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

To: Maurice Winn who wrote (71120)	2/20/2011 2:42:07 AM
From: elmatador	1 Recommendation Respond to of 217764

Foreigners made me do it! Foreign investors’ hunger for safe US assets helped to cause the 2007-2009 crisis by encouraging banks to turn risky mortgages into AAA rated bonds, Ben Bernanke, US Federal Reserve chairman, argued in Paris on Friday. Bernanke says foreign investors fuelled crisis By Robin Harding in Washington Published: February 18 2011 13:25 \| Last updated: February 18 2011 13:25 Foreign investors’ hunger for safe US assets helped to cause the 2007-2009 crisis by encouraging banks to turn risky mortgages into AAA rated bonds, Ben Bernanke, US Federal Reserve chairman, argued in Paris on Friday. “The preference by so many investors for perceived safety created strong incentives for US financial engineers to develop investment products that ‘transformed’ risky loans into highly rated securities,” said Mr Bernanke, presenting a new research paper that he co-wrote with other Fed economists. (ELMAT: Here he explains how capital hogging is the root cause) Mr Bernanke has previously argued that a “global savings glut” led emerging markets to send large amounts of capital to the US in the 2000s, pushing down US interest rates. His new paper says that those emerging markets wanted safe assets – and US regulators failed to keep the financial system from creating them. “In analogy to the Asian crisis, the primary cause of the breakdown was the poor performance of the financial system and financial regulation in the country receiving the capital inflows, not the inflows themselves,” Mr Bernanke said, adding that the US crisis had given him new sympathy for developing countries that have to manage large capital inflows. This argument supports Mr Bernanke’s view that low Fed interest rates did not make an important contribution to the financial crisis and the main errors were in regulation. According to the paper, more than 75 per cent of investment from “savings glut” countries was in AAA rated US assets in 2007, whereas such assets accounted for only 36 per cent of total US securities. Some economists have argued that developing countries have a particularly strong demand for safe and liquid foreign assets because their own financial systems struggle to produce them. But Mr Bernanke argued that rich countries, especially in Europe, also increased their holdings of AAA rated US assets from 2003-2007. They were more willing to buy a range of assets such as the subprime mortgage bonds that eventually led so many European banks to disaster. Although Europe did not have excess savings, and it was borrowing in order to buy more US assets, Mr Bernanke said that this still increased demand for safe assets in the US. “To bolster our individual and collective ability to manage and productively invest capital inflows, we must continue to increase the efficiency, transparency and resiliency of our national financial systems, and to strengthen financial regulation and oversight,” Mr Bernanke said.