My absurd experiences in North America over the years

Reed's problem has piqued the interest of many, even relating to future business strategies. It's like a pebble thrown into a deep pool, creating ripples all around.

The surrounding noise level dropped noticeably, and many people stopped holding their wine glasses and turned their gazes toward them.

They wanted to hear what insightful opinions the young man who had once advised the Forrest family to sell their real estate projects still had to offer.

Li Fu knew this was not an academic exchange.

Reed probably wanted to see if he actually knew anything.

"I think the situation will worsen further. The real estate market, affected by the subprime defaults, will soon collapse, and then the crisis will spread to all industries until it sweeps the globe," Li Fu said in a startling statement.

Everyone present found it hard to believe.

Reed was initially surprised, then smiled and shook his head. "Isn't that a bit of an exaggeration?"

"This is an analysis based on facts. Fannie Mae and Freddie Mac, the two largest real estate companies, have been falsifying accounts for years, creating a false prosperity in the industry. Now they are on the verge of bankruptcy and beyond saving. Their collapse will drag the related banks down with them into the abyss. At that time, the bubble that has been blown up in the financial market will burst. This will be a catastrophic disaster."

Li Fu gave a very serious analysis.

Of course, these are all conclusions drawn by people in that era in the previous life.

It's difficult for someone currently involved to see the whole picture.

This may be the limitation of individuals and the times.

No matter how intelligent or knowledgeable you are, it is still difficult to break through this limitation.

Wasn't Reed the same?

"Do you think the government will just stand by and watch them go bankrupt?" He knew very well that the government would soon take over the two companies.

Fannie Mae and Freddie Mac are not ordinary real estate companies. The former is officially known as the Federal Home Loan Mortgage Corporation, and the latter is officially known as the Federal National Mortgage Association.

Their names reveal that their nature is more financial than real estate.

These two institutions hold or guarantee more than half of all home loans in the United States—note that it is more than half—and are the cornerstone of the national housing finance system. Although both have "federal" in their names, they are actually privately owned companies.

Their core business is to purchase mortgage loans from lending institutions such as banks and credit unions, package these scattered loans into "mortgage-backed securities" (MBS), and sell them to investors worldwide, thereby revitalizing secondary market liquidity and reducing mortgage rates for ordinary people.

Of course, if you think they are working for the benefit of ordinary people, you are sorely mistaken.

In order to sell their financial products, CDOs (collateralized debt obligations), they lobbied financial rating agencies to give CDOs the highest safety rating, AAA.

Banks and lending institutions, under conditions of a false economic and financial boom, extend high-risk housing loans to borrowers with low credit scores, weak repayment ability, or even no stable income.

This is what we call subprime lending.

As the name "subprime loan" suggests, it is in contrast to prime or first-tier loans, which are issued to high-quality customers with good credit records and have consistently low default rates.

In contrast, subprime loans were almost inevitable in the long run due to widespread defaults. Moreover, CDOs, as securities, had changed hands several times in the highly leveraged financial market and were already a bubble with prices inflated to the limit.

Before the 2008 subprime mortgage crisis, Fannie Mae and Freddie Mac were enormous, accounting for more than 80% of all mortgage loans in the United States.

Before the crisis, they held or guaranteed more than $5 trillion in mortgage loans, accounting for more than 42% of the total $12 trillion in mortgage loans in the United States at the time.

At the same time, its own debt totals as high as $7 trillion, accounting for nearly 70% of the US residential mortgage market.

The debt is far greater than its intrinsic value.

Later, two more companies in China achieved similar results, one being a large corporation and the other being a national park, both reaching the trillion-yuan level.

According to Reed, if Fannie Mae and Freddie Mac collapse, the entire credit chain of the real estate market will be broken, and the Federal Reserve will certainly not sit idly by. If the government takes over and restores liquidity, there is still hope for recovery.

"We certainly won't sit idly by," Li Fu agreed with Reed's point of view. Although the Americans like to shout about market economy and oppose macro-control, that's just for show.

It falls under the category of "selling but not using".

When it's time for others to take action to regulate the situation, they never believe the slogans they shout.

"Then why do you still think the economy is going to collapse?" Reed picked up his glass, took a sip, and looked past the rim of the glass to Li Fu's face.

That look wasn't asking for an opinion; it was waiting for an answer.

"Because even after the government takes over, it will still be difficult to salvage the situation," Li Fu replied calmly.

Reid raised an eyebrow. "Why? Do you think the Federal Reserve is inferior to your central bank?"

Clearly, he had a strong opinion about Li Fu's answer.

During the 1998 Asian financial crisis, China's central bank smoothly transitioned through macro-control, preventing American financial giants from siphoning profits from mainland China and Hong Kong. This has always been a source of resentment for financial giants led by George Soros.

In Li Fu's view, the Federal Reserve actually serves the financial oligarchs more than anything, and doesn't even have the slightest right to challenge the central bank.

However, it would be inappropriate to speak too bluntly in this situation.

"Because the number of users in the subprime market is too large, not a few thousand families, but millions or tens of millions, the soaring subprime default rate will cause the value of CDOs to plummet, and highly leveraged institutions will therefore suffer a chain reaction of huge losses and bankruptcy crises, thus freezing the credit market completely."

Li Fu expressed it in a more straightforward way.

The core issue is that the Federal Reserve will not use that much money to fill the huge hole, which involves the problem of "privatization of returns and socialization of risks".

For decades, Fannie Mae and Freddie Mac shareholders have made huge profits, and executives have enjoyed exorbitant salaries. When the collapse occurs, taxpayers' money will be used to cover the losses, which will be met with strong opposition from countless members of Congress and the public.

Congress faces significant obstacles in passing the bill.

Unless they want to lose their voter base.

Another point is that Fannie Mae and Freddie Mac were congressional charter agencies after the government took over, not financial giants like Goldman Sachs, Citigroup, and JPMorgan Chase.

If the Fed is rescuing Goldman Sachs or AIG, it can inject capital into any systemically important financial institution under the guise of "maintaining financial stability," essentially making it a consortium of those large banks.

If Fannie Mae and Freddie Mac don't reach that level, bankers won't agree to bail them out.

Reid clearly underestimated the extent of Fannie Mae and Freddie Mac's severe insolvency and the systemic collapse of the subprime market, while overestimating the Federal Reserve's capabilities and authority.

He certainly did not agree with Li Fu's viewpoint.

"Young man, you underestimate the Fed's intervention capabilities. When the dot-com bubble burst in 2001, the Fed quickly stabilized the market by cutting interest rates one after another. In 1998, when many Long-Term Capital Management companies went bankrupt, the Fed coordinated to rescue the market, and the risks did not spread."

In his view, the subprime crisis was not the first economic crisis, nor will it be the last; the Federal Reserve has the capacity to handle it, as precedent has been set.

His views were shared by many people, including Burns and Williams.

The former was a high-ranking official in the Treasury Department and experienced the bursting of the internet bubble, while the latter's main business was real estate. He was actually quite panicked. It's not that he agreed with Reed more, but rather that he hoped the situation would go in the direction Reed predicted.

They all felt that Li Fu was exaggerating to some extent.

"This time is different," Li Fucai said. No matter what others thought, he had been through it all. No matter what they said, the economy would still hit rock bottom.

"What's different?" Reed pressed.

At this moment, he even felt that this young man's understanding of finance and the Federal Reserve was not deep at all.

In fact, he guessed correctly.

Li Fu himself was not a student majoring in this field; he only took elective courses related to economics and finance during his university years.

He didn't study it in depth; he just wanted to get credits.

If you ask him to rattle off a bunch of theories, or to talk about the macroeconomic control measures the Federal Reserve has taken, he really can't.

For example, he was unaware of the dot-com bubble of 2001.

However, he had the experience summarized by his predecessors.

"The scale is not in the same league, Mr. Reed. You should know that the subprime market began to expand in 2003, and by the end of 2006, the total amount of subprime mortgages exceeded one trillion dollars. These loans were packaged into MBS and CDOs and sold to banks, hedge funds, and pension funds around the world..."

"Today, the total amount has probably exceeded five trillion US dollars. When housing prices fall and defaults on underlying assets rise, the value of these bonds will plummet. Under high leverage, this will be a systemic collapse, causing market liquidity to drop to a freezing point, beyond any hope of recovery."

Li Fu looked directly at Reed, and his words were resolute.

The scale of those financial holes is so enormous that even if the Federal Reserve were to start printing money and suck the blood of the entire world, it would still take time.

And just as this process began, the "market" they were trying to save suddenly collapsed.

It's like trying to put out a fire from afar with water from afar.

"That's an exaggeration," Reed shook his head, his lips pressed into a thin line. He didn't immediately refute it, but rather considered it carefully.

The market cannot collapse to this extent, just as many domestic institutions and scholars did not believe that Evergrande and Country Garden would go bankrupt.

Fannie Mae, Freddie Mac, Evergrande, and Country Garden all hired the world's best auditing firms to falsify accounts and provide guarantees; not a single figure in their financial statements is credible.

At that moment, people nearby began to whisper among themselves.

Burns held his wine glass, a smile playing on his lips that revealed no particular attitude.

He didn't agree with Li Fu either, but he wouldn't say it out loud.

Others are different; they might underestimate Li Fu because he is too young and speaks too absolutely.

Cole stood on the periphery of the crowd, his gaze fixed on Li Fu. To some extent, he also believed that the situation might not be as dire as it seemed.

However, Li Fu proved more than once that no matter how outlandish his actions were, they were always correct.

So, if I had to choose one...

He will definitely side with Li Fu.

Reed's competitive spirit has been ignited by Li Fu.

As a renowned scholar, he clearly wanted to win this "academic" debate.

"If you don't mind, let's make a bet. I bet the government will definitely bail out Fannie Mae and Freddie Mac. After taking over, it will work with the Federal Reserve to regulate the financial market, and the economic situation will gradually stabilize."

"So what are the stakes?" Li Fu was naturally unafraid of a bet he was certain to win.

"What do you want to bet on?" Reed asked Li Fu.

He also felt he had a very good chance of winning.

Li Fuzheng wanted to give the other party a more aggressive approach.

Thomas suddenly spoke up at that moment.

His voice remained gentle, but it was perfectly positioned in the subtle gap between the two of them.

"There's no need to ruin a friendship over a bet. Let's just bet a dollar as a token gesture. I'll pay for it," he said, taking a coin out of his pocket and pushing it to the center of the table.

Since the host of the banquet had said so, Li Fu and Reed naturally couldn't say anything more.

"Okay, let's bet one dollar. I also think the government will take over Fannie Mae and Freddie Mac. However, such measures will not save the collapsing market. On the contrary, the rescue measures will expose the severity of the problems and cause even greater panic."

Li Fu's views were almost entirely opposite to Reed's.

"Then we'll wait and see," Reed said, swirling the wine in his glass.

Burns remained silent throughout.

But as he observed Li Fu, the young man's gaze was too resolute.

In his view, the other party did not seem to be making a prediction, but rather was certain that it was a given fact that would happen in the future.

Of course, like most people, he still felt that the economic situation was unlikely to reach the point of systemic collapse.

Some even think that Li Fu might have been overestimated by the Forrest family.

How much insight can someone so young have?

As for geniuses, they've seen plenty of them, but how many can remain geniuses forever?

The crowd slowly dispersed.

However, people kept coming over to clink glasses with Li Fu, exchange business cards, and get to know each other.

These actions were not due to his eloquent speech tonight.

On the contrary, most of them felt that Li Fu was exaggerating.

This was largely due to Thomas valuing him.

Thomas himself stood not far away, holding a glass of whiskey, his gaze not deliberately fixed on him, but never leaving his direction.

He was pondering what Li Fu had said.

His position and status allowed him to obtain more accurate economic data than scholars and ordinary officials.

It's possible that this young man's prediction will reflect the true trajectory of the economic situation.

But why was Li Fu so certain?

They are even more certain than people like him who see real economic data.

Recalling what had happened before, he couldn't help but wonder if there really was a mysterious Eastern power that could predict the future.

The banquet ended late at night.

Most guests were picked up by their private drivers, while a few were sent back by Thomas and Cole.

Only Li Fu was given a guest room.

This wasn't Lucy's decision, but Thomas's.

He planned to talk to Li Fu again.

Late at night, in Thomas's study, Cole, Lucy, and Li Fu were all present.

Whether this important figure was faking it or genuinely a little tipsy, he completely lacked his usual aura.

At this moment, he seems more like a loving father and a kind uncle.

He complained to his children and Li Fu about something.

This incident made Li Fu's heart skip a beat.

It turns out that Trump's real estate company took over two property projects that Lucy sold last year, one in New York and one in Nashville.

Its value has now undoubtedly plummeted.

The "King of Trump" felt he had been wronged and complained about it everywhere, including when he met Thomas in person.

Trump is a very individualistic person. He was a Republican in his early years, but later joined the small party Reform Party, and then the Democratic Party.

At this point in 2008, he was still a Democrat and would not return to the Republican Party until 2009.

However, he consistently voted for Republicans.

As a prominent figure in the business world and active in political parties, he did have occasional contact with the Forrest brothers.

Bill Forrest, who later left Congress, also served as the U.S. ambassador to Japan in the Trump administration.

Of course, at this point, the King of Knowledge had not yet become a saint.

He's just a business celebrity.

Thomas's criticism was also pointed.

"This person has always been a firm believer in Eastern feng shui. Trump Tower even had its feng shui remodeled. Lee, have you ever dabbled in this area?"

He wanted to repay Trump for a favor.

At the same time, I also want to see if Li Fu really possesses "mysterious Eastern power".

It's impossible to predict everything accurately, right?