Price speculation and cricis

[SulosRice]

Many global financial crises are caused by "price manipulation" or "speculation", that is, making the price of one product more expensive than it should be. Its expensiveness is created to create more profits for "investors" instead of being expensive because of the need to actually use the product. The strong foundation is ready to crack at any time, even if something happens to lightly poke it. The "Hamburger Crisis" is the same. Even though it's called Hamburger Crisis, it has nothing to do with food. It is caused by the housing trade bubble in the United States. It was spun too.

But what is different is The person who created the housing business bubble may have been an investor, but the person who created the money for the investor to use. is the US financial and banking sector. What is the origin of this matter?
Hamburger Crisis

    1. There are many causes. But the most powerful one is the U.S. housing bubble. Between 1997 and 2006, typical home prices rose 124%. The question is why? Why did the price go up? You have to go back to the original cause. That was after the Dot-com bubble in the late '90s and the aftermath of the trauma. The economy that emerged after the terrorist attacks in the United States on September 11, 2001, the Federal Reserve or the Fed had to stimulate the economy. The US is struggling with cutting interest rates to record lows. It reduced the federal funds rate from 6% in January 2001 to just 1% by June 2003.

    2. Lower interest rates cause economic growth in the United States to begin to increase. A booming economy results in increased demand for homes and, accordingly, emissions. Home mortgages, or mortgages, have increased due to very low interest rates. As a result, home prices are starting to rise. both from increased demand and from speculation It all comes from a lot of lending at very low interest rates. But if the price Housing increases exceeding inflation (How much house value increases over inflation is said to be higher than inflation.) Its price is not sustainable in the long run. That means it Ready to crash at any time

    3. As housing prices increase Consumers are saving less money and accumulating more debt. US household debt As a percentage of personal income, it was 127% at the end of 2007, compared to 77% in 1990. As of 2008, the average U.S. household had 13 credit cards, and 40% of households had credit card debt.

    4. But what's more difficult is Everyone wants to have a house. And banks grant loans easily. too much without considering the ability to repay loans and the debt status of customers, with the belief that house prices will continue to increase The bank will also lure borrowers. The interest rate is below market for a specified period of time. Followed by the interest rate In the market for the remaining term of the mortgage Doing this is called Adjustable-Rate Mortgage (ARM) This tempting offer has led many people to borrow money to buy a home.

    5. From 2001 to 2007, U.S. mortgage debt nearly doubled, and the amount of mortgage debt per household increased more than 63%, from $91,500 to $149,500, while wages did not increase.

This means that the debtor has accumulated more and more debt. But their ability to repay has decreased, but banks still lend money to these customers. which is called "Ninja Loan" (NINJA Loan) The word NINJA does not refer to ninjas in Japanese movies, but comes from the words No Income, No Job, and No Assets Loan (loan for people with no income, no job, and no credit).

    6. The nature of lending to borrowers who do not have enough potential, that is, NINJA Loans, but still allowing low interest is called "Subprime lending" (Subprime lending). Granting loans to those who have a history. bad credit And there is a risk of defaulting on debt payments, plus there is no asset to guarantee. But banks continue to lend to subprime people because the housing market is under the impression that prices will continue to rise, and tying up MBSs will make them more stable and attractive to investors. Makes banks dare to grant subprime loans

    7. What are MBSs? It is mortgage collateral. Mortgage-backed security, whereby mortgages are pooled or more accurately "bundled" and sold to a group of individuals. (Government agencies or investment banks) that securitize or package loans together into securities that investors can buy.

     The problem is that taking home mortgages and selling them as investments like this results in "bundling" which means combining both sub-prime mortgages. (at risk of being wrong, repaying the debt, but with high interest) with a prime loan (with good credit) together makes it attractive for investors. Because of the high returns But it is tied to a mortgage with good credit.

    8. This is an illusion that has been manipulated to look good. The truth is A house was built Too much to sell And will also sell to subprime companies. In addition to the subprime group that is at risk I won't be able to make this payment in time. There are still many borrowers who have not borrowed to buy a home. But I bought it for speculation. Speculative borrowing has a very high proportion.

9. But borrowers who are unable to make higher payments when their below-market interest rate or ARM payment period ends must refinance their mortgage after that time has passed. A year or two later But because housing prices are falling Ability to Refinancing for borrowers is therefore more difficult. Borrowers unable to escape higher payments by refinancing have begun to default on their loans. At first, financial institutions were able to prolong the situation. Save a little by doing a credit default swap, that is, there will be compensation for the loss. Lost to the buyer in the event of default in payment by the debtor.

    10. But doing credit default swaps is another way for speculators to take advantage, such as in the case of Michael Burry, founder of a speculative fund called Scion Capital, where he analyzes trends in lending to creditors. Subprime He was able to correctly predict that the real estate bubble would collapse in early 2007, leading him to believe that subprime mortgages Especially those who do ARM will not be able to start making payments. This led him to speculate in the short term, persuading Goldman Sachs and other investment firms to sell him credit default swaps on subprime mortgages that were likely to fail. Because he hopes that it will really fail in the end and that he will receive compensation.

    11. Berry's predictions began to come true as more borrowers stopped making mortgage payments and more homes were foreclosed on. This causes more houses to be sold. The lower the house price, the more the remaining homeowners' incomes decrease. Because the house that is occupied is for sale There will be no profit and there will be a loss. Therefore, it is even more likely to cause a trend of selling out. In the case of subprime borrowers not paying their mortgages. As a result, the value of the assets backed by the mortgage will decrease. As a result, the bank will face increased investment risk. Both subprime lending and dangerous credit trades such as credit default swaps are the vicious cycle that fuels the crisis.

    12. Rising foreclosure rates are causing more homes to come on the market, but fewer people are wanting them. By January 2008, new unsold homes were 9.8 times the volume in December 2007, the highest value in nearly 20 years. Additionally, of the 4 million homes offered for sale, approximately 2.2 million were vacant. By September 2008 housing prices The US average has fallen more than 20% from its peak in mid-2006. Home prices have dropped significantly. And this unexpected matter means that many borrowers Many are unable to take out a mortgage on their home because it has virtually no value.

    13. Every crisis must have a trigger point that causes it to explode. This crisis is the same. What makes everything The bomb was when house prices in the United States It peaked in mid-2006 and has since plummeted. As a result, MBS and subprime mortgages are being sold by financial companies around the world. widely held lost most of its value Investors around the world are also reducing their purchases. Collateralized debt and other securities decreased significantly.

    14. As the days pass, financial institutions and banks begin to lack liquidity. The important factor that Related to this are the banks Fannie Mae and Freddie Mac. It is backed by the government (GSE) which purchases mortgages. Buy and sell Mortgage Backed Securities (MBS) and insure nearly half of all U.S. mortgages.

    15. Bad signs began during 2007. The first victims It appeared in February 2007 when HSBC, one of the world's largest banks, announced that losses from bad loans were 20% higher than expected. By April 2007, more than 50 mortgage companies had declared bankruptcy. And at least 100 others have closed, suspending operations. or was sold during 2007

    16. The crisis finally became clear. When investment bank Bear Stearns, the fifth-largest bank, collapsed, it was sold in an emergency sale in March 2008 to JP Morgan Chase with the help of a $29 billion guarantee from the Federal Reserve. But this was The starting point that Society has begun to be dissatisfied with the government's use of tax dollars to help support failing financial institutions because You yourself made the mistake of speculating. It also makes the country's economy suffer.

    17. By August 2008, it had finally spread worldwide. Financial companies all over The world has cut its holdings of subprime-related securities by $501 billion. The IMF estimates that global financial institutions will eventually need to write off $1.5 trillion of their subprime MBS holdings, making money Bank capital around the world disappeared in the blink of an eye. It affects the sector's access to capital. Business and household sector This means that the global economy will immediately stagnate.