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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Elroy Jetson who wrote (32570)	4/8/2008 10:25:40 AM
From: elmatador	Read Replies (2) \| Respond to of 217862

Mexico shakes over US crisis, Brazil hopes to emerge unscathed Buenos Aires - Latin America watches intently as the current US mortgage and credit crisis continues to unfold: Mexico is bracing itself for a rough ride, while Brazil hopes to emerge unscathed from the upheaval, which has triggered global share market turmoil. Mexico is the 14th-largest economy in the world, but it remains heavily dependent on the United States. In 2006, close to 85 per cent of Mexico's exports went to the country's northern neighbour, which was also the origin of 51 per cent of Mexican imports. The case of Brazil - the 10th-largest economy in the world - and other South American countries is less dramatic, since their trade is considerably more diverse. Brazil sends only around 18 per cent of its exports to the US. Despite these differences, both Mexican President Felipe Calderon and Brazilian President Luiz Inacio Lula da Silva - surely conscious of the role of expectations in helping keep the crisis under check - have gone out of their way to stress that they are in a position to face the international crisis. "You may rest assured that we will not stand around doing nothing in the face of the reality that the economy of our main trade partner in the world is starting to slow down, even with talk of a possible recession," Calderon said earlier this year. His answer to the challenge has been described as "a textbook approach to recession." The Mexican president has promised to boost housing and infrastructure projects. Experts, however, note that this is unlikely to help much and may in fact worsen some problems that are specifically Mexican. "Should Mexico expand its economy through public expenditure, it can put more pressure on its current account balance, which is already very negative, and it could jeopardize exchange rate stability. I think they are going to choose to bear the recession," Mexican economist Jose Romero told Deutsche Presse-Agentur dpa. The US crisis is already having an effect on remittances sent home by some 11-20 million Mexicans living in the US, many of them working in the hard-hit construction branch. The Inter-American Development Bank (IDB) estimated recently that some 600,000 Mexican families ceased getting money from abroad in 2007. The IDB however did not see a similar trend in other countries. While there are similar numbers of Central Americans working in construction in the world's largest economy, the bank did not see a reduction in remittances sent home. Looking forward, Romero sees "a positive outlook" for Mexico in particular, but also for the crisis in general. The depreciation of the dollar may boost manufacturing in the US and therefore Mexico's complementary manufacturing industry, which assembles US components into products for the US market, the expert said. Further away from the US, the crisis and its effects are less clear-cut. "The crisis has not reached Brazil, and we are working on the basis of the hypothesis that the crisis will not reach Brazil," Lula stressed last month. The Brazilian economy is "solid, sustained by its domestic growth and by a very strong export policy," Lula noted, adding that Brazil does "not depend on one country or another." "That diversity gives Brazil a certain guarantee that we will not have problems," Lula said. Former Brazilian Central Bank director Alkimar Moura told

To: Elroy Jetson who wrote (32570)	4/8/2008 1:08:55 PM
From: Lazarus_Long	Read Replies (1) \| Respond to of 217862

Thanks, Elroy. That clears up a lot. Mortgage insurance is an entirely separate deal from banks and government insurance for bank depositors. I knew that. I was wondering if the low-end loaners werwe simply not requiring it, then getting into trouble when a large number of defaults occurred because of a recession (you can see an increase in lender failure during the '91-'92 recession in one of my earlier posts). The Muni bond business is very sound, and the business of selling mortgage insurance to borrowers is sound, although if the real estate down-turn is especially severe it will wipe out the shareholders in these firms. There were rumors of trouble in the muni market earlier, but they seem to have come to nothing. The problem business was selling default insurance to investors on collateralized mortgage bonds and credit swaps. There is a strong possibility that the premiums charged on these policies will be insufficient to pay off losses. So the REAL problem is not the subprimes directly, but mispricing of default insurance on derivatives of them, similar to the previous underestimation of the damage that could be done by hurricanes and the huge, almost-bankrupting payments insurance companies had to make after some of them. These firms are prohibited from transferring assets between subsidiaries to contain the problem. When these bonds and swaps default, the insurance companies are obligated to pay only the currently due payments to the investors. So any default by the insurer will occur many years in the future. Why did AMBAC and MBIA already get in trouble? By 'due payments', I assume you mean the payments that should have been made on the mortgage by the homeowner? How long does this obligation on the insurance company continue,or does it depemnd on the policy? Whether the insured investors ultimately sustain a loss depends upon the overall loss rate on insured mortgage bonds and credit swaps. These investors are located around the world. So we've found out. :-) .