Chapter 123： the building will collapse

New Century Financial, headquartered in a black-glass-faced tower in Avon, Southern California, has grown in size and, in recent years, has become the nation's top issuer of subprime mortgages. The establishment of HSBC Holdings plc, these large companies that issue subprime loans, are evenly matched.

Up to now, the company has become the second largest subprime mortgage institution in the United States.

On this day, for all investors who hold the company's stock, it is properly called "Black Friday". In just one day, affected by the negative news of the company, the company's stock price fell by 35%. This incident has also aroused public concern about the future economic situation.

Affected by this, the international gold price fell by 5% on the day, but this is only the beginning. If the subsequent situation continues to deteriorate and a storm is formed, then the related financial fields will be affected.

"Boss, you made the right bet."

After John Paulson saw William Chen, his face was excited, and the first sentence was this:

"You did it, how did you guess it, it's incredible."

After all, in John Paulson's impression, William Chen has always been very resistant to financial leverage. In his previous operations, leverage was rarely superimposed. Therefore, when he saw that he had used 20 times the leverage in one breath yesterday, he still felt the shock in his mind.

That's $1.8 billion!

Even he couldn't help thinking about the trend of gold prices after that, until this morning, when he heard the news.

At this time, John Paulson realized that the subprime mortgage crisis was unstoppable. When the crisis broke out, it would affect all financial products, and the fall in the price of gold was already a certainty.

However, the current question is, where will this wave of gold fall? After all, at the beginning of the crisis, it was normal for all financial products to fall due to market panic. But if the crisis continues, the Fed is likely to rescue the market, and the most likely option is to open the floodgates.

In that case, with the influx of funds into the market, they will definitely choose safe-haven assets for allocation, so if it is safe-haven assets, what can be compared to gold? At that time, the price of gold will usher in a rebound.

Therefore, although the first step has been won, the selection of the point to close the position is a more important step.

Of course, the drop in the price of gold is only one of the effects of the sharp drop in the stock of New Century Financial Corporation due to the pre-loss today.

"Now that New Century Financial Corporation is going to die, how is our fund performing?"

Chen William was also in a good mood. He began to care about the performance of funds shorting the real estate market.

"This incident is the first domino to fall, and it is causing a chain reaction. New Century Financial accounts for a very large share of the stocks shorted by our No. 2 Fund. Affected by this news, all subprime loan related The company's stocks have fallen to varying degrees today. By the close of today's market, the market value of our No. 2 Fund, holding short positions, has exceeded 1.5 billion US dollars. With the overall decline in the future, this number will become more and more bigger."

John Paulson also came prepared, and when he said this, his face was excited:

"At the same time, the CDO stimulus loan bond has also fallen significantly today. From the end of September to the present, the 3A-level CDO bond index has only dropped from 100 to 93.5, but today, it fell by 80! Fortunately, we have completed the opening of the No. 3 Fund. , CDS bonds in the market are now hard to find, and even those CDS bonds with high security have been swept away, including Deutsche Bank and Lehman Brothers, which were very active in selling CDS before. , CDS sales have been suspended, and the sales contracts that were negotiated and prepared to be signed have been postponed indefinitely, or even cancelled..."

Since the CDS bonds held by Fund 1 and Fund 3 have not yet fully met the redemption conditions, there is no exact figure for the specific profits of these two funds, but William Chen knew from John Paulson that, The profits of these two funds have also been very considerable. Only the profits that can be calculated, the No. 1 Fund has exceeded 2 billion US dollars, and the No. 3 Fund has at least a profit of 200 million US dollars.

Chen William now holds a large number of CDS bonds, namely credit default swap bonds, which may not be easy to understand. Because CDS is not a real swap product, but an insurance policy, which is mainly aimed at various bonds in the market.

For example, for CDS products of subprime loans, premiums are generally paid semi-annually with fixed terms.

As an example, William Chen could buy a 10-year credit default swap on a $100 million subprime mortgage for $500,000 a year. Therefore, the total premium he should pay is $5 million in 10 years. If these subprime mortgages are repaid on time and there is no default within 10 years, then his $5 million is equivalent to paying premiums and being lost Lost.

But if a subprime mortgage default occurs during that 10-year period, he will get $100 million in compensation.

Therefore, you can simply think of this as a bet. One party believes that these loans will not cause default, and you take out 5 million funds for 10 years to participate in the bet. If the other party succeeds, you pay him $5 million. If the other party succeeds, you pay him $5 million. Fail and you get $100 million.

Of course, these figures are all examples. In reality, premiums and compensation are priced according to the credit rating of those subprime loans. The premiums of CDS bonds corresponding to 3A-level CDO bonds are definitely different from 3B-level ones.

Therefore, it needs to be mentioned again that the value of William Chen's employment of John Paulson is clearly reflected here, because there is longer research on this market, so John Paulson can be more profitable. Among the triple-A CDS bonds, find those with the highest probability of default, so they will end up with higher profits.

And you must know that these premiums are paid in installments. If the 10-year CDS bond defaults in the first year, then you only need to pay one year's premium to get the final compensation, so it is expected in advance The exact time when the subprime mortgage crisis broke out is very important for the investment of CDS bonds, because if it is determined, you only need to pay the premium for one year, which means that you do not have to leave the money that you need to pay for the next year, and Go buy more CDS bonds.

Now, the CDO bonds and CDS bonds held by Fund 1 and Fund 3 of Meta Investment Company only need to wait for the price of CDO bonds to fall and the subprime loan corresponding to the CDS bonds to default to obtain compensation. The final income, Absolutely a horrible amount.

It has to be said that Wall Street really concentrates the smartest people in the United States, who use carefully designed various financial products to make profits. But at the same time, because they are too smart, those complicated financial products quietly gather a large amount of capital investment, and also accumulate huge risks.

Just like you build a house with building blocks, countless financial products form the tallest economic building in the United States and even the world. Once a corner collapses, causing the building to overturn, countless wealth will be evaporated or transferred in an instant, and the world will enter a downturn and a recession. in regress.

And Chen William, right next to the building that was about to collapse, opened his sack and waited for the gold bricks to fall. However, his personal strength was limited, and the profit he could finally obtain might be less than one thousandth of the entire building. one.

Just when William Chen was in a good mood and was about to go to Paris and the two of them had a good time to celebrate, he received another call from his uncle John Del Rey.

"William, I'm in New York now, and I'm here with Tom. Come over here and see you later."

Since this is the case, William Chen called Paris and said to contact her at night. Then let the bodyguard drive to Uncle Tom's house.

John Del Rey came to New York this time, entirely for William Chen.

If it is said that the $50 million invested by the Drey Family Fund into Fund 3 before is entirely the investment made by John Drey to support William Chen's private equity fund.

Then today, after New Century Financial Corporation disclosed the pre-loss in performance and admitted that it had suffered significant losses in subprime mortgages, so that the stock price plummeted, John Del Rey realized that William Chen's investment was definitely very important. The right decision.

Moreover, in his position, although some information is easy to be mistaken and missed, when a targeted investigation is carried out, relevant feedback can be obtained faster, so especially New Century Financial Corporation is located in California, where the foundation of the Drey family is located. It is reasonable that he can come to these conclusions faster.

After knowing that William Chen is making a lot of money and his private equity fund, Fund No. 3, is currently expected to make more than 100% profit, John Del Rey also made a decisive decision now and will add more funds to the Del Rey family fund. $100 million will be invested in Chen William's No. 3 Fund, and will contact California to help him match up with pension funds, health insurance funds and other public funds to attract the investment of those funds.

John Del Rey did this not just to help William Chen, but also to take into account the interests of the family. If these public funds can make a lot of money in William Chen's private equity funds, their family's support rate in California will be very good. important promotion.