Chapter 646 Had to be saved

  One day ago, Washington, seven in the morning.

   After taking a sip of the rich and mellow coffee, Paulson picked up the "New York Times" at hand. On the front page, where the headline editorial was, there was still news about the bankruptcy of Raymond Brothers, but the angle was completely different. This is an article that dissects the whole thing from a government perspective.

  Naturally, the author is a loyal supporter of the free market economy, and highly praises the government's behavior of not bailing out Raymond Brothers and letting it go bankrupt. And profoundly pointed out that the government intervened excessively in market activities on issues such as Bear Stearns and "F&F", but they began to correct their mistakes on the issue of the bankruptcy of Lehman Brothers and no longer used taxpayer funds to subsidize Those Wall Street tycoons who earn millions or even tens of millions a year are not only good for ordinary people but also for the market.

The article also said that as the management of these companies, they can still get huge salaries and dividends even though the operating companies have suffered huge losses. Trying to save them is very confusing and unacceptable. Wall Street's greed is well known, and now it's finally time for them to screw it over.

   This is a report with a more extreme point of view, but Paulson likes this kind of article very much, because it is in line with public opinion to a certain extent, especially to those congressmen who control the budget.

   On his desk, there are several other mainstream newspapers, which are also reporting the bankruptcy of Raymond Brothers in long and large lengths. Almost unanimously praised the government's laissez-faire approach, especially Henry Paulson and Ben Bernanke, who were praised to the sky.

  Although he thought it was absurd, Paulson still accepted these compliments calmly. In fact, he was scolded far more often than he was praised, and he naturally cherished these only moments. And the reason why he was scolded was not because of his lack of ability, but because of pure political differences.

"Markets were reassured by the Treasury and Fed letting Lehman Brothers file for bankruptcy, not subsidizing Bank of America's acquisition of Merrill Lynch, and trying to syndicate loans for struggling AIG rather than lending themselves. It has not been recognized by large institutions, but the actions of Paulson and his colleagues have made the outside world clearly aware that the government's non-intervention will cause unrest in the global financial system in the short term. But in the long run, the financial system is After losing the last protection, we must re-examine our own operation and risk control, which will reshuffle the entire financial ecological chain..."

   Well said!

  Whether you agree or disagree with this point of view, Paulson has the urge to admiration at this time. Although he knew it well, the reality did not match what the reports said. The fact is that the British side did not approve Barclays Bank's acquisition of Raymond Brothers, which led to the failure of the entire acquisition plan. However, what went wrong was that such a farce was generally praised by the outside world, which made him feel like he was missing something. Feel.

   But this good mood didn't last long, a sudden phone call made this kind of goodness disappear in an instant.

   The call was from Geithner.

  Because of the FOMC meeting, Bernanke has no time to deal with AIG matters, so he can only let Geithner be in charge of the Fed's team and the Treasury Department's team. That is to say, the final decision will be made by Bernanke or the president, but the specific affairs will be completed by the team led by Geithner.

   "Henry, something is wrong and we can't control it!"

  As soon as the phone was connected, Geithner's panicked voice came over. The anxiety and anxiety in his tone made Paulson so excited that he almost spilled the coffee in his hand. Paulson calmed down, put the coffee cup aside, and then said with a little dissatisfaction: "Relax, buddy, what happened?"

   "Panic, panic everywhere in the market!"

Geithner still failed to control his emotions, "Yesterday, AIG's stock price fell by 60%, and its market value evaporated nearly 100 billion U.S. dollars. Of course, these are not the most important. Just last night, our team passed the overnight audit. , found that AIG's CDS position has reached an unbelievable level, fully exceeding 500 billion U.S. dollars. The most terrible thing is that their trading counterparties are all over the world, especially in Europe, financial institutions are all through AIG to get the CDS."

"In addition to these, AIG has more than 81 million insurances worldwide in terms of life insurance alone, and the amount of these insurances is close to 2 trillion. Although the preservation of these policies is very safe, if AIG really has a little trouble, the insurance These policyholders are not allowed to flock to run, and AIG's insurance business will collapse in an instant. More importantly, this wave of runs is likely to spread to other insurance companies, so that the entire insurance industry There may be uncontrollable risks.”

  Paulson didn't know much about the insurance industry, but he knew everything about CDS. This new derivative, credit default swap, is essentially equivalent to a new type of insurance. However, compared with traditional insurance products, CDS can cover all transaction targets. For example, CDOs are bonds securitized for subprime mortgage loans, while CDSs about CDOs add a talisman to these CDOs. The price of CDSs about CDOs is extremely low when the CDO payment is normal and there is no risk. Once there is a problem with the CDO, the price of these CDS will rise rapidly, because the CDO defaults, and the party who buys the CDS can get potential compensation from the issuer.

  The issuer is naturally a giant insurance company like AIG. They collect fees by issuing various CDS, and the targets include various financial products, and even non-financial products can be priced, all of which can be attributed to Zhong Shi's paper. Gradually, the CDS market swelled and became one of the largest in the financial market, with the total underlying amount approaching or exceeding the GDP of the United States.

Now, if AIG goes bankrupt, it means that the CDS issued by it will not be cashed immediately, and the liquidity will be lost immediately. The consequence will be that the entire CDS market will be severely impacted. After all, AIG has a pivotal position in this market. It even affects the financial markets of the whole of Europe.

   Perhaps there is only one good thing, that is, the CDS against AIG will immediately increase in price.

"what do you mean…"

   Paulson pondered for a moment, and finally said slowly. He had guessed in his mind why Geithner was calling, but he didn't want to say it because it would be like a slap in the face, after all, he and his team let Raymond Brothers go just yesterday. bankruptcy.

  This is the evil result of allowing Lehman Brothers to go bankrupt. The domino effect has just begun, and a world-renowned insurance giant has been involved in it.

"We need an alternative plan!" Geithner's heart sank, knowing that Paulson was unwilling to do such a contradictory thing in his heart. In fact, he was unwilling, but the reality forced him to bite the bullet and say He said, "When necessary, the Federal Reserve and the Ministry of Finance must join forces to rescue AIG, whether it is capital injection or trusteeship, in short, it must be shot. It must not be allowed to go bankrupt!"

   "It must not be allowed to go bankrupt?"

   Paulson chewed this passage carefully, feeling a little desolate in his heart. Although he had already expected it, he was still unwilling to make a move, because it would deal a fatal blow to his reputation, "What does the joint consortium say? Also, what excuse do we use to proceed?"

"According to our estimates, saving AIG needs at least 60 billion US dollars, and this figure will gradually expand as the decision goes on. I don't think they will be able to reach an agreement." Geithner said with a long sigh, rather helplessly, "As for How to convince those lawmakers, I suggest using Article 3 of Chapter 13 of the Federal Reserve Act: 'Allows the Federal Reserve to make loans to non-bank financial institutions in unusual and emergency circumstances.'”

  AIG is a financial institution, but not a commercial bank, and therefore cannot take loans from the Federal Reserve, the "central bank" of the "bank of last resort". But both Paulson and Geithner realized that the current AIG is already the center of the entire global financial system.

   "Even if we intend to save AIG, how can we ensure that they have sufficient ability to repay these loans in the future?" Paulson then raised another possibility.

   Indeed, if the Fed really decides to rescue AIG, it may do so by lending money, but the amount is absolutely astronomical, and in this case there is no guarantee that AIG will be able to repay these loans in the future.

"I can't guarantee it, no one can!" Geithner said very happily, "but we can replace it with an obedient management, so that AIG is in our sight all the time. I think this may be so far , the most likely solution."

"Develop a rescue plan, find a new CEO, strictly control all risks, and form a plan as soon as possible, and then we will vote." Paulson has been unable to consider more issues, and now the details will be handled by Geithner and others Finished, and he was going to convince the higher-ups, those difficult parliamentarians.

  …

   At noon, on Capitol Hill, Paulson began to meet with some important members of Congress. The content was naturally about saving AIG.

  Naturally, none of the congressmen was in favor of saving AIG, but after Paulson carefully explained the positive significance of the rescue, these congressmen fell into a deep silence.

   "Do we have so much money to save AIG?" A congressman from the South asked solemnly.

"Maybe, maybe not, I need to ask Chairman Bernanke about this." Paulson was about to dial Bernanke's phone, but at this moment, his phone rang, from Japan's Ministry of Finance, "Sorry, Gentlemen, I need to answer a call."

  The person who called was the Minister of Finance of Japan. Japan is AIG's second largest market in the world, and Japanese regulators are also very worried about AIG's problems. The Minister of Finance called to inquire about the US government's attitude towards AIG. When he heard Paulson's promise that the US government would save AIG, the minister hung up the phone with confidence.

  During the entire call, Paulson did not hide anything from the congressmen. Instead, he turned on the speakerphone so that they could also hear the relevant content.

"Not only Japan, but also countries such as the Netherlands, the United Kingdom, and Spain have called us to ask us about our attitude towards AIG. This is only official, and financial institutions are making inquiries everywhere, because the CDS market is not only their own market, but also The credit ratings of many related assets, in this case, if AIG goes bankrupt, the entire European market may be severely impacted very quickly, and the same is true for us, including the insurance industry will not be immune."

"I am not willing to do things that go against my promise, but if I really ignore it, the entire world's finance may fall into a catastrophe. Although the organization consortium is currently saving, but there is not much hope. In addition, there is a moral hazard, we will A change of management is the best solution we can think of."

  Dozens of congressmen looked at each other, and I looked at you, but no one spoke for a long time. At this time, it is not just a matter of a certain company, the danger of the bankruptcy of Raymond Brothers has been further highlighted. It has only been less than 48 hours, and no one knows what will happen after that. Although the public opinion is full of praise for them now, if the situation really deteriorates rapidly, maybe tomorrow they will be scolded by the public opinion.

  Public opinion is not the most important thing, the economy is the most important. If the financial system really collapses, the loss cannot be recovered in just tens of billions of dollars.

   "Let's do it!" Finally, a respected congressman spoke, setting the tone.

   Thanks to book friends cpower, zfx871772403, book friends 140824235809695, Xingzhi 0, and Jiangnan Liu Feiyan for voting monthly tickets! Thanks to Xiao Qi for another reward for the miracle of civilization! Now I feel that writing is really strenuous, and I can’t tell if it’s because I was dizzy from the heat, and I didn’t write until midnight yesterday...

  

  

  (end of this chapter)