Chapter 2311 Eye of the Storm

If you can hear Feng Yiping's words, someone on Wall Street at this time will definitely follow his words and say, "Boss, we can't hold on any longer!"

The Chinese say that there is a cycle of twelve years, and Americans say that everything has a cycle.

For some people who have been on Wall Street long enough and have experienced several market cycles, they will know that the financial crisis is actually nothing more than a part of a market cycle.

The market, on the other hand, is always cycling between good times and tough times.

The economies of countries around the world, including the United States, have never developed at a uniform speed in history, and have experienced natural ups and downs like ocean waves.

Often after a period of booming expansion, a contraction cycle will occur due to factors such as excessive financial leverage due to credit expansion and excessive supply growth exceeding demand.

The economic crisis is the climax of the contraction cycle.

The Chinese say that good fortune and misfortunes lie behind them, and misfortunes lie behind blessings. Americans say that risks contain opportunities, and opportunities also contain risks.

There is no need to look back too far, just look at the last twenty or thirty years. Based on experience, some people will also conclude that the next crisis should be approaching.

In 1987, after seven years of surge, the U.S. stock market plummeted without warning on Black Friday, October 16. In the following weeks, panic spread throughout the global stock market and turned into a global crisis.

By the end of that month, U.S. stock indexes had fallen by nearly a quarter.

Ten years later, in 1997, the rapidly developing Southeast Asian countries triggered the Asian financial crisis due to wrong exchange rate policies and overheating economies.

Although the Asian financial crisis had little impact on the United States, seven years ago in 2000, the much-hyped Internet bubble burst, the Nasdaq stock index plummeted, and the global high-tech industry entered a two- to three-year cold winter. .

After that, the U.S. government took a series of measures to successfully revive the U.S. economy.

The current crisis faced by Wall Street is inevitably related to these successful measures to stimulate the market.

As the economy improves, Americans' demand for securities investment is increasing day by day. In recent years, the securities used for investment have not been worried about being sold, but they have been worried about being too few and having no one to buy them.

Therefore, for those on Wall Street, the biggest problem they face is how to design more products.

As a result, some new products that many people on Wall Street didn't really understand were quickly launched, and the most popular among them were real estate-related securities.

Because from the perspective of those on Wall Street, home ownership is also the wish of the general public in the United States. How many fools would be stupid enough to cut off the payment for a house that has also condensed their life-long efforts?

The car payment may also be cut off, because even if the car is repossessed by the bank, you can still live your life, but if you lose your house, how will you live your life?

Does the whole family live on the road?

As a result, a large number of securities were derived based on housing loans, and were quickly purchased by various institutions and investors.

The products that were later confirmed to have triggered the crisis, such as collateralized debt obligations and CDOs, were still the darlings of financial innovation before 2007, both for Wall Street practitioners and people who wanted to invest. One of the most popular products.

Judging from the rising incomes of Wall Street practitioners this year, we can intuitively see how popular the related situation will be.

According to statistics from the U.S. Taxation Bureau, in 2006, the average annual income of more than 300,000 Wall Street employees exceeded $300,000, which is about seven times the average income of Americans.

And we all know that based on the cost of living in the United States, an annual income of $50,000 is a typical middle-class family.

It should be said that after receiving such a high income, not everyone will have questions about "whether there is a bubble in the current market." However, these people also believe in Wall Street's risk pricing assessment system.

Therefore, there shouldn't be any big problems.

This hot situation has undergone some changes this year. Many people still have a lot of goods on hand, but it seems that prices have dropped rapidly.

But at the beginning, no one thought there was a problem with this. This was just a temporary adjustment in the market, so many people chose to hold it in their hands and refused to sell it. Now, some people finally feel vaguely, Wow, this market, Is the whole thing failing?

Wall Street.

In the offices of Bear Stearns, the fifth-largest investment bank in the United States and a leader in real estate lending and mortgage-backed securities, a disturbing mood is lingering in the company with a history of more than 80 years.

Bear Stearns's once star fund manager, Ralph Theophi, is now, it can be said, in a state of confusion.

Ralph Theophi manages two Bear Stearns funds.

One of them, the Senior Structured Credit Strategy Fund, or HGF, was established in October 2003 and invests primarily in low-risk, high-rated securities—such as CDOs rated "AAA" or "AA" by Standard & Poor's.

Relying on the influence of Bear Stearns, this fund easily raised US$1.5 billion in assets.

Under the leadership of Saofi, through the use of leverage tools to invest, in the following more than three years, this fund did give investors very ideal returns.

The size of the fund also expanded rapidly. At its peak, funds raised exceeded US$10 billion.

Of course, Bear Stearns' own earnings were even more impressive, and the performance fees they charged were as high as 20%.

Saiofi, therefore, became a star manager in the eyes of Bear Stearns and its users.

But since last year, with the decline in the real estate market, Saiofi's fund managers have received redemption requests from some investors who are ready to collect as soon as they are built.

Once redemptions occur, the fund must sell some securities, and because of the decline in the real estate market, the market price of the relevant securities is lower than their expectations.

As a result, HGF's performance fees will be damaged, and then the loss report may scare other investors, leading to more redemptions...

In order to avoid falling into such an unfavorable cycle, in August 2006, Saiofi persuaded management to agree to establish a new fund, the "Advanced Structure Enhanced Leverage Fund", or HGELF.

It is an upgraded version of HGF, with higher leverage, but therefore higher returns.

As for the high risks brought by high leverage, "the new fund is still relatively safe because our management skills are superb and we will do some hedging," Saiofi told investors at the time.

Out of trust in Bear Stearns and Saiofi, and also out of confidence in the real estate market, or in other words, out of expectations for high returns, some investors who redeemed funds from HGF turned to invest in HGELF.

But from then until now, although there have been some pullbacks, the US housing market has not shown a significant rise as Saiofi expected.

And because of the use of high leverage, HGELF is very likely to suffer losses in the decline of housing prices.

If Saiofi could continue to keep investors optimistic and call on them to look forward to the improvement of the market before, now Saiofi himself feels that things are unlikely to turn around.

Because according to the financial statements he got, all the assets of HGELF, which used higher leverage, have now disappeared, and HGF's assets are slightly better, but there are also few left.

More importantly, this little left also includes the $1.6 billion emergency fund he obtained by lobbying the company's management last month.

In just over a month, such a huge loss has been caused. Saiofi, which was once high-spirited, is now at a loss.

He looked at the latest real estate trends again, and the trends were still disappointing. The miracle he expected did not appear.

The light on the phone on the table kept flashing, indicating that there was an incoming call. It must be an investor asking about the fund's status.

Among those investors, there were some big customers that even Bear Stearns dared not neglect, such as Goldman Sachs, Merrill Lynch, **** and other well-known Wall Street investment banks.

Sai Oufei thought about it, sorted it out, took the relevant information, and walked towards the company's CFO's office.

This former star manager, at this time, actually looked a bit tragic and heroic.

At this time, he didn't know that he had become the eye of a huge storm, and the lethality of this storm was far beyond his imagination at this time.