otherwise to this view. The author thought that if the inferior creditor has given the ordinary American real estate investor. These person's economic potentiality only suffices to buy own set of housing originally, but saw the house price rose fast, moves the real estate congenial idea. They mortgage their house, the loan buys the investment room. This kind of loans interest must above 8%-9%, depending on theirs income very formidably, but they may continue the house mortgage to give the bank, lends money pays interest, spatial glove white wolf. A is very this time happy, his investment in makes money for him; B is also very happy, the market violation rate is very low, the safe business may continue to do; Following C, D, E, F and so on with is making money. 　　　　
5. Subprime crisis. The house price rose to certain degree cannot rise, behind nobody took over a business. The real estate congenial person is this time anxious looks like on the hot pot's ant. The house cannot sell, the high quota interest must paying, arrive finally for one day which reached end of rope, flung the house has given the bank. This time broke a contract occurs. This time A felt that regrettable, the good money could not gain, but also did not owe there, had B to make the insurance in any case. B did not worry that insured in any case had already sold to C. Then present this CDS insurance in there, in G. G just spent from F 30,000,000,000 to buy 100 CDS, has not had hands over with enough time, receives the news suddenly, this batch of CDS is degraded, the including 20 violations, surpass 1% which greatly estimated originally to 2% violations rate. Each violation must pay 5,000,000,000 insurance moneys, altogether the disbursement reaches 100,000,000,000. In addition 30,000,000,000 CDS purchase expense, the G loss grand total reaches 130,000,000,000. Although G is the entire US is situated the first 10 big organizations, also cannot withstand the so huge loss. Therefore G borders on goes out of business. 　　　　
6. Financial crisis. If G goes out of business, then A spends the insurance which 500,000,000 US dollars buy to malinger, what is worse, because A has used the lever principle investment, according to the front analysis, A loses everything the complete property also insufficiently to repay a debt. Therefore A faces bankrupt immediately the danger. Besides A, but also has A2, A3,…, A20, must prepare entirely to go out of business. Therefore G, A, A2,…, A20 arrives in front of together US minister of finance, a nasal mucus tear solicit, G cannot go out of business, as soon as it went out of business everybody. Ministry of Finance patience one soft, for has nationalized G, hereafter a,…, A20 insurance money amounts to 100,000,000,000 US dollars to pay completely by the American taxpayers. 　　　　
7. US dollar crisis. Above talk about 100 CDS current price on market is 30,000,000,000. But the CDS market resultant is 62,000,000,000,000, the supposition has 10% violations, then on some 6,000,000,000,000 violation CDS. This digit is 30,000,000,000 200 times. If after The US government purchases value 30,000,000,000 CDS, must compensate 1000 hundred million. Then regarding is left over these break a contract CDS, The US government must compensate 20,000,000,000,000. If does not compensate, must look that A20, A21, A22 and so on goes out of business one after the other. Regardless of takes any measure, US dollar big depreciation was already inevitable.
For those that didnt know and want to know, i hope this gives you a small insight. Please invest according to your own decisions and please consult a CPA before making any major decisions. DO NOT invest based on this information.
Thanks... but this is why US is swimming in debt.
