The current financial crisis on Wall Street in the United States, which was triggered by the subprime mortgage problem, has become the center of attention of the whole world. The financial crisis on Wall Street not only hit the fragile economy of the United States, causing the collapse of the U.S. stock market, but also brought great harm to the economies of other countries. So why did a serious financial crisis happen on Wall Street? What inspiration does this financial crisis bring us? This paper is intended to explore this.
First, the causes of the U.S. financial crisis
The U.S. financial crisis triggered by the subprime mortgage problem has a complex background, I think its main reasons are as follows:
1. Stimulate the economy of the ultra-loose environment buried the hidden trouble
April 2, 2007, the second largest subprime lending institutions in the United States, announced the bankruptcy of the New Century Financial Corporation, marking a major outbreak of the subprime crisis in the United States. The U.S. subprime mortgage crisis broke out. The source of the subprime mortgage crisis is its pre-easy monetary policy. After the bursting of the new economic bubble and the "9.11" incident, in order to avoid economic recession and stimulate economic development, the United States government took measures to encourage investment and consumption by lowering bank interest rates. From 2000 to 2004, the Federal Reserve cut interest rates continuously, the federal funds rate from 6.5% all the way down to 1%, the loan to buy a house and no guarantee, no down payment, and home prices all the way up, the real estate market has become increasingly active, which also accomplished the economic prosperity of the late Greenspan era. The provision of subprime mortgages was a good thing, allowing low-income people to have their own homes. For the average individual family, low interest rates and soaring property prices wove a rosy picture, and investing in housing became a huge temptation, so a large number of residents entered the mortgage market. By the end of 2006, subprime mortgages involved 5 million U.S. households, and the scale of subprime mortgages is now known to reach 1.1 trillion to 1.2 trillion dollars.
2. Using property as collateral is the key to risk
Consumers of subprime mortgages in the United States use property as collateral, and the price of the property determines the value of the collateral. If home prices keep rising, the price of the collateral stays up and does not affect the consumer's creditworthiness or ability to repay the loan. Once home prices fall, the collateral depreciates in value and the amount of money that can be loaned from the bank for the same home decreases. If the interest rate on the loan is raised, the subprime mortgage makes the variable rate go up with it, and the amount of money that needs to be repaid goes up considerably. The subprime lender, who is already a low income earner, can't pay back the loan and has to give up home ownership. Lending institutions can not recover the loan, can only recover the lender's property, but the recovered property not only can not be sold, but also continue to depreciate and shrink, so there is a loss, and even the flow of funds can not be up. Shrinking home prices and rising interest rates are the killer of subprime mortgages.
From 2005 to 2006, in order to prevent the market from overheating consumption, the Federal Reserve has raised interest rates 17 times, the interest rate from 1% to 5.25%, the market interest rates into the rising cycle. Due to the interest rate conduction to the market tends to lag some, 2006 U.S. subprime loans are still rising. But the effect of interest rate hikes gradually appeared, the real estate bubble began to burst.
3. The securitization of subprime assets exacerbated the spread of the crisis
The vast majority of U.S. home mortgages are issued by regional savings banks and savings and loan associations, and local commercial banks are also involved in mortgage lending. The financial strength of these institutions is not very strong, a large amount of money was invested in housing mortgages on its capital turnover constitute a serious pressure. Some financial institutions with "financial innovation" tools packaged these credit assets and used them as collateral for the issuance of negotiable bonds. They offer a fairly attractive fixed return and sell them on. Many banks and financial institutions such as asset managers, hedge funds, insurance companies, pension funds, etc., invested in these bonds. Mortgage companies had a constant source of financing, creating a rapidly growing number of new subprime mortgages; investment institutions received higher returns.
A wide range of financial derivatives allowed investment institutions to make more rational use of their cash flow, and the benefits were broken down and ****enjoyed, and the risks were spread. But things have two sides, the financial innovation system brings risk diversification mechanism at the same time, will also produce risk amplification effect. Like subprime such a kind of innovation so that the United States is not enough home mortgage standards of residents to buy a house, at the same time through the securitization of assets into subprime debt, will be high-risk loaded in the high return, dispersed to the world. In this sense, any country that buys U.S. subprime debt will be forced to "pay" for the U.S. subprime crisis. When the real estate bubble burst and subprime borrowers could not repay their loans, not only did mortgage companies fall into a loss-making predicament and were unable to pay fixed returns to those financial institutions that had purchased subprime debt, but also those investors who had bought subprime derivatives also lost their high returns due to the decline in bond market prices, and likewise moved into the predicament of liquidity shortages and losses. Beginning in the third quarter of 2007, financial institutions began reporting large losses, reflecting the sharp decline in the value of mortgages and other assets.
The securitization process of subprime loan assets is really a process of asset portfolio and credit enhancement, and a process of multiple asset overlays and multiple credit entity credit overlays, and the information and related risk disclosures of such asset securitization portfolios may tend to become more opaque after the asset securitization, resulting in few in the marketplace being able to read the risks clearly, let alone price their pricing the risks in real time. With insufficient knowledge of the true value and risk of assets, investors rely heavily on the reports of rating companies to make decisions. The role and influence of credit ratings by credit rating agencies in the financial market has become increasingly significant, and credit ratings are also a necessary and important part of the asset securitization process. Whether credit ratings are objective and fair, whether they truly understand financial instruments, and whether there are conflicts of interest and moral hazard are all factors that can have a significant impact on the global financial market. Subprime mortgage bonds were originally developed from low-quality assets, and "financial innovation" enabled these low-quality assets to be rated by credit rating companies to obtain a high grade label, which proved to be grossly overvalued in hindsight.
Because of the information asymmetry and the risk of loss is not clear, once the subprime mortgage loans appeared major risks and losses, constructed on these securities credit enhancement and credit superposition will be like the desert on the air general will "instantly collapse", which will inevitably lead to the majority of the investor's confidence in the investment of the panic, risk aversion instinct accelerated investors to sell. Risk aversion instincts accelerate the selling of investors, and exacerbate the turbulence of the financial market, financial disaster is inevitable. In the subprime mortgage, securitization, credit derivatives this risk transfer chain, if there is no credit rating companies involved, the subprime crisis may not happen at all.
Second, the U.S. financial crisis revelation
The U.S. financial crisis triggered by the subprime mortgage problem has given us a profound lesson, and our country should be cautioned.
1. Recognize and prevent the market risk of mortgage
Mortgage has real estate as collateral, it seems to be the safest asset, but the value of real estate is constantly changing with the market. When the market is good, real estate prices rise will increase the market value of the collateral, reduce the risk of mortgage credit, will induce banks to continue to expand the size of mortgage credit. However, the price of real estate cannot go up indefinitely, because no business or individual can ignore the cost of its production and survival. When the market reverses, housing prices go down, it is difficult for banks to dispose of mortgages, and even if the mortgages are auctioned, the proceeds will not be enough to repay the loans. This not only brings a large number of bad and doubtful debts to lending banks, but also jeopardizes the safety of the banking system and the healthy development of the economy as a whole. Therefore, banks need to make a rational choice between risk and return, and improve their ability to recognize and resist market risks.
2. Recognize and prevent credit risk
The high default rate of subprime loans is due to the fact that lending institutions do not adhere to the principle of the "three Cs" in lending, i.e., risk assessment of the borrower's basic characteristics (character), ability to repay (capacity) and collateral (collateral). collateral) for risk assessment. From foreign experience, the borrower's basic characteristics (age, level of education, health, occupation), the purpose of the purchase (self-occupation or investment), marital and family status, ability to repay loans (mortgage property value ratio, monthly mortgage income ratio, the total debt collection ratio, asset-liability ratio, etc.) and collateral (value of the property, new construction, second-hand housing, use of the period of time, location, single-family, high-rise multi-storey buildings, etc.) are closely related to the default rate. default rate.
Hong Kong in the East Asian crisis in the asset prices have shrunk significantly, many home buyers to bear the pressure of negative equity, but the bank did not appear to be a significant increase in the default rate of the problem, it is because the Hong Kong banking industry itself has a strong anti-risk ability, personal housing loans have strict eligibility criteria, the borrower to buy a house is mostly self-occupied, stable career, income cash flow remains unchanged, the value of the property use remains unchanged, and will still be repay the loan on schedule.
China's commercial banks in the expansion of personal loan business should avoid "performance targets" and other non-economic and irrational color, reduce the administrative means of intervention in the allocation of credit funds, strengthen the borrower's ability to repay the loan review, the implementation of different credit risk levels of borrowers with different risk pricing, borrowing and lending standards, including their own capital, down payment ratio, interest rate, term, and so on.
3. Establishment of improved information disclosure mechanisms and lending norms
The regulatory authorities should supervise banks and insurance institutions engaged in housing credit, and in the marketing of various types of loans and insurance products, fully disclose the product information to the borrower, so that the borrower has the right to be fully informed, the right to choose, and to reduce the damage of information asymmetry to the rights and interests of the borrower. Promote standardized contracts, loan review procedures, borrowing and lending standards, standardize bank lending behavior and post-loan services.
4. Establish a real estate financial early warning and monitoring system to improve the ability to resist risk
Since financial risk is ubiquitous in economic life and is an objective existence that is not subject to human will, it is the duty of the supervisory authorities to improve the ability to identify risks, predict, prevent, avoid and resolve risks, and improve the controllability of risks. Therefore, the establishment of real estate financial early warning and monitoring system is imminent, it will be the security of the banking system, the real estate market and the whole national economy sustained and healthy development to produce a positive contribution.
5. Government departments should be warned from the crisis
It is the government's responsibility to let people live and work in peace and contentment, but "everyone enjoys a proper home" does not mean that everyone has to buy a house, so that low-income earners without the ability to pay to enter the market to buy a house, and pulling up the seedling to grow not only contrary to the wishes of the people, but also produce a lot of negative effects. Especially in our country mortgage guarantee, mortgage insurance and other related financial infrastructure is not sound, invariably let the bank to bear a lot of policy risks. Therefore, an optimized residential market structure should be the unity of new construction and stock, sale and rental housing, and the diversification of commercial housing and government-provided public **** housing. The government should increase the supply of affordable housing, change the affordable housing "for sale but not for rent" to "for rent and sale"; and through credit, tax, land policy to guide real estate enterprises to increase the supply of low-priced ordinary commodity housing, in the approval of construction permits to give priority to The first step is to make sure that the construction of the building is carried out in an appropriate manner.
6. China should establish and improve the mortgage insurance and guarantee system
China should establish and improve the mortgage insurance and guarantee system, and improve the housing credit risk prevention and sharing mechanism. The introduction of commercial insurance and policy guarantee mechanism is conducive to promoting the standardization of mortgage marketing, contract standardization, and suppressing the impulse of commercial banks to blindly lend money; reasonable insurance risk pricing mechanism, which helps commercial banks avoid credit risk, moral risk and the risk of cyclical fluctuations in the real estate market.
For reference only, please learn from yourself.
I hope it helps you.