Huang Ming, a tenured professor of finance at Cornell University in the United States, is also the dean of the School of Finance at Shanghai University of Finance and Economics, and the professor and vice president of Changjiang School of Management. He was one of the first scholars to alert the China government and enterprises to the excessive expansion of financial derivatives. Most of these complex financial derivatives, called "financial opium", were designed by international investment banks on Wall Street. However, these financial derivatives, which are eventually sold to China enterprises, are hard to find in the domestic market of the United States.
1994 the trust bank, once one of the top ten financial institutions in the United States, was put in the dock. It is the well-known Procter & Gamble Company that sued CITIC Bank. Procter & Gamble accused CITIC Bank of selling extremely complicated financial derivatives to it by fraudulent means, resulting in a loss of $6543.8+$200 million for Procter & Gamble. The trust bank was finally found to be suspected of fraud by the court and was acquired by Deutsche Bank after losing its reputation. Huang Ming believes that it is this legal deterrent that makes Wall Street investment banks afraid to sell complex derivatives in the United States, but launched an attack on emerging markets.
Huang Ming: "This product has huge downside risks. The upward return to investors is very small and limited, but the downside risk can be dozens of times. So if you let investors sign this contract, it will lead to huge losses, so investment banks have to bear great legal responsibilities in the United States. Therefore, investment banks will analyze and decide not to sell this product in the United States. "
Xie Guozhong, an independent economist, worked as an Asia-Pacific economist in Morgan Stanley for nine years. He told reporters that gambling financial derivatives with particularly high risks, such as several major airlines, are generally not sold in the United States.
Xie Guozhong, an independent economist: "In the United States, almost no one does this, mainly from China. In Chinese, it is mainly that Hong Kong people in Taiwan Province Province do a lot and mainlanders do a lot. "
Lv Zhihua, president of the Hong Kong Investor Protection Association, told us that there are about 10 banks in Hong Kong selling financial derivatives, most of which are American banks. As far as he knows, these investment banks are strictly forbidden to sell these complex financial derivatives to American investors.
Lv Zhihua, President of Hong Kong Investor Protection Association: "It turns out that this derivative product cannot be sold to American investors. It is clearly stated in the article. Their reason is that American investors may be involved in tax issues, so this derivative product cannot be sold to them. "
Lv Zhihua felt this reason was very reluctant. Many American investors buy and sell stocks, real estate, etc. In Hong Kong, this does not involve taxation.
Lv Zhihua: "But I think the most important reason is that this derivative product is too risky to be sold in the United States. Mainly if something goes wrong, generally speaking, according to American regulatory regulations, investment banks have to compensate those investors. This has happened in the past. "
Just now, the expert told us an important message. It turns out that this kind of high-risk financial derivatives with gambling nature is banned in the United States, where the financial industry is the most developed. In fact, the American financial community, which has experienced many crises, has been afraid to treat derivatives lightly. Warren Buffett once called derivatives weapons of mass destruction. The Obama administration has just launched a new framework to strengthen supervision, and some OTC derivatives will be forced to be listed on the exchange. But how did these financial opium reach the hands of China enterprises? Let's look inside.
Products that can't be sold in the United States have found a huge market in China. In 2004, as an expert consultant on derivatives, he was invited to return to China to participate in the restructuring of CAO. After personally checking Cao's contracts for purchasing financial derivatives, I realized that China enterprises were being eroded by the "financial opium" of Wall Street.
Huang Ming: "In the process, I was shocked. In order to make huge profits for themselves, this international investment bank designed an extremely complex product for Cao Singapore, which is a bit like a highly toxic product. My reaction is summed up in two words: anger, which means that our state-owned enterprises will be so stupid to make such a contract that is completely unnecessary for themselves and this enterprise, and then lead to huge losses. "
Huang Ming: "Simplicity and complexity, according to the pricing, risk and mathematical complexity of a derivative product, can be achieved with junior high school mathematics level. For example, futures and swaps are absolutely simple, and pricing can be done by Nobel Prize theory. As for options, the simplest option is called complexity, which depends on hundreds of thousands of lines of computer programs.
Reporter: "You just said that many domestic enterprises are making financial derivatives that are more complicated than the Nobel Prize?"
Huang Ming: "Of course, most of the losses of our central enterprises in this round, more than 90%, are. This is an extremely complex derivative product, and even the Nobel Prize formula cannot be priced. "
So, how complicated are Huang Ming's "complex derivatives"? Chang Qing, director of the Research Center for Futures and Financial Derivatives of China Agricultural University, told us such a fact.
Chang Qing, director of the Research Center for Futures and Financial Derivatives of China Agricultural University, said: "Once a university teacher was invited by the aviation industry to consult. That's my student. He told me that he was surprised after reading it. He thinks that this contract contains too many contents, that is, 150 pages. As far as he is concerned, he is an expert, and he can't understand it for a few days.
As one of the founders of China futures market, Evergreen has been paying close attention to every move of international investment banks in China. Not long ago, after the news that several major domestic airlines suffered huge losses due to hedging was disclosed, he analyzed the public information of several companies. From these reports, Chang Qing also discovered the true intention of international investment banks.
Chang Qing: "For example, Goldman Sachs holds a large amount of oil loans. He has been making money, but he is also afraid of falling prices. what should he do ？ He will take some money out of it to buy insurance. How to buy insurance? That is to say, in the case of rising prices, how much do I give you every month? This is not an insurance premium, but once the price falls to a certain position, you become a buyer, which is equivalent to selling your loan and crude oil to you. "
However, Cao was not the only one who made mistakes. At the end of 2008 10, CITIC Pacific suffered a loss of147 billion Hong Kong dollars. Chang Qing told us that the chief culprit of CITIC Pacific's huge losses is still the complex financial derivatives contracts they signed with international investment banks.
Huang Ming: "CITIC Pacific used highly toxic and complicated derivatives to hedge, which is totally unnecessary, because if he really wants to hedge, the Australian dollar hedging is very simple, so he will do futures swaps. These markets are very simple and easy to understand, but he just chose extremely derivative products, which is also a vicious speculation from this perspective. "
China enterprises suffered huge losses in financial derivatives trading, which prompted Huang Ming to issue an appeal in many media to remind domestic investors to pay close attention to the harm of complex financial derivatives. A friend is in charge of a famous international investment bank that sells complex derivatives in Asia. When he met Huang Ming, he confessed his inner anxiety to him.
Huang Ming: "He said he often felt guilty for a while. He went to the enterprise to sell derivatives. He felt it was like throwing a bomb, turning his head enough and running away. Second, he commented that the investment banking department of their investment bank helped the company to go public and help the company to raise funds, which created value for the company, but this derivative product department sold complex derivatives to the company and destroyed the value for the company. "
Another story told by an international investment bank manager can further show us the true face of complex financial derivatives.
Huang Ming: "He, a buddy who sells derivatives in an investment bank, went to an Asian entrepreneur to sell derivatives, but he couldn't sell them. But he married the daughter of an entrepreneur, so he joined the family. After getting married, after a while, another investment bank called home and sold similar derivatives. He picked up the phone and warned the investment bank that you dare to sell here. I want to sue you. I used to sell them myself, ok? "
The trading of complex financial derivatives has made some China enterprises participate in the trading of complex financial derivatives without authorization, and become the target of risk transfer by international investment banks, eventually causing losses of billions or even billions of yuan. In fact, it is not just the big enterprises with the prefix of country that eat these financial opium. We also reported in the program before that a Hong Kong-funded investment bank promoted a financial derivative product called KODA in the Mainland, and many domestic private entrepreneurs lost all their decades of hard work. Why do complex financial derivatives with obviously unequal risks and returns become their investment choices?
Lai Jianping first came into contact with KODA, a financial derivative product, through his wife's alumnus Zhang Ning, and Zhang Ning, a friend who works as an investment consultant in Hong Kong ABN Amro private bank. In June 2007, Zhang Ning made a special trip to Beijing to introduce her private bank to Lai Jianping and his wife.
Lai Jianping, a private banking customer of ABN Amro (Hongkong): "We signed a document with more than 100 pages in English in less than five minutes."
As a lawyer, Lai Jianping thinks this is just an account opening document. As long as there is no money in the account, there is no risk. Coupled with his trust in his friends, Lai Jianping signed his name without knowing what these English documents were.
Lai Jianping: "Her business card is the head of ABN Amro Private Bank. You know, directors, according to our understanding, are executives of the company, not ordinary people. Since you came back from studying in America and you are an executive of ABN Amro, you are still a friend of our friend. Why don't I trust you? How could I possibly come to you? I asked to translate the English document of 100 pages into Chinese, and I asked a lawyer to give me legal advice. "
Shortly after signing the account opening documents, Lai Jianping transferred the funds to this account. Lai Jianping, who doesn't know anything about financial derivatives, gave his hope of wealth appreciation to the investment consultant of Hongkong Dutch Private Bank.
Lai Jianping: "Because we are trusts and consultants, we will do whatever she tells us to buy, and we will buy whatever she tells us to buy, and we will start doing it all the time."
Huang used to be Hao Ting's account manager at Citibank, and they were familiar with each other. Later, after Huang jumped ship to DBS Bank, he kept calling Hao Ting, hoping that Hao Ting would become a customer of private bank of DBS Bank in Hong Kong.
Hao Ting, private banking customer of DBS Bank (Hong Kong): "He told me at that time that DBS Bank is the largest state-owned bank in Singapore and Singapore is one of the most legal countries in the world. I said, if I transfer my money to you, how much can you give me in terms of annual comprehensive rate of return? He said that it is 30%-50%, and the most conservative estimate is 15%-20%. "
Later, Huang flew from Hong Kong to Beijing to meet Hao Ting. At the meeting, Hao Ting signed an English document to open an account with DBS Bank in Hong Kong. After returning to Hong Kong, Huang re-registered a company for Hao Ting and opened an account with DBS Bank in Hong Kong, which was dedicated to investing in products. Until now, these files are still kept in Hao Ting's mailbox.
Hao Ting: "It's all in English, and there are no Chinese characters. If there is, it is that both signatures of Hao Ting are in Chinese. He didn't sign all the documents of this company himself. After he emailed me, he gave me instructions. Which page did you sign? This email is available. I will fax this page to him after I sign it for him. "
Hao Ting, who doesn't know English, signed her name on the document out of trust in DBS Bank and Hutchison. It is these documents that DBS Bank began to buy this financial derivative product named KODA for Hao Ting.
Huang Ming, a professor of finance at Cornell University in the United States, said: "When they hold some Harvard degrees, suits and ties, and then represent the bank and hold the business card of the general manager, the whole team comes to talk to you, especially when they talk about their investment products professionally, especially high-end people like you, you can easily trust them, so when they come up with these 100 pages contracts and you don't understand them, this blind trust leads you to sign them.
Many of Dr. Huang Ming's students in cheung kong graduate school of business are private entrepreneurs, and many of them have suffered heavy losses because of investing in KODA products. They first invested in Hong Kong because of the introduction of their friends. When introducing financial derivatives, those bank salesmen often describe how this product makes money, but they don't tell investors the huge risks behind it.
Huang Ming: "This kind of products earn a little when they earn money, but when they lose money, they are basically bottomless. The risks with extremely asymmetric risks are often not fully disclosed to these investors by western banks or investment banks, but when banks tell investors about these risks, I believe most investors are unwilling to make this contract. I think many banks are not all banks, and many banks have not fully disclosed them.
Dr. Huang Ming believes that some bank salesmen not only fail to remind investors of risks, but even cheat on account opening documents behind their customers' backs. This is Lai Jianping's account opening document at that time. We can see that there are no Chinese characters except Lai Jianping's signature. But this account opening document shows that they provided Chinese information.
Lai Jianping: "Because she put a small label on her signature at that time, we signed a set of blank things. She didn't explain it to us, nor did she discuss it with us and asked us how to fill in the content. So after she took this set back, she filled in the contents for us in various places without authorization. Even worse, you see, there are so-called risk disclosure books, and dozens of pages of risk disclosure books are all in English. As a result, what did it say It said that the risk disclosure statement was provided to the signed customers in the language chosen by the customers (that is, Chinese). It says that the risk disclosure book was provided to me in Chinese of my choice, but where is it? She will provide it to me and will definitely let me sign it. " Not long ago, when we reported that several major domestic airlines suffered huge losses in jet fuel hedging, we also investigated the performance of several other overseas airlines, all of which were engaged in jet fuel hedging business, and none of them suffered big losses. Southwest Airlines even made some profits. This performance comparison shows that we are really novices in investing in financial derivatives. Because of this, we should be more cautious in the face of financial derivatives.
According to Cui, vice president of Tianjin Julong Group, judging whether a financial derivative is "toxic" is actually very simple. Cui, who once worked for the largest grain and oil group in China and engaged in hedging business on behalf of the group on the Chicago Board of Trade for a long time, once served as the vice president in charge of futures business in a private enterprise. He told us that many international investment banks have sold financial derivatives to him in less than a year since he took office.
Cui, vice president of Tianjin Julong Group, said: "That is to say, if he sells you this product as a seller, and you say that I am a seller and you are a buyer, you can tell him, or you can still construct this product in the same way. Whether the other party signs this stack of contracts or not is a very simple truth. Would you like to buy it? Under normal circumstances, I believe the other party will say I don't want to buy it. Very simple things, very simple truth.
Evergreen: "If we have any problems, just say that our talents have problems. In other words, there is still a gap between our large economic institutions and large state-owned enterprises in their understanding and understanding of the current market economy. If there is a gap, they will say how to hedge, what is the purpose of hedging and how to hedge. I think we haven't figured out this series of problems, and the talents are not fully prepared. So what are they? Leaders have the final say, so leaders.
Huang Ming: "We should not expect anything from international investment banks. International investment banks can slaughter enterprises and investors and reap huge profits without being punished by law. They will definitely do it. People always criticize the greed of international investment banks. 100 years, they have never stopped being greedy, so it is difficult to control this from their side. They can only control themselves. How can they control themselves? I feel that as a state-owned enterprise, we must strengthen internal risk control and resolutely not do things we don't know. "
"I think the most important thing, especially for state-owned enterprises, is to do more work from the perspective of the regulatory authorities, because if state-owned enterprises do not have clear laws and regulations and are not allowed to do this and that, then they will do it, and there will be no responsibility afterwards, so I especially agree with a series of new rules and regulations recently introduced by SASAC, which are clear about what can and cannot be done. When we strengthen supervision and require disclosure, it is certain that we cannot make complex derivatives, which will improve the derivative business of our central enterprises. So on the whole, I think a large part of the lessons I have learned have been reflected in SASAC's recent notice. I am very pleased. " Opium has left a humiliating history and endless pain to the people of China. Nowadays, financial derivatives denounced by experts as "financial opium" have left many China enterprises and investors black and blue.
From a painful experience, the wave of huge losses in financial derivatives of some enterprises in China has attracted the attention of the relevant state departments, and the corresponding regulatory measures are also in full swing.