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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: morokko65 who wrote (8542)	12/11/2007 12:28:00 PM
From: The Ox	Respond to of 33421

It appears to me that a large portion of the problem stems from the desire for greater liquidity and reduced risk by the initial lenders. The packaging and selling of mortgages is designed to give the banks and lenders quicker access to cash. They could hold the mortgages themselves (like they used to do). By passing off the risk to others while simultaneously improving the liquidity of their balance sheets, they were able to reap immediate benefits while pass the buck. As the mortgage industry moved away from their traditionally conservative approach to applicants, they've essentially taken a bite out of the hand that's been feeding them. Low interest rates encouraged the larger players to increasing look for ways to improve returns. With this search comes increased risk. Add in the rating agencies lack of supervision or oversight and their rubber stamping of the financial industry's packages without assessing the high risk nature of the instruments and we end up where we are now.

To: morokko65 who wrote (8542)	12/11/2007 12:30:31 PM
From: Hawkmoon	Read Replies (1) \| Respond to of 33421

If the world becomes risk adverse when the USA's primary export is financial instruments (i.e. glossy packaged risk) the USA stands to come down a peg without the domestic savings to finance its own bailout. Well, it's always possible.. But what is their interest in killing the goose that is laying their golden egg? The US remains 30% of the global economy, right? So who will all those "risk-adverse" countries sell their goods to when a high majority of their workers become unemployed? Without our economy the Chinese economic "miracle" would likely not have happened as quickly, if at all.. Consider it to be "vender financing".. When a company (country?) wants to develop its business foundation, often they will resort to vender financing to entice consumers to buy.. But when they do that, they absorb the risk that some of their buyers will default... If properly hedged, those losses are distributed over a broader base via various financial instruments.. So.. who's responsible for the housing bubble, or the bubble in US Treasuries? Well, those very people who don't want to re-patriot all the dollars they made from selling to the US consumer (for fear it will put upward pressure on their own currency).... But while overseas investors are dumping non-gov't bonds.. US banks are postering themselve to re-purchase them at fire-sale prices... Which may just net them a very nice profit in coming years.. But will they stop selling to the US? I doubt it.. since there's no other market that can (or will) accept their goods in such volumes.. And they need to keep their own economy progressing, and their people happy.. Just my "machiavellian" perspective on this.. Hawk