Chapter 1348 - 438: Global Economic Recovery, A Bright Outlook

Chapter 1348: Chapter 438: Global Economic Recovery, A Bright Outlook

In the world of capital, as long as you can name the right price, there’s nothing that can’t be sold.

And what we call a "transaction" is simply an exchange of interests that’s completed when both sides feel the other side’s price is acceptable.

In deals like this there’s a ton of tricks in the shadows—for example, I can hype my chips to the heavens, when in reality they’re worth nothing on the market; but as long as the transaction goes through, that’s no longer my problem.

The few people from Fitch were willing to meet West Fire Grass precisely because of this.

Right now, a huge chunk of European banks’ loan bonds need to be run through their hands for rating segmentation; based on borrowers’ economic status, income level, family situation, and so on, they slice the loans into AAA, BB, C, etc., and then banks package and sell them at different prices to other investment firms for profit.

Housing loans are called MBS, small consumer loans are called ABS.

I borrow from the bank, the bank bundles the loans and gets them rated, and after the rating is done, it sells them to investment companies.

Once this whole chain is completed, you could say banks, without losing any funds, don’t have to wait for me to slowly repay at all—they pocket the spread and principal upfront, then keep lending to more versions of "me."

And those investment companies? There’s no way they’re going to sit around waiting for "me" to repay either. If banks think that way of making money is too slow, you think they don’t? So what do they do?

They just keep repackaging those bonds, turning them into CDOs—Collateralized Debt Obligations—get rating agencies to slap ratings on them, then sell them to other banks or other financial firms. It’s even possible that the bond you buy today is exactly what you sold off yesterday.

Thus an infinite loop is formed, and on top of it sprouts a whole series of financial derivatives like CDS insurance premia and the like.

You originally borrowed 10,000 from the bank, but by the end of this entire chain, all the financial by-products stacked together may have bloated into a million—and that million just keeps spinning in the void, producing zero real effect on society.

And these "prime" bonds already have owners; it’s not like you can buy them just because you have money. If you’re not in this circle, if you don’t have connections, as an outsider you basically have no shot at getting your hands on quality loan bonds.

But now, with the "European Dream Act" passed, the financial markets are about to be hit with a huge wave of loans that might not reach AAA rating, along with an upward trend in housing prices.

The old fossils blocking the road are dead, and it’s time to push those subprime loans—loans that were never meant to be securitized—onto the stage.

Right at this moment, a nouveau riche suddenly shows up, tens of billions stuffed in his pocket, opening an investment firm to play the bond game—how are Fitch and the bankers supposed to resist seeing him?

If they don’t go, the crowd of investment banks and financial companies behind them could line up all the way to Munich.

West Fire Grass, the rating agency, and the banks—these three parties quickly hammered out a beautiful agreement, in triplicate.

They signed a thick stack of pristine papers with a lot of people’s names; those sheets were piled with financial jargon that’s practically impossible to parse, English serving as its own little knowledge monopoly—ordinary people simply have no way to understand the terms or what they really mean.

But there’s only one thing they need to know.

That is: the banks at the very top of the river have opened the floodgates.

In places invisible to the naked eye of ordinary folks, the European economic river that used to lie still as stagnant water started being stirred and driven to flow by countless invisible hands.

On April 27, the European Investment Bank set a single-day revenue record of 470 million Orokin.

The most direct manifestation was that housing prices, which had been flat for years, finally began to climb.

A huge number of immigrants from various countries obtained homebuying permits; banks loosened lending restrictions, down payments fell from 10% all the way to zero, and they opened up more repayment schemes and rate options.

Like adjustable-rate mortgages, Ninja loans, balloon loans...

Even if you don’t have a job, don’t have any source of income or even any assets; even if you’re a stepdaughter or unemployed, it doesn’t matter—the bank still dares to lend to you.

Some people might think, isn’t this insane?

But what does systemic financial risk have to do with me as an individual?

Bank employees only know that issuing loans earns them commissions, and commissions help them pay off their own loans. The rest? Why the hell should they care—worst case, we’ll just repossess the house in the end, right?

And because banks can package and sell those loans off, they end up sitting on heaps of cash—what, are they going to leave it in the vault to rot?

Besides, once those loan bonds are sold to someone else, the risk is no longer mine; given that, what am I supposed to be afraid of?

Rating agencies have the same mentality: if I don’t take this money, some other agency will. So why not pocket it myself?

In a society already highly capitalized and lacking strong government controls, are you seriously expecting lenders to restrain themselves with "morality"?

Sour, rabid financial capital is like a beast let out of its cage, each one of them charging into the sheep pen, ravenous, unable to wait even a second. Even if war is still raging ten thousand miles away, they don’t give a damn.

In this contest of capital, whoever eats slowly gets eaten.

Once others see what’s happening, how could they possibly sit it out? One after another, they plunge headlong into this vortex.

It’s not just European capital; even financial institutions from Asia, North America, and elsewhere are rushing toward their dream Europe—only here is the financial sector developed enough to sustain such a bond market.

Why bother with real industry when flipping bonds and housing prices makes more money?

Pushed by these big hands, both the stock market and housing prices went completely berserk.

And beneath this grand financial feast, a terrifying curse from Cuba was descending together over Europe’s skies.