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structured finance

Page history last edited by PBworks 15 years, 8 months ago

 


 

Structured Finance

 

see also:  subprime lending, Double bubble trouble - two bubbles burst in the USA, structured finance, financial innovations, securitization of mortgages , credit crisis of 2007

 

 

credit crisis of 2007 / 2008, and "structured finance's" role in the crisis:

 

see credit crisis of 2007

 

In the past decade, there has been a boom (especially in the USA) of structured finance, in which banks offloaded their risk to specialist vehicles such as "conduits".  Because they had innovated a way to remove the risk from their own balance sheets, they therefore didnt need to worry as much about the credit worthiness of their borrowers (for homes).   But, when the subprime lending crisis broke out, they quickly discovered that the risk was not entirely removed from their company, and that it could come back to bite them.  And, bite them it did, with the troubles coming right back to their balance sheets.  In this manner, the banks mispriced the credit risk of their customers.

 

 

Major US export (beore the credit crisis)

 

Prior to 2007, the structured finance innovations from the US were one of the major exports.  But, with the confidence of the foreign bankers shaken after the crisis, exports of products such as "securitized mortgages" became a difficult sell.   This accounted for a large portion of the depreciation of the US dollar. 

 

 

What is causing the Weak US dollar?

 

Robert Lynch (HSBC, in an article in Wall Street Journal) wasn't far off the mark: the dollar's weakness fundamentally reflects the collapse in demand for securitized US credit.  By far, the US 's biggest export in recent years has been the financial innovations such as SIV's, collatoralized debt, and asset backed securities.  European banks have been great customers.  But, since the housing crisis of 2007, and the ensuing credit crunch, the foreign banks are no longer hungry buyers of US financial innovations.  Rather, they are staying away... this lack of demand is driving down the demand for US dollars. 

 

Many analysts have compared the US dollar to the Microsoft operating system:  its the most used, and hard to live without...but no one really seems to like using it !  For this reason, many foreigners are happy to have a way in which to avoid using the US dollar.  If they are offered an opportunity to conduct business in Euros, for example, many foreigners are happy to do so.  This incentive plays right into their natural "anti-Americanism" which is trendy around the world.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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