Are The Banks In Trouble? By Mike Whitney
The banks woes have been exacerbated by the flight of investors from money market funds, many of which are backed by Mortgage-backed Securities (MBS). Wary investors are running for the safety of US Treasuries even though yields that have declined at a record pace. This is causing problems in the Commercial Paper market as well as for the lesser-know SIVs and “conduits”. These abstruse-sounding investment vehicles are the essential plumbing that maintains normalcy in the markets. Commercial paper is a $2.2 trillion market. When it shrinks by more than $200 billion ---as it has in the last 3 weeks--the effects can be felt through the entire system.
ALAN GREENSPAN: THE FIFTH HORSEMAN?
So, who’s to blame? The finger-pointing has already begun and more and more people are beginning to see how this massive economy-busting equity bubble originated at the Federal Reserve--- it is the logical corollary of former Fed-chief Alan Greenspan's “easy money” policies.
Economist and author Henry C K Liu sums up Greenspan’s tenure at the Fed in his article “Why the Subprime Bust will Spread”:
“Greenspan presided over the greatest expansion of speculative finance in history, including a trillion-dollar hedge-fund industry, bloated Wall Street-firm balance sheets approaching $2 trillion, a $3.3 trillion repo (repurchase agreement) market, and a global derivatives market with notional values surpassing an unfathomable $220 trillion.
On Greenspan's 18-year watch, assets of US government-sponsored enterprises (GSEs) ballooned 830%, from $346 billion to $2.872 trillion. GSEs are financing entities created by the US Congress to fund subsidized loans to certain groups of borrowers such as middle- and low-income homeowners, farmers and students. Agency mortgage-backed securities (MBSs) surged 670% to $3.55 trillion. Outstanding asset-backed securities (ABSs) exploded from $75 billion to more than $2.7 trillion.”( Henry Liu, “Why the Subprime Bust will Spread”, Asia Times)
[click on the heading to read this in full]
ALAN GREENSPAN: THE FIFTH HORSEMAN?
So, who’s to blame? The finger-pointing has already begun and more and more people are beginning to see how this massive economy-busting equity bubble originated at the Federal Reserve--- it is the logical corollary of former Fed-chief Alan Greenspan's “easy money” policies.
Economist and author Henry C K Liu sums up Greenspan’s tenure at the Fed in his article “Why the Subprime Bust will Spread”:
“Greenspan presided over the greatest expansion of speculative finance in history, including a trillion-dollar hedge-fund industry, bloated Wall Street-firm balance sheets approaching $2 trillion, a $3.3 trillion repo (repurchase agreement) market, and a global derivatives market with notional values surpassing an unfathomable $220 trillion.
On Greenspan's 18-year watch, assets of US government-sponsored enterprises (GSEs) ballooned 830%, from $346 billion to $2.872 trillion. GSEs are financing entities created by the US Congress to fund subsidized loans to certain groups of borrowers such as middle- and low-income homeowners, farmers and students. Agency mortgage-backed securities (MBSs) surged 670% to $3.55 trillion. Outstanding asset-backed securities (ABSs) exploded from $75 billion to more than $2.7 trillion.”( Henry Liu, “Why the Subprime Bust will Spread”, Asia Times)
[click on the heading to read this in full]
posted by temporal at 9/11/2007
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