Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Amark$p who wrote (79345)	9/9/2011 11:36:22 AM
From: Cogito Ergo Sum	Read Replies (2) \| Respond to of 217544

First amarks, hi :O) .. I do not know.. but I think diversification is an idea.. like having my kids know a couple of languages for easier mobility.. and varied skills... All the things I said about Canada are correct.. worse if you dig deeper.. compared to the US.. OK we are in better shape.. fire of frying pan ... pick'em.. if you mean physical violence etc.. sure we are safer.. Actually TJ appears diversified in that sense.. Canada is one of his fallback locations... I believe.. Our finance minister was just interviewed..to summarize a bit.. Oh we are in great shape relatively.. if US doesn't falter... when asked about jobs situation.. and questioned about details, not simply headline number... which show mostly public service jobs I mean MOSTLY, which apparently we are supposed to be trimming back and cutting per his governments plan.. he shrugged off that by saying they were permanent .. (You can catch the interview on BNN later.. this is not my opinion but his words).. you mentioned socialism :O) We are buffered for now, by being inured to paying higher taxes.. and decent federal debt level, and commodities... Canada personal debt is now very high... admitted saving grace.. we tend to pay our mortgages off fast.. so home equity situation typically good... Ontario provincial deficit rivals California.. and a debt projected to hit 300 billion plus by the current government.. trying to get reelected.. our economy is a heck of a lot smaller.. The Canada scene is clouded by talk of federal balanced budget.... no mention that this was simply downloading to the next government level down... what goes around come around.. short term it has been a boon.. bottom line .. if US goes really wonky... we're no daisy... wish I had a better option... diversify... TBS

To: Amark$p who wrote (79345)	9/9/2011 12:15:30 PM
From: elmatador	2 Recommendations Respond to of 217544

Europe borrowed from China to buy crappy American mortgages, FED research says. a “global savings glut” in certain countries (above all China but also other emerging markets, the OPEC countries etc.) inflated an asset bubble in the US as foreign savers searched for safe but yieldy investments. The puzzle with that theory, though, is that the Chinese didn’t really buy subprime ABS. They bought – and still buy – Treasuries, which worked out well for them. Europeans bought the shit: Fed Researchers Say Europe Borrowed From China To Buy Crappy American Mortgages It’s by now a familiar story of the financial crisis: German and Icelandic bankers keep finding themselves the owners of mortgages on grandmothers’ houses in Kansas, and it’s hard to decide which side is more befuddled by it. The Federal Reserve yesterday went one step further up the value chain, publishing an interesting discussion paper called “ ABS Inflows to the United States and the Global Financial Crisis” and adding some data and nuance to the story of how we got to a world where a banker flapping his arms in Saxony causes a foreclosure in Topeka. The Fed researchers started out from a popular explanation of the financial crisis, that a “global savings glut” in certain countries (above all China but also other emerging markets, the OPEC countries etc.) inflated an asset bubble in the US as foreign savers searched for safe but yieldy investments. The puzzle with that theory, though, is that the Chinese didn’t really buy subprime ABS. They bought – and still buy – Treasuries, which worked out well for them. Europeans bought the shit: Asia and the Middle East put almost all of their dollars into Treasuries, while Europe put the bulk of theirs into corporate debt and ABS. And Europe was not a savings glut region – on balance it ran a moderate current account deficit. So where did Europe get the money to buy our toxic mortgages? They borrowed it from the Chinese: In the run-up to the financial crisis Europe increased its borrowing mainly from the emerging markets (pink bar above, decent proxy for savings glut countries), while it increased securities purchases mainly from the US (purple bar). As the researchers put it: Hence, the global saving glut countries not only provided financing to the United States directly through purchases of U.S. assets, but also indirectly through purchases of European assets that in turn financed purchases of U.S. assets. Moreover, European liabilities to the saving glut countries were primarily in the form of safe assets such as government bonds and bank deposits, whereas many European claims on the United States were in the form of ABS and other structured credit instruments that later proved quite risky. Accordingly, Europeans had considerable exposure to the subsequent crisis (as illustrated by the diagram of the “triangular trade” in financial assets). Ironically, in this regard Europe was acting as an international hedge fund, a role that previously had been attributed to the United States. The paper then looks into the effect of these flows on interest rates, though it’s undermined a bit here by limited data and a lot of moving pieces. Ultimately the researchers build a toy model and conclude: The model suggests that in the years leading up to the crisis, purchases of U.S. Treasuries and Agencies by the GSG countries depressed 10-year Treasury yields on the order of 140 basis points, and the spillovers from this outcome likely lowered ABS yields by some 160 basis points. The model also indicates that, even though much of Europe‘s acquisitions of U.S. ABS were financed by “reverse” flows of U.S. investments into European liabilities, the effect of this exchange was to lower ABS yields by about 60 basis points and Treasury yields by 50 basis points; if we include the effect of European purchases of non-ABS U.S. corporate debt as well, these declines deepen to -160 basis points and -130 basis points, respectively. The combined effect of all of these inflows on U.S. interest rates would have been huge, but of course actual declines in these yields were much smaller, as the supplies of the assets to the market rose substantially as well. Thus “GSG” (global savings glut) countries, mainly China, did two things to drive European purchases of subprime ABS: they bought European government bonds and bank deposits, giving the Europeans money to put into ABS, and they bought US Treasuries, driving down US risk-free rates and sparking European investors to seek yield in riskier-but-still-AAA securities. So the story seems to be that Europe borrowed money in classically risk-free forms (bank loans and government debt) in order to lend it in risky but supposedly safe forms (AAA tranches of subprime ABS). The 2008 financial crisis was the result of that, as the Europeans (and Americans) found that their AAA mortgages weren’t as safe as they’d thought. Oversimplifying a bit, you could read the Fed’s paper to suggest that the 2011 crisis, centered as it is around European governments and banks and symbolized by sovereign debt downgrades, is the next stage of that crisis unwinding – as Europe’s internal and external creditors find out that their AAA banks and governments aren’t as safe as they’d thought either. ABS Inflows to the United States and the Global Financial Crisis [FRB]