Beijing News: in the post crisis era, we should be alert to the future of over liabilities.


Beijing News: in the post crisis era, we should be alert to the future of over liabilities.

Original title: in the post crisis era, we should be alert to the future of over liabilities.

The great revelation of the subprime crisis is that the future of excessive debt must be a debt crisis, even an economic crisis.

It has been ten years since the collapse of Lehman brothers triggered the global financial tsunami. However, the core problem behind the excessive debt crisis is not yet properly solved.

Before the subprime crisis, the entire financial markets of the United States, including financial regulators, seemed to be encouraging people to increase their debt. For individuals and families, real estate is undoubtedly the most capable of leveraging huge liabilities.

After financial institutions exhausted high-quality clients with stable jobs, high incomes and good credit histories, they gradually turned their lending attention to poorer clients, and eventually those without stable jobs, poor credit histories, or even precarious lives, were included in the mortgage lending paradigm. Circumference.

Subprime mortgages are loans made to subprime lenders who have poor credit histories. In other words, before lending, financial institutions know that they may not be able to afford loans. However, before the outbreak of the crisis, the amount of subprime mortgage loans exceeded US $600 billion.

On the one hand, the "courage" of financial institutions stems from strong expectations of rising house prices, immersed in the illusion that even a default on a loan can be avoided by selling collateral; on the other hand, asset securitization transfers the risk of lenders to bondholders.

In the upward phase of housing prices, the lower default risk makes securitized assets (mainly bonds) based on subprime mortgages provide investors with a substantial return, which in turn promotes the expansion of the asset securitization market. When lenders can continuously pass on the risk of loan default to investors through securitization, their lending impulse increases and their willingness to audit borrowers continues to decline, eventually the risk spread throughout the financial system and gradually spread to the world.

In fact, the risk is only transferring, not disappearing. The function of financial innovation at this time is to reduce the difficulty of individual debt at the micro level and at the same time constantly magnify the macro-risk.

Does no one see the risks? Of course not. The "courage" to ignore soaring debt is based on the expectation that house prices will only rise or fall, and that there will not even be a periodic decline, which is clearly contrary to common sense. For financial institutions that know the most about the risks, one side is lucrative profits and stringent performance measures based on peer-to-peer comparisons, the other side is a highly uncertain market crash time, and the rational choice is of course to continue the dangerous steps before the music stops.

For financial regulators, even if they see potential risks, the social pressures they face in the face of booming financial markets and the growth of construction, building materials, decoration, transportation and many other industries brought about by the expansion of the real estate market can be imagined if they try to curb growth by strengthening regulation.

For the government, maintaining stable economic growth and employment is the basic condition to ensure the legitimacy of government. With the progress of technology, the relative supply capacity of effective demand is obviously inadequate, so dragging down the economic growth rate has become the norm. Because of the diminishing marginal propensity to consume, the more social wealth the rich accumulate, the more difficult the growth of social consumption is, and the widening gap between the rich and the poor makes the lack of effective demand more serious. The sharp increase of residents'liabilities, especially the growth of low-income groups' liabilities, has an obvious pulling effect on investment and consumption, and is the simplest and quickest way to solve the problem of insufficient effective demand. Even if we realize that allowing the expansion of debt to lead to catastrophe sooner or later, government departments will inevitably avoid throwing away their prey.

It's not hard to find that before the crisis broke out, increasing debt was a good thing, and almost everybody gave it a green light. Before the collapse of Lehman Brothers, the U.S. household sector was leveraged by 98% in terms of total debt / GDP, up 33 percentage points in a decade. The outbreak of the subprime crisis also vividly proves that excessive debt must be unsustainable that day, the faster the leverage, the larger the debt scale, the more serious the crisis. As Greenspan said, subprime mortgage crisis is a "hundred year experience" economic crisis.

Although the bloody lessons are in front of us, solving problems is easier said than done. Over the past decade, the dependence of global economic growth on high indebtedness has not eased, and the market and policy environment that facilitates indebtedness, though adjusted, has not changed substantially in general. In some countries, however, liabilities are transferred from private sector to government departments.

From 2008 to 2017, the leverage ratio of the U.S. residential sector dropped from 98% to 79%, while that of the government rose from 59% to 97%. In many countries, the macro leverage rate has increased rapidly after the crisis. The leverage ratio of the entire emerging market household sector rose from 23% to 40%, that of the non-financial sector from 61% to 105%, and that of the government sector from 37% to 49%.

Against the backdrop of a difficult economic recovery and insufficient effective demand in the post-crisis era, expanding debt still seems to be the world's life-saving straw. The great revelation of the subprime crisis is that the future of excessive debt must be a debt crisis, even an economic crisis. On the 10th anniversary of Lehman's collapse, investors should be on the alert for the worse debt problems.

Han Hui Shi, director of investment research at Jianxin, representing personal views only.

Editor in chief: Zhang Yan


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