Financial leverage may have heard of this term, but may not have heard of it.

Simply put, this is a capital operation model that uses bank money to maximize its own profits.

For example, Chen Yu felt that the stock market would rise in the future, so he planned to invest all the funds in the stock market, but his funds were limited, only 200 million yen. At this time, he could deposit his 200 million yen into the bank as margin, and then obtain 2 billion yen from the bank, and invest the 2 billion yen in the stock market.

If the stock market rises by 10%, Chen Yu will be able to make 200 million yen. Compared with the principal, the profit he makes is 100%.

Of course, on the contrary, if the stock market falls by 10%, Chen Yu's 200 million yen will be all lost.

This is the operating model of financial leverage, which not only amplifies returns but also magnifies risks.

Although high leverage can bring huge returns to investors when making money, high leverage can also bring heavy burden to investors when losing money.

When the bubble economy collapsed in the early 1990s, why so many RB companies went bankrupt, a large number of bankrupt people committed suicide by jumping off buildings, and even banks went bankrupt and reorganized. In addition to the overall collapse of the financial environment, it is also related to the proliferation of leveraged transactions in the bubble economy era.

At that time, RB pursued an economic system that followed the wartime financial system. The central bank determined credit quotas every year through "window guidance", which means that RB central bank stipulates how much credit quotas will be given to any industry and company every year.

There is a very popular documentary "Yen Prince", which records the evolution of the RB economy based on the main body of the RB central bank, which focuses on introducing the RB central bank's long-term "window guidance".

This system has its beneficial side, because in real economy industries such as energy, metallurgy, steel, and chemicals, capital is unwilling to invest in these industries in such a situation.

If there is no country or central bank that implements credit control over capital and guides funds to the real economy industry, laying a solid foundation for the overall economy, and when the economy urgently needs to climb and get out of the quagmire, it will cause a large amount of capital to flow into high-growth industries, or even get out of the real and virtual.

However, in the bubble economy era, pressure from the United States forced RB to promote financial liberalization, resulting in a large amount of funds pouring into the stock market and real estate industries. In addition, the appreciation of the yen, export trade soared, and the rapid economic growth, it also brought heavy pressure to RB's real economy industry at that time.

The rb manufacturing industry is full of attention, which is the atmosphere formed at this time, because if you don’t try hard to reduce costs, you will not be able to survive.

However, the overall RB economy was soaring rapidly at that time. According to statistics from the World Bank, RB's foreign exchange reserves reached US$90 billion in 1988, ranking first in the world. In 1990, RB's total domestic assets exceeded US$20 trillion.

The stock market and real estate industries have also set new highs. From 1983 to 1991, land prices collapsed. RB's land prices generally tripled, and Tokyo's land prices have increased by more than tripled. If Tokyo really sells it, it can buy the United States.

The same is true for the stock market. The Nikkei index rose from more than 10,000 points in 1983 to more than 40,000 points in its peak period. At the end of 1989, the market value of the entire RB stock market was US$4 trillion, which was close to half of the global total market value, and half of the global international capital was in RB.

At that time, the stocks and real estate in RB people had to increase their value by tens of thousands or even hundreds of thousands of yen every day, and even children's pocket money was used as a unit.

Against this backdrop, whether it is investors or ordinary people, everyone invested all their money in the stock market and the real estate industry.

Even banks that should have transfusions for physical manufacturing industries have continued to expand the scale of social credit in order to withstand the decline in RB's economic competitiveness caused by the appreciation of the yen. In 1986, the central bank even lowered the benchmark interest rate three times a year, from 5% to 2.5%, stimulating the financial market.

In 1987, the RB government promoted tax reform and reduced the levy of 5 trillion yen on residents and legal persons, making the financial market more abundant. At that time, banks were really asking for institutional and personal loans, with the purpose of completing the credit quota of that year.

The natural consequence of large amounts of loans is that leverage transactions are rampant in the financial market. Everyone invests with borrowed money. It seems that they are making money crazy under the economic surge, but in fact it also laid hidden dangers for the entire RB economy after the collapse of the bubble economy and the 20 years of depression.

However, with the new RB Central Bank governor Yasushi Mie Nori coming to power in 1989, the benchmark interest rate increased from 2.5% to 6% in just a few months, directly piercing the RB economy bubble, and financial collapse came.

As mentioned earlier, financial leverage amplifies interests while also amplifies losses and risks. Everyone borrows money from banks to speculate in stocks, real estate and investment. Financial growth is naturally good, everyone is making money together, but when the financial collapses, everything is losing like an avalanche. At this time, the losses that could have been borne are exponentially amplified by financial leverage, which becomes a burden that cannot be borne no matter what.

This is also why in later Japanese dramas, people often see fathers who owed money or committed suicide, because when the bubble economy collapsed, these people had no other choice but to run away and commit suicide.

What they earn may be money that they can't spend in their lifetimes, but what they lose is debt that they can't pay back in their lifetimes.

Of course, this is not a problem for Chen Yu. He is familiar with the history of later generations and the reasons for the collapse of the RB bubble economy as long as he withdraws before the RB central bank starts suicide-style reverse operations, he can avoid being trapped by the impact of the collapse of the bubble economy.

What's more, according to Chen Yu's original plan, in 1989, in order to be able to buy at the bottom of Russia when the Soviet Union collapsed, he himself needed to withdraw funds from the RB, so the collapse of the bubble economy was just a better opportunity to make money for Chen Yu.
Chapter completed!