Chapter 583

2008 is destined to be an extraordinary year and an eventful year for global financial markets. The week after the seventh anniversary of 9 / 11 has become the most thrilling week in the history of Wall Street.

On September 15, Lehman Brothers, the fourth largest investment bank in the United States, entered bankruptcy protection proceedings in accordance with paragraph 11 of the bankruptcy law, which means that this 158 year old investment bank has entered history.

The growth history of Lehman Brothers is an epitome of the modern financial history of the United States, and its bankruptcy is an event of great index significance in the world financial history.

Founded in 1850, Lehman Brothers is an international investment bank headquartered in New York. Since its establishment, Lehman Brothers has survived the civil war, two world wars, the great depression, the 9 / 11 attacks and an acquisition. It has been described as "a cat with 19 lives" by Roy Smith, a finance professor at New York University.

Lehman once took the lead in the mortgage-backed securitization business, but it also failed in the subprime mortgage crisis caused by this business.

On September 9, Lehman's stock began to plummet, with a sharp drop of 77% within a week, and the company's market value fell sharply from US $11.2 billion to US $2.5 billion; Until it finally went bankrupt.

The bankruptcy of Lehman also frightened the boss of Merrill Lynch and quickly sold Merrill Lynch to Bank of America for $44 billion.

Why is it always the investment bank that has an accident?

Among the five major investment banks in the United States, Lehman collapsed, Merrill Lynch was acquired, and Bear Stearns, which was acquired by Morgan at the beginning of the year, only Morgan Stanley and Goldman Sachs were left in the five major investment banks on Wall Street within half a year.

Investment banks, that is, securities companies, were once very arrogant and had a great momentum to dominate the financial sector. The income of investment bankers is also the highest in the financial sector, which is a place many people yearn for.

Traditionally, investment banks are mainly engaged in securities issuance, trading, enterprise restructuring, mergers and acquisitions, investment analysis, venture capital, project financing and other businesses. They are the main financial intermediaries in the capital market.

In recent years, investment banks have become an important birthplace of financial innovation, from trade financing and infrastructure financing two centuries ago to strong intervention in enterprise restructuring and securities and futures market.

In fact, when financial innovation became more and more intense, the nature of investment banks began to look more and more like a high-end casino.

Investment banks have designed and implemented wonderful financial ideas, giving birth to market miracles. Perhaps because of this, investment banking is a profitable industry, contributing to a 1 billion yuan merger. It is estimated that it will have to take 100 million, but what it pays is several so-called intelligent planning and evaluation. At most, it can take some money to buy some shares.

Under the signboard of innovation and the temptation of huge profits, investment banks are certainly full of passion, spare no effort, and even take risks.

Before the outbreak of the subprime mortgage crisis, the international financial institutions blindly used the highly leveraged structured products such as securitization and derivatives to pursue investment banking gains. The whole financial industry was immersed in the joy of the wealth feast brought by high leverage, and forgot that financial innovation is actually a double-edged sword, and the market bubble will eventually burst.

The subprime mortgage crisis is actually the product of excessive expansion of credit. All kinds of credit expand wantonly, regardless of the actual affordability. It not only creates an illusory and beautiful prospect, but also stimulates the desire of greed and speculation.

The emergence of economy and finance is to provide people with the needs and convenience of life. However, in the endless pursuit of interests and consumption, people forget the purpose of production and lose the direction of life. The only goal is more, better and stronger. As for whether it is necessary, no one will seriously think about it.

It's good for a family of three or four to live in a 1000 foot house. Why do you have to chase 2000 feet? Everyone lost their direction and purpose, only pursued the greatest interests, and lost the standard of value judgment.

When all things are based on interests and pleasure, it is difficult to completely avoid destruction and disaster.

Despite the risk, Lehman eventually destroyed itself, resulting in a serious disconnect between virtual finance and real economic life. After the emergence of financial innovation, financial investment began to rely too much on quantitative models, theoretical assumptions were seriously divorced from market reality, and the prediction of future capital return changes was seriously distorted. Lehman was too involved in the complex derivatives market, After the problem appeared, there was a transmission process, which was difficult to emerge immediately. Therefore, it was still intoxicated with the glory of the past and missed many rescue opportunities. Finally, it collapsed because the US government refused to guarantee the bottom.

In recent years, mathematical models with strict assumptions and complex theoretical structure have been sought after by global investment banks, hedge funds and rating agencies, and have become the main tool to measure financial risk.

This is why many doctors of mathematics and computer enter investment banks.

However, in this subprime mortgage crisis, although financial institutions have established sophisticated and complex pricing and rating models for subprime mortgage derivatives, in the face of the actual situation of the sudden reversal of the price of the American real estate market, the premise assumptions of the model deviate seriously from the actual market risk, resulting in the failure of the risk pricing function, causing panic among investors, and amplifying the risk through herding effect, Finally, it led to a comprehensive financial crisis.

Real economic life is ever-changing. No matter how sophisticated and huge the mathematical model is, it is difficult to cover all situations and risk characteristics. If we worship the mathematical model too much, completely describe the changes of market risk with several parameters and replace rational market investment decision-making, it will inevitably lead to crisis.

In the past 30 years, the result of financial innovation is that the chain of buying and selling is longer and longer, and the scope of dispersion is wider and wider. After the transaction is completed, the final investor and the initial borrower are separated by thousands of rivers and mountains, and they don't know each other at all.

For example, the housing subprime mortgage products that triggered this round of crisis, from the initial housing mortgage to the final CDO and other derivatives, go through complex stages such as lending, packaging, credit holdings, rating and sales. The whole process is designed with the participation of dozens of different institutions, and the problem of information asymmetry is very prominent.

The capital market is a big gamble, and Lehman is a big gamble. The capital market is the so-called leveraged financing, that is, there is a small amount of self owned funds and then borrow money exponentially. The average leverage ratio of Wall Street is 14.5 times.

The director of structured financial products trading department of Credit Suisse said that the reason why large investment banks such as Merrill Lynch and Lehman Brothers fell in an instant was essentially because they invested in a large number of securities products related to subordinated debt, and the investment principle of these products generally has a large proportion of investment leverage, That is, the investment income and loss of these products are amplified by a large proportion, and the profit will be greater and the loss will be more.

At this time, there is no difference between the strength of large banks and small banks. Now which bank can survive the financial crisis depends on the distance between their financial products related to subordinated debt.

Before the outbreak of the subprime mortgage crisis, Lehman Brothers held a large number of subprime debt financial products and other low-grade housing mortgage financial products. After the outbreak of the subprime mortgage crisis, the credit rating and market value of subprime debt financial products plummeted due to the rise of the default rate of subprime mortgages.

As the credit risk continues to expand from subprime mortgages, the credit rating and market value of lower grade housing mortgage financial products also began to decline sharply. There are problems with the products they hold. When they are terminally ill, it is difficult for the government to save them.

After learning of Lehman's bankruptcy, people in Europe were very sad. Why didn't the American government rescue Lehman Brothers?

Lehman Brothers is bigger than Bear Stearns. Why did the US government refuse to provide credit support to Bank of America and Barclays, which are going to buy Lehman Brothers, after rescuing Bear Stearns and Fannie and Freddie

To Lehman Brothers filing for bankruptcy? Is there any suspicion that the US government favors one over the other?

In fact, after the US government rescued Bear Stearns, the Fed received a lot of criticism.

The most representative opinion is, why should the government use taxpayers' money to pay for the investment decision-making mistakes of private financial institutions? Will the government's rescue of private financial institutions breed new moral hazard, that is, encourage financial institutions to take greater risks, anyway, the government will pay the bill in the end? Therefore, after the Lehman Brothers accident, the US government had to be more cautious.

The government takes so much money to save those capitalists, vampires, and the tide of civil opposition is wave after wave. They don't know that these investment bank capitalists don't count on them when they are developed, but pull them when they lose money, and everyone will die.