Time slowly moved into August 2008, a moment anticipated for decades. Despite having just experienced a disaster, the people of China, with unimaginable will and faith, rose up and plunged into the fervor of the Olympic Games.
As the biggest sponsor of the Olympics, Jiangnan Group was also the most visible presence. After all, they had poured billions into the naming rights. Consequently, the Jiangnan Group's logo could be seen everywhere.
Furthermore, Jiangnan Group's monumental contribution in Yizhou Province, especially Hou Tu's accurate prediction which reduced the ultimate casualty count to only three digits, had propelled Jiangnan Group to unprecedented fame both domestically and globally.
Thus, Jiangnan Group had entered a new peak. For instance, its subsidiary, oo Network, saw its stock price skyrocket immediately after rumors surfaced that oo Network intended to purchase game AI technology from Jiangnan Group to develop a new generation of intelligent AI online games.
Although this was merely a rumor with no clear origin, first exposed by a small gaming media outlet from an anonymous industry insider, and the actual gameplay of this so-called new generation of intelligent AI online games remained unclear, it did not hinder oo Network's stock price from soaring by 10% for three consecutive days. By July 2008, its market capitalization surpassed $700 billion. After becoming the first company globally to break $600 billion in market cap in January of the same year, it again became the first to surpass $700 billion, causing Mr. Huang's personal net worth to surge by hundreds of billions of dollars once more.
Moreover, as oo Network's market capitalization was already approaching $700 billion, this surge even brought it close to the $800 billion mark. However, the market seemed to sense that this news was somewhat unreliable, and on the fourth day, it experienced a rebound, losing about half of its gains. Yet, its stock price and market capitalization undeniably stabilized above $700 billion, leading everyone to exclaim that oo Network was simply a monstrous stock.
However, while oo Network's remarkable surge, fueled by mere unreliable gossip, was partly due to Jiangnan Group's breakthroughs and achievements in artificial intelligence, it was more significantly attributed to the general slump and precariousness of the US stock market itself.
Ever since January, when the second-largest subprime mortgage company in the US, New Century Financial Corporation, announced profit issues, the entire US market began to experience a chain reaction.
HSBC Holdings was the first to expose the risk, announcing on February 13th that it would increase its provision for bad debts in its US subprime mortgage business by $1.8 billion. This meant that HSBC Holdings was prepared to lose $1.8 billion on this subprime mortgage business.
Of course, considering the leverage effect, they were likely preparing for losses exceeding $5 billion.
At this point, the entire US mortgage risk began to surface.
Ten days later, the largest subprime mortgage company in the US, Countrywide Financial Corporation, announced a reduction in its mortgage lending. While termed a reduction, it essentially meant ceasing new home loan releases, and even other loan businesses were affected, leading to a significant decrease in lending.
By March 10th, New Century Financial Corporation, which had previously announced profit risks, released a company statement indicating that it was facing tight liquidity and would be unable to meet its various expenses normally, requesting extensions from banks.
Just three days later, on March 13th, New Century Financial Corporation directly declared bankruptcy, its speed astonishing everyone in the industry.
Later investigations revealed that at that time, New Century Financial Corporation was not merely facing tight liquidity but was completely out of funds. Instead, it owed banks and other institutions nearly $13 billion, with the final repayment deadline just a week away.
Originally, New Century Financial Corporation had hoped to get an extension from these banks and institutions, allowing them to raise some funds.
But as a result, these banks and institutions, upon learning of New Century Financial Corporation's balance sheet deficit, not only showed no willingness to grant an extension but instead intensified their pressure for repayment.
After all, everyone was not foolish. An extension would still result in a bad debt, so it was better to try and recover some losses while the other party might still have some funds.
Whether the last owner of New Century Financial Corporation still had funds is unclear, but these behind-the-scenes magnates clearly could not afford to put their own money back into repayment. They also knew that New Century Financial Corporation had too many bad debts, and the situation would only worsen with further delays, making it harder for them to extricate themselves.
Thus, the behind-the-scenes owner directly announced the bankruptcy of New Century Financial Corporation. After all, the company owed the money, what did it have to do with him? Once the company collapsed, all debt issues would cease to exist.
Therefore, New Century Financial Corporation declared bankruptcy with unimaginable speed. In doing so, this behind-the-scenes owner managed to escape the quagmire in the quickest way possible while preserving a significant portion of his substantial assets.
However, this news was undoubtedly a nightmare for other financial institutions, as New Century Financial Corporation was the second-largest company in the entire subprime industry. The fact that this company declared bankruptcy in just three days due to subprime mortgage issues implied that other companies in the industry might also be in trouble.
How large were the loopholes in the entire industry?
Although people on Wall Street had foreseen the problems, they had been trying to maintain the illusion that the entire industry was fine and continuously making money.
This was to deceive newcomers into the market and to encourage retail investors to continue pouring money into related stocks, allowing them to exit with their invested funds.
Initially, all this seemed to be going well. Who would have expected that the behind-the-scenes owner of New Century Financial Corporation would flee so decisively? So, the main reason was that their own banks and institutions refused to allow the other party to defer repayment. Was it wrong for us to ask them to repay on time according to the contract?
Was it wrong for us to want to avoid our own losses and recover funds as much as possible?
Therefore, the fault definitely did not lie with us; it was with the damned New World Financial Company, and the entire world.
But regardless of who was at fault, with the collapse of New Century Financial Corporation, a significant portion of shareholders realized the problem, and capital began to flee frantically.
The day after the news was released, the US stock market plummeted. The Dow Jones Industrial Average fell by 2%, the S&P 500 Index by 2.04%, and the Nasdaq Composite Index by 2.15%.
Oh, and incidentally, on this day, 00 Network experienced a small surge after its release. The stock price had been falling for several days, and it was about to break below $60 per share. However, stimulated by this news, 00 Network managed to stage a counter-trend rally, rising by $2.
However, Wall Street would not allow such a situation to persist, at least not until their own funds had escaped these quagmires. They absolutely would not permit a collapse.
Therefore, on March 16, 2008, after three consecutive days of decline in the stock market, the Federal Reserve directly announced that, considering New Century Financial Corporation's involvement with numerous financial enterprises, the safety of individual borrowers' funds, and the interests of the vast majority of investors.
Following New Century Financial Corporation's declaration of bankruptcy, a temporary institution would be established to manage its assets. Concurrently, related enterprises with asset ties would be invited to jointly contribute funds for an emergency injection to resume New Century Financial Corporation's operations and maintain market stability and prosperity.
Stimulated by this news, the stock market rebounded on the 16th, and 00 Network began to decline again. Wall Street had successfully calmed public sentiment, and most investors began to believe that with the Federal Reserve's intervention, there wouldn't be any major issues with the subprime mortgage industry.
They failed to notice that the Federal Reserve's announcement was an invitation for other financial institutions to inject capital, not a command, and the Federal Reserve itself had no intention of injecting funds.
Therefore, whether New Century Financial Corporation could receive a substantial amount of cash to resume normal operations was anyone's guess.
Secondly, major financial institutions on Wall Street were quietly withdrawing funds from subprime mortgage-related businesses.
While the flow of these funds might be difficult for ordinary investors to ascertain, there was one matter they could clearly see.
That was on April 24, 2008, when the US Federal Housing Administration released the housing sales data for March 2008. In March 2008, US existing home sales fell by a significant 10.2% month-on-month, compared to the sales data in February.
But this was not the most terrifying aspect. The most terrifying was the year-on-year sales data, which showed a decline of as much as 16.7% compared to March 2007. This was essentially a cliff-like drop.
The report from the Federal Housing Administration was very restrained, with minimal text. Aside from the few essential data points that had to be disclosed, it consisted mostly of useless platitudes, with virtually no useful content or analysis. For example, the reason for such a terrifying decline in sales was not mentioned in the report at all.
Of course, if investors were smart enough to check the data released by mortgage lenders, they would discover that mortgage originations, both month-on-month and year-on-year, had declined by over 20%, which was even more alarming than the existing home sales data.
But the surprising thing was that the number of people applying for mortgages this month, both month-on-month and year-on-year, had increased.
In other words, more people applied for mortgages in March than in February and March of the previous year. Yet, the amount of home loans issued by financial institutions had decreased by over 20%. These figures, when combined, were enough to send shivers down the spines of many smart investors.
Unfortunately, most stock market investors did not bother to check these readily available data reports. They only saw that the overall market data was good, and some company stock prices were still rising.
Therefore, the prosperity of the entire market continued, and the stock market continued to rise until June 22, 2008. On this day, there was a minor fluctuation in the market, and a high-level pullback began. The Dow Jones Industrial Average fell by 1.37%, the S&P 500 Index by 1.29%, and the Nasdaq Composite Index by 1.07%.
Soon, financial analysts informed everyone through various channels that these were normal pullbacks and there was no need to worry too much.