"Since housing prices continue to fall, we sell our house, rent our house, and then wait for the bottom of the purchase with cash. Wouldn't we make a profit?"

Zhang Wenwu was eager to express his opinions.

Ren Pingsheng smiled without saying a word, but just looked at Jiang Qiurong.

Jiang Qiurong showed a "You are so stupid" expression on her face, rolled her eyes and said:

"Buying and selling a house is the least cost-effective way. House prices fall by 20%. If you buy them again, the transaction fee may only be 15% profit; if the house prices rise by 20%, you buy them again. If the transaction fee is added, your loss will exceed 25%. It is obviously not a cost-effective business. In addition, the trend of real estate takes a long cycle to show, and there are many conditions and restrictions on monetization in the market, which can only be used to preserve value and cannot be arbitrage."

Although Zhang Wenwu was scolded by Jiang Qiurong, his enthusiasm was not setback and continued:

"Then can we short the real estate companies and related financial institutions in the US stock market arbitrage?"

Jiang Qiurong's speech to him this time was quite acceptable, but she continued to shake her head and said:

"The risk of short selling is very high, and the impact of subprime loans is very large. Almost all investment banks and financial institutions are involved. You have to face the entire Wall Street. If they unite, you will be eaten alive, and the risks and returns are not proportional."

Ren Pingsheng nodded in praise and said:

"This is why financial giants such as George Soros shorted the pound, shorted the ruble, and shorted the emerging market, but never dared to short the United States. It is not that the US economy has no ills, but that Wall Street is too powerful. From rulemaking to tool design to capital raising, the entire financial market is controlled by Wall Street. Even if you discover their loopholes, they have enough wisdom and ability to cover up the loopholes, and even use the loopholes to make profits for themselves."

Zhang Wenwu became more and more disgusted as she heard it. He said with a depressed face:

"Wall Street is so powerful, so what's the use of knowing so much? We still can't make money from this crisis."

Jiang Qiurong also had this question in her heart, but her confidence in Ren Pingsheng was obviously more than Zhang Wenwu. At this time, she did not speak, but just looked at Ren Pingsheng quietly with her pair of phoenix eyes, waiting for his next sentence.

"If Wall Street hasn't developed this derivative tool, then we really have no choice."

Ren Pingsheng said calmly in the eyes of both of them:

“But, I’ve found the best shorting tool, that’s CDS.”

Zhang Wenwu, the first brother of the financial market, couldn't understand as usual, so he immediately asked:

“What is CDS?”

Jiang Qiurong showed a deep thought expression and said slowly:

"CDS, Credit  Default  Swap is a standardized credit default swap contract founded by ISDA (International Swap and Derivatives Association) in 1998. The essence of CDS is actually a default insurance contract, which can protect the risk of the bonds you hold after the loss can be borne by the financial institutions that sell CDS. These financial institutions can be banks or insurance companies."

The concept of CDS is more profound than that of CDO. Seeing Zhang Wenwu’s confused look, Jiang Qiurong explained tirelessly:

"In the most common example, you lend me 100 yuan, and then you pay the insurance company 10 yuan to sign an agreement. If I give you 100 yuan, the insurance company will make a net profit of 10 yuan. If I can't pay it back, the insurance company will pay you 100 yuan."

Ren Pingsheng added:

"Yes, the emergence of CDS is a market that arises due to the development and growth of CDOs. Although many investors buy CDOs when they look at the ratings of rating agencies, they are still worried about the risks of funds. At this time, there is a demand for value preservation, and this value preservation is realized by CDS. With CDS, investors of CDO pay insurance companies a "premium" every quarter. If there is a risk in the CDO, the insurance company will compensate the purchaser of CDS for a certain amount of losses."

"With CDS, the risk of purchasing CDOs is further diversified. CDS not only provides insurance for ordinary investors, but also provides guarantees for hedge funds and investment banks that rely on CDOs for mortgage financing. When investment banks see that the risk of subprime mortgages has dropped to the lowest point through various derivatives, they feel assured to continue to increase leverage and further transmit the risks to financial institutions that provide CDS insurance."

Zhang Wenwu had not seen the trick here yet, and he asked:

"Since Wall Street has controlled the risks of derivatives so carefully, what do we use to short it?"

Before Ren Pingsheng could speak, Jiang Qiurong had already thought of it and blurted out.

“CDS can trade naked and empty.”

Hearing this sentence, Ren Pingsheng immediately smiled with satisfaction, and he gently raised his chin to Jiang Qiurong.

After all, Jiang Qiurong graduated from a professional class. Although she does not have the information reserves of the reborn person who looks at the overall situation, she can rely on her profound financial knowledge and front-line work experience to infer the real answers to the problem under the step-by-step induction of Ren Pingsheng.

At this time, Jiang Qiurong didn't care about turning the pen in her hand. Her five green onion white and slender fingers held the pen tightly, trying her best to restrain her excitement and said in an extremely calm tone:

"CDS looks like insurance, but it is different from insurance. Its earliest purpose was to avoid capital requirements, which was equivalent to using derivatives to improve capital use efficiency. Therefore, the biggest difference between CDS and traditional insurance policies is that it has no specific insured subject matter."

"In traditional insurance, you need to have something that is insured, that is, the subject matter of insurance. For example, life insurance, which guarantees your life, fire insurance, which guarantees your property. You cannot buy a car without a car and a car theft insurance, and buy a house without a house without a house. "

"But CDS is different. If you don't have a certain corporate bond, you can also buy CDS for that corporate bond and pay premiums to the CDS seller. When the corporate bond defaults, the CDS seller must pay for your losses, as if you hold these bonds."

In order to strengthen the persuasion, Jiang Qiurong raised the pen in her hand and pointed at Zhang Wenwu and said:

"Take traditional life insurance as an example, each of us can buy one or more life insurance for ourselves. The target is our life, but we cannot buy life insurance for others' lives. CDS is different. People who have nothing to do with you can also buy life insurance for you, because I think the nature of your work is dangerous. Once you quit, I can get compensation."

Zhang Wenwu was frightened by Jiang Qiurong's fingers, and he said with a sad face:

"Isn't this CDS completely different from the nature of insurance? The nature of insurance is to make up for the misfortune of a few people with the luck of the majority. Most people who buy insurance are unwilling to lose their own losses and get claims. However, the buyer of this CDS has no interest in the target holder. So don't the buyer hope that the target holder will suffer losses? Because the loss of the target holder has nothing to do with the CDS buyer, but the insurance claims belong to the buyer."

When Jiang Qiurong saw that Zhang Wenwu had finally gotten her mind, the marble-like cold jade face finally thawed, and she smiled and said:

"It's not wrong at all. The essence of CDS is to build happiness on the pain of others. If you go bankrupt, I will make a profit; if you fail, I will make a profit; if you go to death, I will collect money."

Although Jiang Qiurong's smile was very charming, the cold rationality in her words made Zhang Wenwu tremble. He shrank his neck and muttered something in his mouth, but he didn't dare to speak anymore.

However, Ren Pingsheng looked at the "female devil" in front of him with full appreciation, and added with a smile:

“Since the buyer of CDS does not require it to be a stakeholder, the quantity of CDS is not subject to the quantity of the subject, and it can be supplied in unlimited quantities as long as someone is willing to buy it.

"Although senior market participants can see through the essence of CDS, in the context of the booming real estate market, MBS\CDO has spawned unlimited demand for CDS, so financial institutions are desperately selling CDS to earn huge premium income."

Ren Pingsheng stopped knocking his fingers on the table at this time. He put his hands on the table and said calmly:

"Although CDS is originally intended to protect the purchaser's value insurance, its characteristic determines that buyers can buy CDS without restrictions. As long as the real estate market crash caused by subprime loans, these financial institutions that sell CDS will have to pay hundreds of millions of premiums. This is the best short selling tool."

Jiang Qiurong and Zhang Wenwu both raised their heads and looked at Ren Pingsheng's eyes.

In addition to worship, we also worship.
Chapter completed!