In order to realize the great American dream of "living people have their own houses", the US government strongly supported the Loan Association in the 1960s and 1970s.

This type of private non-bank financial institution rooted in the community has simple business, conservative operations, and affordable procedures. The biggest difference between it and commercial banks is that the savings and loan association only issues fixed-interest housing mortgage loans to members participating in savings.

The management of the Saving and Loan Association has long followed the famous "3-6-3 Rule": the deposit interest rate is 3%, the loan interest rate is 6%, and the door is closed at 3 pm every day.

But the situation changed significantly in the late 1970s, as domestic inflation continued to soar, the new Fed chairman began to use interest rates to suppress inflation.

At this time, the characteristic of the "borrowing short-term loans and long loans" of the deposit and loan association is like a rope that is getting tighter and tighter around the neck, causing the entire deposit and loan industry to suffocate little by little.

After all, it took ten years to borrow a mortgage loan. In the past, mortgage customers still paid off at an interest rate of 6%, but the short-term deposit interest rate in the market has reached as high as 20%.

If the depositors and loan association does not attract deposits at high interest rates, it will immediately lose depositors and fall into a liquidity crisis. However, if it pays a high interest rate of 20% to depositors, it will have to bear huge losses.

So starting from 1978, bankruptcy and bankruptcy associations across the United States have continued to occur, forcing the US government and Congress to find ways to save it, an important industry involving $600 billion in assets.

Congress has introduced some bills to loosen the operations of the Saving and Loan Association. For example, in April last year, Congress passed legislation to increase the deposit insurance amount of the Saving and Loan Association from $40,000 to $100,000.

In other words, even if the Savings Association goes bankrupt due to poor management, the depositors' deposits will not exceed $100,000 and they will be able to receive full compensation from the Federal Reserve Loan Insurance Company.

This bill is intended to increase the attractiveness of the depositors and loan associations to large deposits, but depositors do not see rabbits or show off their eagles. If you do not follow the market interest rate, they will turn around and leave.

In the first half of this year, Congress passed a tolerant policy towards the Savings and Loan Association, relaxing its capital requirements and the number of shareholders.

Before this, most savings and loan associations were mutually aided and their rights could not be transferred at all. Even if some savings associations had completed shareholding reforms, the holdings of a single shareholder were limited to less than 5%.

With the US government supporting the Loan Association for shareholding reform and lifting shareholding restrictions, mergers and reorganizations in the industry have finally become easier.

At the same time, the requirements of the Savings and Loan Association in terms of its own capital rate are also far lower than those of commercial banks. According to the latest Congressional bill, the minimum capital rate of the Savings and Loan Association has been further reduced from 5% to 4%.

In other words, a savings and loan association with 200 million assets only costs US$8 million to meet regulatory requirements. Fortunately, the loan association’s current loans are mainly personal housing mortgages, and each amount will not be large, so there will be no situation where a loan cannot be collected and the dilemma of insolvency will immediately occur.

But this series of policies did not change the root cause of the operating difficulties of the Savings and Loan Association - the interest rate of absorbing deposits is higher than the interest rate of loans issued.

So the U.S. Congress is discussing a more significant relief policy recently - the tax exemption bill.

The most important provision in this bill is to allow the deposit and loan association to sell the mortgage assets in their hands, and the cash recovered can be used to invest in other assets with higher returns.

The losses caused by selling mortgage assets can be compensated with the taxes paid in the past ten years. The Loan Association only needs to submit a loss report to obtain a tax refund from the IRS.

Historically, this bill not only failed to save the American Loan Association, but also further aggravated the risks of its operations.

On the contrary, Wall Street made a big profit by taking advantage of this. The mortgaged bonds, which were originally unpopular, suddenly became a star product in the US bond market in the 1980s.

Before Zhou Yang traveled through time, he read a financial biography about Solomon's brothers. Solomon almost monopolized the mortgage bond transactions on Wall Street in the early 1980s.

Relying on the huge profits made on mortgage bonds, Solomon Company and Dechuang Securities, which operates junk bonds, became the most dazzling Gemini star on Wall Street in the 1980s.

Zhou Yang doesn't remember when the tax exemption bill was passed, but he knows that with the efficiency of the US Congress, it is already relatively fast to complete a bill from being proposed to the final voting.

It is normal for important bills involving government budgets and tax cuts to fight for more than half a year, and eventually led to the government shutdown.

So Zhou Yang only needs to pay attention to the latest proposals of the US Congress from time to time to know where the tax exemption bill specifically used to relieve the Savings and Loan Association has progressed.

The person in charge of following this matter was Caroline. After all, she had a high-ranking uncle in the Senate, and many details could be understood more clearly than others.

After the tax exemption bill was introduced, although it failed to save the decline of the entire savings and loan association industry, it forcibly gave the savings and loan associations a wave of blood at least in the early 1980s.

The main reason for the later decline of the Savings and Loan Association was actually that it lacked investment vision and poor risk control, and it was impossible to adapt to the fierce market competition.

After all, the management of the Loan Association who are accustomed to the "3-6-3 Rule" is like a group of docile and delicious fat sheep in the eyes of the jackals and tigers on Wall Street.

But investment is Zhou Yang's strength. He has no shortage of good projects that can make steady profits and even make big profits. What he really lacks now is the huge amount of funds that can be called.

Some people may ask whether the Loan Association, as a disguised bank, Zhou Yang, who has just whitewasted his identity, immediately entered such a sensitive industry.

In fact, affected by the Grass-Steagall Act of 1933, the US banking industry was extremely fragmented and there were many small banks.

If the acquisition target chosen by Zhou Yang is similar to the domestic one, that is, the scale of township credit cooperatives is simply inconspicuous.

What's more, he never thought that he would take root and develop in the United States. Heavy asset-heavy industries like banks will definitely not be the focus of investment in the future. What Zhou Yang really likes is the high leverage attribute similar to banks.

Zhou Yang had planned a long time ago to acquire a small loan and loan association. Although he had never come to the United States, all preparations were actually proceeding in an orderly manner.

The matter of choosing the target was subcontracted to a small investment bank in New York that focuses on researching financial companies. The Davi Law Firm where Connie Valais is located will become the legal counsel for the acquisition.

Since fighting an unconstitutional lawsuit with the New York City government last year, Connie has not chosen to go to the end of the road of litigation attorneys, but has begun to actively transform into non-litigation.

After all, Davie Law Firm is backed by Wall Street, and taking on cases such as corporate mergers and acquisitions is much more profitable than defending murderers for innocence.

The main partner of Zhou Yang's acquisition operation is still Caroline Kennedy. After all, Kennedy needs to hold his thigh tightly.

"Charlie, let me introduce you to Martin Friedson, my alumnus, an excellent bond research expert." Caroline said, pointing to a tall, thin, slightly bald white man beside him.

"Martin, welcome to join our team!" Zhou Yang hugged the other party enthusiastically.

Since Caroline made a lot of money on Apple's stock last year, she has begun to develop a lot of interest in finance. After all, it's so wonderful to make hundreds of thousands or even millions of dollars a day.

After resigning from the Metropolitan Museum, she returned to Harvard University at the suggestion of Zhou Yang to attend a short-term training course in finance.

Friedson's tutor when he was studying for a master's degree in business administration at Harvard Business School was one of Caroline's lecturers when he participated in the training.

It just so happened that Zhou Yang asked Caroline to find an expert in bonds. Caroline contacted Friedson with the recommendation of the lecturer.

After graduating from Harvard Business School, Friedson joined a securities company called MH, engaged in trading electricity and utility bonds.

From 1976 to the present, Friedson has switched to three companies in just five years. Before being poached by Caroline, he was working on credit and high-yield bond research at Solomon Brothers.

Wall Street has always had a very frequent turnover. As long as there is a better development prospect, it is common for each other to change jobs. In fact, if Zhou Yang wants to quit, he can come out of Merrill Lynch alone at any time.

However, his asset management plan is making profits wildly, and now the lost dividends are enough to make him heartbroken, so Zhou Yang will definitely complete his first contract.

"Martin, I heard that you are quite knowledgeable about Milken. Do you think we can persuade him and help us issue junk bonds?" This was the first time Zhou Yang saw Friedson, so he naturally had to try the other party's quality.

"In my opinion, the 'King of Junk Bonds' is a rather emotional man. It is said that his motto is 'Never betray friends and never forgive enemies'. As long as he can obtain his friendship, issuing debt seems to be a very simple thing.

Milken is a genius, and it is undeniable. When he was in Berkeley, he was a member of the National Association of Honors of the All-American Students.

But to say that Milken opened up a high-yield bond market like never before, it was an over-deification of him, because high-yield bonds had existed a long time ago.

Alexander Hamilton in the 18th century and the Morgan family in the early 20th century all used high investment returns to induce investors. However, once the crisis came, its huge risks were enough to bury all optimistic people.

The surge in oil prices in 1973 triggered a global recession. Against the backdrop of severe credit tightening, a large number of originally high-quality companies were downgraded by rating agencies.

Institutional investors such as mutual funds are subject to rigid risk constraints and cannot invest in low-grade bonds. For a time, the bond market was seriously mismatched, which gave Milken a good opportunity to rise.

There is indeed a lot of gold contained in junk bonds, but their overall investment risk is far higher than investment-grade bonds.

If you want to earn high returns, you must take high risks. This simple truth has not changed because of the appearance of Milken." Friedson said in a plain tone.

Milken is the popular fan of Wall Street now. The high-yield bond department he led has brought a lot of profits to Dechong Securities.

Dechuang Securities is now the fifth largest investment bank in the United States, with its headquarters in Manhattan, New York, like most of its peers, but Milken prefers to work in Los Angeles on the West Coast.

So Dechuang Securities succumbed to Milken's personal preferences and simply moved the high-yield debt department from New York to Beverly Hills in Los Angeles alone.
Chapter completed!