“The biggest U.S. export business of the 21st century”
The first decade of this century has been remarkable. As we’ve said, the book will be a bestseller when it is written. Lots of villains, few heroes. Bloomberg:
The bundling of consumer loans and home mortgages into packages of securities — a process known as securitization — was the biggest U.S. export business of the 21st century. More than $27 trillion of these securities have been sold since 2001, according to the Securities Industry Financial Markets Association, an industry trade group. That’s almost twice last year’s U.S. gross domestic product of $13.8 trillion.
The growth over the past decade was made possible by overseas banks, which saw the profits U.S. financial institutions were making and coveted the made-in-America technology, much as consumers around the world craved other emblems of American ingenuity from Coca-Cola to Hollywood movies. Wall Street obliged, with disastrous results: two-thirds of a trillion dollars in bank losses, about 40 percent of them outside the U.S.
“Securitization was based on the premise that a fool was born every minute,” Joseph Stiglitz, a professor of economics at Columbia University in New York, told a congressional committee on Oct. 21. “Globalization meant that there was a global landscape on which they could search for those fools — and they found them everywhere.”
European banks, in particular, were eager adopters. Securitizations in Europe increased almost sixfold between 2000 and 2007, from 78 billion euros ($98 billion) to 453 billion euros, according to the European Securitization Forum, a trade organization.
Three Icelandic banks borrowed enough to buy $228 billion of assets, most of them securitizations, turning the country’s financial system into a hedge fund. All three banks have been nationalized by the government…
A McCain adviser said: “Europeans call it socialism, Americans call it welfare, and Barack Obama calls it change.” But doesn’t that socialism charge ring a little hollow, (a) among young people in the post-Soviet world, and (b) in an environment where the Republican administration is doling out more than a trillion dollars in bailouts of one sort or another to an ever-lengthening laundry list of industries?
October 29th, 2008 at 2:20 am
I tend to agree with this quote from the Bloomberg piece:
My agreement is not intended to deprecate the current fiasco. There is something awry when the wise guys routinely hype promising innovations into bubbles–Internet, Enron, housing, etc. (with green energy on deck)–that endanger the economy & financial system. Call it greed, call it hubris…there is something awry.
Back during the Clinton administration, the Asians and Europeans decided to start conferring without the USA around. If the day comes (perhaps sooner than might be anticipated) when they present us with diktats, we will have only ourselves to blame.
October 29th, 2008 at 3:21 am
The tone that this “bubble” was exported to Europe is a bunch of hooey.
What about the Tulip Bubble, the South Sea Bubble, etc?
Let’s see how things play out in the emerging market field… That should be the “other” shoe that falls. Maybe Europe can buy up all those IMF financial instruments that will be printed shortly…
October 29th, 2008 at 6:51 am
How could a nation of McDonald fat, Chimp Haliburton voting, gun clinging, bible thumping yahoos, trick them thar sophisticated EeeYou’rePeeons?
October 29th, 2008 at 2:47 pm
CONGRATS TO THE AMERICAN BABY BOOMER BANKER
YOU GUYS ARE THE GREATEST!!
(1) sub prime – suggesting that these mortgages are below the prime rate when they actually ” sub -prime’ – below the good; ie, MEDIOCRE
(2) grouping these mortgages and referring them as ” Obligations”; to a european, who knows latin or french or spanish, this means ” bond”. This clicks in their educated brains as being a bond issued by a bank
In all seriousness, this is why the euros hate you. You have carried deception to a fine art re
George C Scott in the “Flim-Flam Man”, Paul Newman ‘The Sting”
Maybe collecting those IOUs re: the Marshall Plan
October 29th, 2008 at 10:28 pm
The Eurasians are not innocents of whose simple trust we have taken advantage.
Nevertheless, in their shoes, would your confidence in US economic leadership have increased, decreased or remained unchanged since the current administration took over?
October 30th, 2008 at 12:33 am
We are getting closer to the Marx definition of communism. We just need to have the revolution and hopefully it is only a political one. The revolution will be against the bourgeoisie whose power comes from employment, education, and wealth. The people want to see the Wall Street bankers strung up to a tree.
http://nomedals.blogspot.com