Why nail the coffin [Xie Guozhong, the new nail on the coffin of financial credibility]

Among the world-class big-name analysts with mainland background, Xie Guozhong is the best. The former managing director of Morgan Stanley and chief economic analyst in the Asia-Pacific region is famous for pursuing novel ideas and unique views among his peers in the Asian region. Is he an economic analyst in an investment bank? Master? Level 1, but because of its repetition? Bad singing? China economy, dubbed by netizens? Chuan Dao Yoshiko of Contemporary China? Name.

If the credibility of modern finance has long been in jeopardy, then the Libor scandal has nailed a new nail to its coffin. If the benchmark interest rate of commercial loans can be manipulated, what other financial indicators are credible?

The global financial crisis in 2008 exposed the problem that the derivatives market was too loose. The risk management described by the theory did not appear, but was replaced by? Borrow money? Cover. The European debt crisis has broken the myth that western countries can always repay their loans, while the Libor crisis shows that global financial institutions can manipulate the most important prices in the world.

The financial crisis is not completely over, and the fund management industry may be the next crisis point. In the financial turmoil of the past five years, the private equity fund industry has become a huge bubble because it can modify the profit figures. In the coming year, scandals may emerge one after another, leading to the bursting of the bubble.

Loss of financial credibility

The European debt crisis reminds us that the government will screw things up if it does too much. European governments have gone too far in ensuring living standards, not only interfering too much in income redistribution, but also limiting competition by managing working hours and setting up market access barriers. This model is not competitive in the era of globalization, and European governments have been heavily in debt to support this model. When the financial market is worried about the government's solvency, this model is declared bankrupt, and the process of the European debt crisis makes European governments have to deal with this situation.

An ugly scene was staged in London, and the British Parliament held a hearing on the Libor scandal. Libor refers to the average interest rate of capital lending between top banks in London, which is applicable to all major currencies in the world. Most corporate loans in the world are linked to Libor, and bank mortgage loans in many areas use Libor as an index to calculate interest rates. It is no exaggeration to say that Libor is the most important financial indicator in the world. What can you believe if Libor can be manipulated?

There are many defenders of Libor scandal, one of which is that manipulating Libor has not significantly affected the price. But why believe this statement? All we know is that Libor can also be manipulated. Considering how human greed controls finance, we can also reasonably infer that similar incidents will happen again and again, so that insiders can gain greater benefits.

The existence of finance depends on the credibility of financial institutions, otherwise financial products are just worthless waste paper. Since 2008, we have seen the credibility of global financial institutions collapse again and again, and Libor will not be the last time.

In 2008, mysterious abbreviations of derivatives such as CDS and CDO began to enter people's field of vision and became synonymous with crisis. Derivatives, the greatest financial invention, should be devoted to helping investors control risks, but the result is a smoke screen to cover up risks and get investors into trouble.

The bursting of the bubble exposed the ignorance and laissez-faire of the once respected Wall Street investment bank. From 2009 to 20 1 1, although these investment banks have recovered with the help of rescue actions and stimulus policies, it is no coincidence that they will close down again from time to time. In the next few years, Wall Street will not be able to operate at full capacity, and investment banks have become a problem in the global economy.

Recently, two universal banks, JPMorgan Chase and Barclays, were involved in scandals. Thanks to the takeover of Bear Stearns and Lehman Brothers respectively, these two banks are indeed stronger after the crisis. Now they have joined the rout. The latest progress shows that the recession of the global financial system is holistic, not just a local problem.

Rating agencies, like investment banks, have lost their credibility. The rating agencies have caused countless huge losses to modern finance. The three major rating agencies are the pillars of the global bond market, and pension funds, insurance companies and even foreign exchange reserves are all invested according to the recommendations of rating agencies. Some people suspect that these rating agencies made profits by selling ratings during the bubble economy. It's amazing that these institutions can survive.

The European debt crisis has once again hit the credibility of modern finance. Wall Street made great progress in converging trade in 1990s, borrowing a lot of money from low-interest countries (such as Germany) and investing heavily in high-interest countries (such as Greece and Italy). This theory holds that a common currency can eliminate the risk premium of currency depreciation, so Greece and Italy should adopt low interest rates like Germany. This view ignores the fact that currency depreciation is a form of default, and if the currency cannot depreciate, it will default. In the past, I simply thought that western countries would not default, but now the myth is shattered.

Libor crisis has nailed a new nail to the coffin of modern financial credibility, but it won't be the last one. As a huge driving force of globalization, it is very doubtful that western finance can play a role in the future after its reputation has been seriously damaged.

After the financial crisis in 2008, due to the merger of failed banks by survivors, the scale of banks became larger and larger. The recent scandals in JPMorgan Chase and Barclays show once again? Too big to fail? Hurt. I never believed in the universal banking model. Investment banking is a high-risk industry. If mixed with commercial banks, it is impossible to avoid the latter being dragged into high-risk activities. Therefore, the United States promulgated the glass-steagall act, which separated the two types of banking business after the 1929 market crash. It was a big mistake to repeal this bill ten years ago. The correct way to deal with today's crisis is to restore this bill.

The solution is obvious, but it is extremely difficult to implement. The scale of global finance is so huge that rich and powerful vested interests will try to protect the status quo, so scandals will continue to appear after the financial crisis. If the bank hadn't split, the crisis wouldn't have really ended.

Private equity is the next bubble.

When the whole financial industry is teetering, the corner of private equity industry is in the ascendant. China's private equity industry has expanded rapidly in recent years, with thousands of private equity funds, and its growth has slowed down slightly this year. The problem is that private equity funds currently invest in unlisted stocks with poor liquidity and pay higher prices than similar listed companies, so many funds invest in the open market. But why should investors pay a 2% management fee to private equity funds? Since 20% of private equity funds are used to invest in illiquid and more expensive assets or in the open market, investors can invest in the open market without paying management fees.

Pension funds, insurance companies and sovereign wealth funds are at the top of the financial industry. These funds are usually huge bureaucracies, which need to follow a certain asset allocation model, that is, spread the funds to all financial instruments, and private equity is a major tool. In recent years, private equity funds have performed better than the publicly traded market, which I think is mainly an illusion. Before the private equity fund is realized, it can subjectively report the value marked by the market value. According to my personal experience, these funds greatly exaggerate their performance.

The global economic downturn has reduced the profits of all companies, and the influence of small non-listed companies may be greater than that of large listed companies. It is reasonable to speculate that the performance of private equity funds may not be as good as that of stocks, which can only be seen when they are liquidated. Of course, private equity funds will never choose liquidation when the figures are not good, and the bursting form of this bubble will be different.

Some private equity funds are already buying stocks, and their positions are very concentrated, unlike ordinary mutual funds. Under the current global economic situation, this kind of investment is bound to have big problems. The private equity bubble may burst at 20 13.

China should be alert to CDO market.

China's fixed income market is growing rapidly. The trading volume of Shanghai bond market has caught up with the stock market, and the total assets of trust companies seem to have exceeded 5 trillion, a five-fold increase in five years. 2012,6543810-may, according to the data of the people's bank of China, 10% of the total social financing comes from corporate bond issuance. China's banking system still accounts for two-thirds of the total social financing. In view of the large interest margin enjoyed by banks, enterprises will have a strong desire to raise funds in the bond market.

With the increasing number of fixed income products in the primary market, the investment tools in the secondary market have also developed rapidly. Many fixed-income funds issue short-term fixed-term wealth management products, promising higher returns than bank deposits, so as to attract funds to invest in long-term bonds. These funds have the problem of maturity mismatch and lack understanding of credit risk. In order to maintain liquidity, they implement rolling financing and even promise higher returns. Some funds may have shown the characteristics of Ponzi scheme.

A worrying phenomenon is that the CDO market is not regulated. Some funds collect different bonds to issue synthetic bonds to investors at different levels, and investors have different priorities in obtaining income from the bond pool. This has the same characteristics as the American CDO market.

The theoretical basis of the so-called innovative fixed-income products is that the concentration of bonds can reduce risks. Before the financial crisis, Americans thought so. However, because most of the funds eventually flowed to real estate developers, the bond pool did not actually reduce the risk. Land price is a macro phenomenon, and pooling funds and lending them to different developers will not reduce the overall risk.

The situation in China is the same as that in the United States. These products maximize the loan scale of the real estate market, and the means adopted is actually a marketing strategy to attract financial investors by promising low risk. I'm afraid this market will go wrong soon.

China's fixed income market finally wants the central government to help everyone. No matter how crazy the products on the market are, the government will also protect investors if something goes wrong. Regrettably, this expectation is not unreasonable. When all products go wrong, the government must help everyone save the economy.

The expectation of comprehensive government assistance will encourage speculation, which is self-fulfilling. Once everyone is encouraged to speculate, the financial system will face a serious crisis. Aid is not without cost. In order to fill the loopholes in the banking system, the government can only speed up the printing of money, which means currency depreciation and inflation.

If China wants to stop speculation and avoid currency devaluation, it must strengthen financial market supervision.