The unparalleled talent of the country started from Harbin Institute of Technology

On the last day of June 2008, in the top-floor conference room of Freddie Mac's headquarters in Washington, D.C., executives including John Kushkinen, David Murphy, and Kellerman all gathered together for a meeting with somber expressions.

"Gentlemen, July is almost here, but our financial statements are in terrible shape. What should we do?"

David Murphy, senior vice president and chief financial officer of Freddie Mac, made John Kushkinen and the rest of the management team look even uglier as soon as he opened his mouth.

Their company's full name is the Federal Home Loan Mortgage Corporation, the second largest government-sponsored enterprise in the United States, which was established in 1970 by Congress under the Emergency Housing Finance Act.

It primarily purchases compliant housing loans from banks and mortgage lenders, and provides market liquidity and lowers mortgage rates by holding or packaging them into mortgage-backed securities for sale.

The main purpose is to improve the liquidity of bank assets by buying up bank mortgage loans and then reselling them to other investors, which is similar to the role of the Federal Reserve.

Before Freddie Mac, there was another company called Fannie Mae, and the two were competitors.

The problem David Murphy and his team are facing now isn't that Fannie Mae is poaching employees from their company, but rather their company's financial situation.

In April of last year, New Century Financial Corporation filed for bankruptcy protection, and in August, American Housing Mortgage Investment Corporation filed for bankruptcy protection. At the same time, Lehman Brothers is also mired in a financial crisis.

Originally, investment banks such as New Century Financial Corporation were clients of Fannie Mae and Freddie Mac, but now that they have fewer clients, their revenue has naturally decreased.

Moreover, Lehman Brothers had already lost more than eight billion dollars in the second quarter, so Freddie Mac would certainly be affected as well, and the impact would be even greater.

The whole story of the subprime crisis is actually as follows.

After the turn of the millennium, the Nine Demons arrived, and then the US president launched military campaigns abroad. In just a few years, the US spent $800 billion, which accelerated the expansion of the US national debt, fiscal deficit, and trade deficit.

Faced with an accelerating fiscal deficit, in order to boost the US economy and maintain its prosperity, the government began encouraging Americans to buy homes.

The Federal Reserve has implemented a series of monetary easing policies, including lowering deposit and loan interest rates and even encouraging the poor to buy homes, allowing the housing market to continue to drive the U.S. domestic economy.

But buying a house requires funds, and what if there's no money in the market?
Banks have lowered loan requirements and interest rates, and introduced 'zero down payment' programs.

Driven by ultra-low loan interest rates, more and more people are starting to buy houses.

This timeline is the same as the original timeline. In the years following the millennium, from 2001 to 2007, the US real estate economy was indeed exceptionally prosperous.

Many Americans, as well as investors from around the world, are indeed investing in and buying houses in the United States.

Due to rapidly expanding demand, housing prices in the United States rose quickly.

The higher property prices rise, the more investors will buy property.

The rich not only buy houses and upgrade from small to large ones, but also invest in real estate. The poor, too, can't resist buying houses with ultra-low interest rates and zero down payments.

A wave of home buying has swept the market.

So what do poor people do when they have no money?
Commercial banks began to devise solutions and issued 'subprime loans'.

Bank mortgage rates are 5%, but because some homebuyers have poor credit, banks cannot lend to them. Therefore, commercial banks have created 'subprime' financial products, lending to investors with poor credit at a 10% interest rate, allowing them to earn an extra 5%.

Of course, commercial banks were also worried about a housing market downturn and the risks were too great. In addition, some customers had poor credit, so they simply packaged up the "stimulus loans" and sold them to investment banks, such as Fannie Mae and Freddie Mac, or Lehman Brothers.

Investment banks like Lehman Brothers and New Century Financial Corporation not only targeted the US domestic market but also the global market, selling their products and services to the world in a straightforward and efficient manner.

Therefore, 'subprime bonds' were transformed into 'collateralized debt obligations' and spread throughout the world.

Investment banks were aware of the default risk associated with 'subprime bonds,' so they also insured them, and these insured 'collateralized debt obligations' were easier to sell to the world.

This is inherently a financial derivative product from which commercial banks, investment banks, insurance companies, and other related industries can all profit, and from it, in huge amounts.

Unfortunately, the good times didn't last long. Due to excessively high loan interest rates, more and more people were unable to repay their loans, leading to an increasing number of defaults and the impending storm.

Freddie Mac is now facing this situation. They previously made money by buying mortgage loans from banks, packaging them up, and selling them to investment banks to earn interest.

Logically speaking, they should only be earning this part of the interest, so there shouldn't be any problem.

But that is precisely the biggest problem.

If a loan is defaulted on, the interest will naturally be forfeited, as it becomes a bad debt.

Companies like New Century Financial Corporation have already filed for bankruptcy. Freddie Mac, due to its massive size, is certainly not ready to go bankrupt, even though it is now insolvent.

Therefore, David Murphy's words made everyone feel bad.

"Let's wait a little longer. We'll find a way to get someone to hand over those defaulted bills, bad debts, and overdue loans to a debt collection agency so that our losses won't be too great."

Kellerman said:

"As for concerns about our financial situation, we'll address those in a few days."

"In addition, we contacted the Federal Reserve or the Treasury Department again to see if we could obtain funding to help us through this difficult time!"

If Freddie Mac were to go bankrupt, the resulting financial tsunami would be devastating.

“The Treasury Department might not agree. We’ve tried many times, but they still need to discuss it with the President,” David Murphy replied.

The meeting room fell silent once again.

No one expected such a desperate scene.

Just then, another vice president suddenly spoke up:

"Lehman Brothers hasn't released its second-quarter earnings report yet, and just now, their stock price plummeted by 22%, and it's still falling. I suspect someone has taken action."

hiss!
This news caught everyone off guard.

The executives in the conference room all opened their mobile phones or computers to check Lehman Brothers' real-time stock price online.

As expected, the stock price plummeted, with a line pointing straight down, as if there was a bottomless abyss below. The glaring red color made people's faces even more ferocious.

"Damn it, why did it suddenly drop? Is it because Lehman Brothers released its second-quarter financial report?"

One of the executives suddenly exclaimed loudly.

His guess was agreed upon by several others, but someone soon objected:
"I checked, and there's no related news, so it's most likely not the reason!"

If that's not the reason, then what could it be?

Instead of sitting idly by, the executives took out their phones and contacted people to prepare for an investigation.

The unusual stock price movement of Lehman Brothers triggered a chain reaction, causing Freddie Mac's stock price to plummet, albeit not as drastically, by about five percent. John Kushkinen acted decisively at this critical moment:
"Hold a press conference immediately and say that our company's financial situation is perfectly normal!"

Unfortunately, if the stock price isn't stabilized, Freddie Mac's stock will continue to fall.

Kushkinen couldn't withstand a drop of even one percentage point.

It's only five percent so far, and the shareholders haven't made a fuss yet. After all, they know that this decline in stock price is due to the influence of Lehman Brothers, not Fannie Mae itself.

I expect the call will come in a little while.

The subprime crisis that began last year continues to have an impact, and the scope of this adverse effect is slowly expanding.

Clever investment firms packaged loans as 'collateralized debt obligations' and then sold them worldwide after insuring them.

Therefore, the continued outbreak of the subprime crisis will definitely affect the global economy.

John Kushkinen wasn't thinking about that right now; all he could think about was how to get Freddie Mac out of its current predicament.

"Damn it, couldn't Lehman Brothers have just waited a while before it exploded? It's unbelievable!"

Just then, John's cell phone rang. The caller ID showed Harrison Taylor, the secretary of the company's second-largest shareholder.

“John, Freddie Mac’s stock price has fallen by 6.7 percent. I know this is related to Lehman Brothers, but my boss doesn’t want to hear that explanation. You’d better find a way to restore the stock price as soon as possible, understand?”

Harrison Taylor wasn't discussing it; he was informing John Kushkinen directly.

Upon hearing this, the latter's expression changed drastically.

He tried to explain, but Harrison Taylor abruptly hung up the phone.

John Kushkinen was so angry that his face turned green, and David Murphy, Kellerman, and other executives all looked at him.

"What are you looking at? Hold a press conference immediately! Stabilize the company's stock price right now!"

Murphy and the others had no choice but to get up and leave the conference room.

These are truly turbulent times.

Half an hour later, a press conference was held urgently. There weren't many reporters present, but the news was still spread, and Freddie Mac's stock price finally stabilized temporarily.

However, Lehman Brothers' stock price plummeted, causing retail investors to cry foul, and some even lined up at skyscrapers like the Empire State Building on Wall Street.

It's clear that some people bought Lehman Brothers stock, and now that the stock price has plummeted, they're stuck with their shares, or even forced to liquidate their positions, suffering huge losses.

I really don't understand what these people are thinking. They know that Lehman Brothers was involved in the issuance and trading of 'collateralized debt obligations' and that its first-quarter financial report showed a decline in profits due to the subprime crisis. Why would they still leverage their positions to go long on this company?
Gamblers' mentality: no one can ever truly know what they're thinking.

After Freddie Mac's stock price stabilized, Lehman Brothers was already in a state of utter chaos.

At this moment, John Kushkinen even had the mood to gloat and complain: He deserved it!

That's how Wall Street is—profit comes first, there's no such thing as friendship, and it's common for people to break off relations.

Lehman Brothers and Freddie Mac were not competitors, but partners, yet they were treated this way by John Kushkinen, suggesting that Lehman Brothers had indeed offended him.

The complex relationships and feuds between Wall Street's financial giants are certainly not something that can be explained in a few words.

Wang Jun'an, who was far away at Harbin Institute of Technology, didn't want to know about this.

Anyway, the US subprime mortgage crisis had already begun, and Wang Junan did not fuel it from behind, but he did increase his holdings and made a lot of money.

Bai Doufu felt very wronged. She wanted to join the investment industry, make money herself, and take control of her own life.

She realized that if she wanted her parents to stop interfering in her life, she should move out completely.

Moreover, one must be very successful in order to impress her mother.

Otherwise, she would always be subjected to psychological manipulation by her mother, Liu Xiaoli.

"Do you really want to make money?"

Wang Duoyu's expression became much more serious.

He had already emphasized repeatedly yesterday that she was too young to know some of their family's secrets.

But Bai Doufu wouldn't listen at all. This morning, after taking a nap, Bai Doufu said that she had thought it through and that she wanted to make money.

"Mmm!" Bai Doufu nodded immediately, her big eyes full of anticipation.

"Alright, since you like making money so much, why don't you go and learn from your second brother? It's summer vacation now, and you'll be in college next semester, so you'll have plenty of time to study."

After a pause, Wang Duoyu continued:

"By the way, you can't abandon the task I gave you before; it's your task."

“But Dad, all I want to do right now is make money. I don’t want to do anything else.”

"Then can you stop watching TV and playing games?"

Bai Doufu opened his mouth, but couldn't utter a single word.

"You're still young and don't have enough self-control. Look at you, you've only been living here for a short time, and you're already acting like a little fatty."

"Dad, what's wrong with me being a little chubby?"

"If you gain weight, your bodily functions will start to malfunction!"

Wang Duoyu said irritably:
"The consequences of binge eating are something you can't handle. Okay, stop telling me this. Go to the hospital with your mother later, and you'll find out what's going on!"

In hospitals, you can definitely see those desperate patients.

The fatter a person is, the more likely they are to develop health problems.

Moreover, Bai Doufu is a high school student, and the knowledge she has learned before must have included information about this topic. However, she only cares about making sure she is full and well-fed, so that her body has more dopamine, which makes her feel happier.

Naturally, one wouldn't feel that overeating would cause any physical abnormalities. (End of Chapter)