A year later, the United States.

As the second largest subprime mortgage lender New Century Finance announced that it had filed for bankruptcy protection, a financial storm suddenly swept Wall Street and quickly spread to the entire Western world. On June 22, 2007, Bear Stearns, the fifth largest investment bank in the United States, announced that two of its funds investing in subprime bonds had huge losses. Subsequently, banks announced that they had lost money from non-performing assets, including Citigroup's reduction of US$15 billion, Merrill Lynch's reduction of US$7.9 billion, and Bank of America reduced US$3.3 billion. According to financial experts estimates, the losses caused by the subprime mortgage crisis across the United States are between 100 billion and 200 billion US dollars.

In Europe, HSBC withdrew $3.3 billion in bad debt reserves, Barclays, UK, cancelled $2.7 billion, Swiss Bank wrote off $3.7 billion in subprime mortgage bad debts in the third quarter, and claimed at the end of the year that it had reached $10 billion due to subprime mortgage-related losses.

The situation in Asia is not optimistic. Japan's Mizuho Financial Group, Shinshen Bank and Qingkong Bank all claimed that their performance had declined sharply due to subprime mortgages. Chinese financial institutions are expected to lose 1/5 because they hold tens of billions of US subprime bonds.

The Western economy is completely built on financial credit, and the huge fluctuations in the financial industry inevitably involve the real economy. The housing market was the first to be affected, with housing prices in various countries falling sharply, housing credit default rates soaring, and the number of new houses started sharply. The manufacturing industry was also affected by credit collapse. Due to the serious losses of various banks, loans were difficult to issue, corporate investments were greatly reduced, and the investment market shrank accordingly.

A large number of companies that were in operational difficulties began to lay off employees or reduce wages, and the people's income decreased, which further exacerbated the market's downturn. Most Western people had no family deposits, and their daily consumption was based on credit cards, which had the typical characteristics of eating food for the first time. The decrease in income and the tightening of consumer credit in banks, countless Western people's lives were immediately in a dilemma.

The outbreak of the subprime mortgage crisis was not a cold one day. The fundamental reason is that the economy of the entire Western world is deviated from reality and virtual. Everyone is keen to make quick money in the financial market, and no one is willing to do business down-to-earth. In order to obtain more profits, financial experts on Wall Street invented a variety of financial derivative products, hyped them up one after another, creating a false prosperity. In this prosperity, everyone has the illusion of having a lot of wealth, but they do not know that these wealth are completely castles in the air, and will turn into nothing once they wake up.

On the other side of the ocean, in the conference room of the National Development and Reform Commission of China, a meeting on responding to the impact of the subprime mortgage crisis is being held. The personnel with parameters are officials from various economic functional departments.

"According to an analysis report submitted by the Institute of Macroeconomics of the Development and Reform Commission, the subprime mortgage crisis has begun to spread to the real economy. European and American countries have lowered the GDP growth rate this year by 0.5 to 1 percentage point. Last month, the US manufacturing activity index fell below 50 and entered a recession period. The Bank of Japan survey data shows that the confidence index of large manufacturers is negative and is pessimistic about the market outlook. We predict that the impact of the subprime mortgage crisis will further expand in the next few months of this year, and there is a possibility of evolution into a comprehensive economic crisis." This is Wang Zhenbin introducing the situation to the officials attending the meeting.

"Director Wang, I saw in the newspaper that some experts believe that the subprime mortgage crisis has bottomed out and that the US economy is expected to recover by the end of the year. This is different from your predictions." An official at the meeting questioned.

"Yes, I have seen such a statement," another official echoed, "By the way, Gao Lei from the Academy of Social Sciences is now a professor at Harvard University. A few days ago, he delivered a speech saying that China's analysis of the subprime mortgage crisis is too alarmist. The Federal Reserve has rich experience and can quickly adopt policies and turn the situation around. The subprime mortgage crisis will definitely end if it lasts for up to two or three months."

"Gao Lei is just a matter of his own words." Han Hong, deputy director of the National Development and Reform Commission who presided over the meeting, smiled slightly, "What we learned is the opposite. Fed officials privately stated that they have taken measures that they can take, but the market confidence is seriously insufficient. A little turbulence may set off a new storm. By then, there will be far more financial institutions affected than now, and they are already preparing various after-care measures."

"The top economists in the United States are not optimistic about the prospects of the subprime mortgage crisis. They believe that the probability of a further crisis next year is more than 70%. " Qi Ruicang, a researcher at the National Development Research Center, added. He is now one of the top international scholars, and important conferences like this are often invited to attend.

"The economics community is now reflecting on why the subprime mortgage crisis did not foresee in advance. Everyone has sorted out many signs over the years and found that this crisis had already been symptomatic five years ago, but was covered up by blind optimistic market expectations. The consensus in the academic community is that if this crisis broke out two years ago, it would be relatively easy to control. The outbreak now is already a big deal. It is estimated that the global economy will be dragged down by it and it will be difficult to recover in the next three to five years." Qi Ruicang introduced to everyone.

"So that's how it is." The official who mentioned Gao Lei had smiled awkwardly and smoothed himself out: "It seems that Gao Lei's words are indeed unbelievable. Professor Qi is a master with real talents."

Qi Ruicang waved his hand and said, "What kind of a great scholar am I? I just relay some consensus in the academic community. House prices in the United States are now falling sharply, and many homeowners are insolvent, and abandoning houses are increasing. Although banks can take away houses from these people according to contracts, because the housing prices have fallen, the prices of these housing auctions are not enough to compensate the loans issued by the banks before, and bad debts are increasing. Some insiders say that the two major housing lenders in the United States, Freddie and Fannie Mae, are now facing the threat of bankruptcy. If these two institutions go bankrupt, the impact on the US economy will be no less than an magnitude eight earthquake."

"Oh, how could this happen!" Some officials sighed, "A few years ago, we only heard about the South American debt crisis and the Asian financial crisis. Who knew that the United States would do the same. This is really a turn of feng shui."

Xu Zhenbo, director of the Ministry of Commerce, curled his lips and said, "This should be called retribution. Wasn't the Americans doing the trick behind the scenes in the Asian financial crisis? Now it's their turn."

"Director Xu, it's okay if we say this. You are a foreign trader, why do you say that?" Someone joked to Xu Zhenbo.

Xu Zhenbo smiled and said, "If you do foreign trade, you can't criticize the United States? Look at Mr. Feng from the equipment company, he does business with foreigners every day, and he still tells sarcastic words to foreigners? To be honest, I learned this problem from him."

Feng Xiaochen, who was sitting in a corner of the conference table, saw Xu Zhenbo bringing the topic to his head, and then laughed and said, "I agree with Director Xu's unhappy retribution. Our company's analysts have also done some research on the subprime mortgage crisis in the United States, and the conclusion is similar to what Director Wang said just now. We expect the United States will usher in a new round of greater financial shock next year, dragging down the global economy and falling into long-term weakness."

"Long time? How long?" Xu Zhenbo asked with a frown. Although he had just shown a gloating attitude, he still had a deep sense of the impact of the subprime mortgage crisis on China. Hearing that this crisis lasted for a long time, he couldn't help but feel a little worried.

"More than five years." Feng Xiaochen said affirmatively.

"I'm afraid this is not the case, right?" Han Hong said. "Our predictions here also believe that there will be a more serious crisis next year, but it will last until around 2010 at most and should start to recover. Western countries still have some experience in responding to crises. The United States and the European Union have introduced policies to stimulate the economy. If these policies play a role, this round of crisis will last for up to three years, and it will be over."

Feng Xiaochen smiled and said: "Western countries do have a relatively mature crisis intervention mechanism that has played a role in the past. However, this financial crisis is different from the past. It is probably not easy for Western countries to get out of the quagmire quickly."

"What's the difference?" Han Hong asked.

Feng Xiaochen drew a circle with his hands, and drew all the people in the conference room into the circle, and then said: "The difference is the role of China in this crisis."

"What does it mean?" Han Hong was a little confused.

Feng Xiaochen said: "In fact, the means by which Western countries intervene in crises are nothing more than introducing economic stimulus policies to encourage enterprises to invest in order to restore economic vitality. In the past, they could do this because they could digest the stimulus capacity through the markets of developing countries, which is equivalent to using the markets of developing countries to fill the gaps in their domestic markets."

"What's the difference now?" asked an official.

Feng Xiaochen said: "The biggest difference now is that China has become a factory in the world. The market of developing countries now belongs to us. If Western countries want to occupy this market, they will have to pay a lot of money, and they will not get as easy as they used to. Not only are they entering the Western market and snatching food from their mouths, it will be more difficult for them to digest production capacity and the economy will be more difficult to recover."
Chapter completed!