August and September 2008 were truly celebratory months for China. With the convening of the Olympic Games and the continuous development of the economy, the entire nation was filled with elation, a veritable paradise on earth.
However, in the United States, these same two months felt like St. Petersburg in 1944. Snow fell from the sky, countless Soviet troops occupied the city, and their supply lines had been cut off for months. Then, suddenly, news arrived that the Allied forces had landed in Normandy.
The current situation in the United States was essentially like this.
With the complete collapse of major financial institutions, the entire country was in a state of desolation and decline. Countless factories shut down. According to the latest data released by relevant departments, the unemployment rate in the United States surged from 3.7% to 5.8% in just two months, equivalent to millions of Americans losing their jobs during this period.
Even more tragic was the housing market. In Manhattan, New York, before July, the average price per square meter was close to $40,000. By September, this price had halved to $28,000 per square meter, and it was still falling. Some real estate experts estimated that housing prices could eventually drop below $15,000 per square meter.
This was not an isolated situation in Manhattan but a pervasive trend across the entire real estate industry. Housing prices nationwide had fallen by over 30% in two months, and over a hundred real estate companies declared bankruptcy during this period. They couldn't build houses anymore; the more they built, the more they lost. So, they simply stopped construction and declared bankruptcy, which was a way to preserve more of their assets.
But the real estate industry was not the unluckiest. The automotive industry suffered the most. The entire US auto industry experienced a sharp decline. General Motors was the hardest hit, with its stock price plummeting from $28 to $6, a mere fifth of its former value.
Almost all other industries faced similar fates. No industry's stock price rose, and there was no industry where companies weren't going bankrupt or laying off employees.
Well, it wasn't entirely without exception. The gaming industry seemed to be bucking the trend, with sales data from major gaming companies experiencing a surge during these two months. The data from the oo game platform was particularly noteworthy, with the total number of players increasing by 40% and paid revenue rising by 15% in two months. Major gaming companies, on the other hand, made substantial profits.
This phenomenon could be easily understood through a concept in economics known as the "Lipstick Effect."
This theory originated during the Great Depression of the last century. The economy was in a worse state then, and it was widely believed that the entertainment industry would suffer even more, as people would prioritize essential living expenses over non-essential entertainment products.
However, subsequent investigations revealed that products like lipstick, stockings, foundation, and playing cards performed exceptionally well, with sales actually increasing.
Further research indicated that as the economy plummeted and unemployment rose, people found themselves confined to their homes. Besides the struggle to secure food, they also sought ways to uplift their spirits and alleviate their troubles, leading to a significant spiritual void. They needed ways to fill this void.
Men turned to activities like poker and bridge to pass the time, while women used lipstick and other cosmetics to combat their gloom.
Furthermore, items like lipstick and stockings could add a touch of glamour to life, even stimulating desires, which could then be channeled into physical activities to pass more time.
In the 21st century, games became the best means of filling this spiritual void. Large numbers of unemployed individuals would inevitably turn to gaming to while away their time, naturally leading to the surge in data for various gaming industries.
The booming gaming industry data also brought immense benefits to oo Network, making it one of the few companies to achieve growth against the trend.
At such a time, a company that continues to rise would inevitably become the best safe haven for many investors, who would pour their hard-earned savings into oo Network, hoping to make some profits.
Consequently, oo Network experienced an unimaginable increase in its market capitalization, breaking through $700 billion and then successfully surpassing $800 billion, setting another unprecedented record.
However, the stronger oo Network surged, the more other industries plummeted. Over the course of two months, the entire US stock market saw its assets evaporate by nearly $3 trillion. A sense of despair permeated all sectors, unemployment escalated, and negative sentiment exploded across the internet, filled with curses directed at Wall Street and the government.
This trend was not confined to the United States. It had already spread to Europe and Asia. Essentially, financial markets worldwide, led by the United States, were heading towards collapse. Globally, nearly tens of millions of people lost their jobs as a result.
At this point, some readers might wonder why, if this was fundamentally a subprime mortgage issue, only real estate developers and lending institutions should suffer, and why it affected so many other industries.
This seemingly logical question overlooks a crucial point: with the amplification of the financial markets, the economies of various countries and the global economy had become an interconnected whole.
For instance, the outbreak of the subprime mortgage crisis and the frantic revelations by the media naturally led countless Americans to realize that many houses had been bought by impoverished individuals who could not afford their mortgages. As these borrowers defaulted, the properties were inevitably put up for judicial auction.
However, those who had the ability and intention to buy homes had already done so during the first wave. At this point, the primary motivation for most buyers was investment rather than essential need. With a large number of defaulting homes flooding the judicial auction market, a housing price collapse became inevitable. Many people began selling their properties, desperately trying to escape the impending real estate market collapse, which further accelerated the decline in housing prices.
The collapse of housing prices was followed by the downfall of various real estate companies, as every brick laid and every piece of wood added represented a guaranteed loss. Many real estate companies directly announced shutdowns or bankruptcies, and their employees were the first to be laid off. This was just the beginning. Subsequently, all companies supplying building materials to the real estate sector began to collapse due to a drastic drop in orders.
Furthermore, due to the prosperity of the real estate industry, many real estate professionals had been lavish consumers in the service sector. With these individuals now lacking funds, their extravagant spending in the service sector naturally diminished, significantly impacting the service industry and leading to widespread layoffs.
These impacts were interconnected. Companies supplying these businesses also suffered significant consequences.
Simultaneously, the widespread layoffs in society led to a sharp decline in purchasing power. Even those who were not laid off, witnessing the market situation, instinctively reduced their spending, opting to save more money to cope with future risks, further depressing the overall consumption rate.
This was only the impact on the physical economy. The impact on the financial markets was even more dire.
Over the preceding years, subprime mortgage products, packaged and sold in various forms, amounted to over $10 trillion.
A significant portion of these were purchased and invested in by various financial institutions and funds, with a substantial amount also absorbed by social organizations.
Take Volkswagen, which has now been reported to have its capital chain completely broken. Although the subprime mortgage crisis typically affected the automotive industry after about six months, it was a different story when Volkswagen's management invested all its funds into purchasing subprime mortgage products.
Logically, the funds held by Volkswagen should have been distributed as dividends to shareholders or reinvested to expand production and generate more profits.
However, Volkswagen's management soon realized that the automotive industry had reached a bottleneck, and expanding production would not yield significant profits, with margins as low as thousandths of a percent.
In contrast, investing directly in the financial market offered a different proposition. By purchasing subprime mortgage products, they could achieve an annual return of up to 3%, which was significantly more profitable than the automotive business.
Therefore, Volkswagen invested all of its $100 billion in funds into purchasing subprime mortgage products. These products, clearly, had no ability to be repaid, and their prices had plummeted. Ultimately, the $100 billion was reduced to less than $10 billion, effectively vanishing.
However, this $100 billion was essential for Volkswagen's daily operations; employees relied on this money for their salaries. Now, they were told that all of it was gone.
As a result, Volkswagen faced the prospect of bankruptcy due to a broken capital chain.
The situation was similar for many other automotive companies. In addition, companies in the energy sector, agriculture, and many other industries followed suit, investing their funds in more profitable financial products.
Now that these products had collapsed, their capital chains were also broken. This explained why, in two months, over 10,000 companies declared bankruptcy due to broken capital chains.
It wasn't just US companies that purchased these financial products; numerous companies in Europe, Southeast Asia, South Korea, and Japan were also enthusiastically buying these lucrative subprime mortgage products, thus directly impacting the entire globe.
Ultimately, by the end of October, according to incomplete statistics, the total amount of US dollar assets that disappeared globally due to this crisis had reached a terrifying scale of over $10 trillion, and this figure was still increasing with no end in sight.