Comments on: One easy thing China could do to help stabilize global markets: buy Agencies!

By: Global Imbalances « American Armageddon

Global Imbalances « American Armageddon — Mon, 08 Dec 2008 15:52:13 +0000

[...] The explosive growth of exports from China and the emergence of the US credit bubble were opposite sides of the same coin. Americans borrowed money to buy homes and saw them appreciate tremendously in value. Wall Street bought the mortgages, sliced and diced them, and sold them to foreign investors with a grade AAA seal of approval, courtesy of oblivious ratings agencies and undercapitalized insurers. Exporters bought the paper. In recent years, the United States sucked in 85% of the world’s savings. It turned out that Chinese peasants were speculating (they bought the paper courtesy of their central bank) in the wild manias of Miami, Phoenix, and Inland Empire real estate. (Until it started fleeing from agency debt, as it did in November 2008, China accounted for “about 50% of all central bank holdings of Agencies.”) [...]

By: M&A by ARS CORPORATE - fusiones y adquisiciones » Blog Archive » Evening Reading: Street Bonuses–Should They or Shouldn’t They?

Tue, 28 Oct 2008 06:47:24 +0000

[...] Setser offers one way China could help stabilize the global [...]

By: Evening Reading: Street Bonuses–Should They or Shouldn’t They? | Wall Street

Mon, 27 Oct 2008 23:05:34 +0000

[...] Setser offers one way China could help stabilize the global [...]

By: Deal Journal - WSJ.com : Evening Reading: Street Bonuses--Should They or Shouldn't They?

Mon, 27 Oct 2008 21:07:03 +0000

[...] Setser offers one way China could help stabilize the global markets. Permalink | Trackback URL: [...]

By: Fred Grim

Fred Grim — Mon, 27 Oct 2008 18:02:45 +0000

Why doesn’t the US government issue debt to buy agencies? It’s essentially one class of use government debt for another? Does that require congressional approval?

By: Cedric Regula

Cedric Regula — Mon, 27 Oct 2008 14:16:38 +0000

I did hear Bush say the “bonds” in the fund pay 2%. There are no such long term real treasury bonds traded at 2%.

Maybe “full faith and credit” for sure. Same as in God We Trust.

But for a ss recipient it becomes a check clearing problem. The bonds in the fund are “non-marketable”, and have never been official debt of the treasury. So to get money to put in a bank to draw the ss check on, the USG has to sell real treasuries to a real market.

So the question is whether we will still be able to do that or not.

But if USG ends up defaulting on real treasuries someday or wiping out the dollar, the result for ss wanabees is the same anyway.

But as far as the banking discussion with Chid goes, I think the final word is assets must equal liabilities. If they don’t, then that means someone is running a private printing press and I think that is still illegal even for IBs and hedgies.

By: Twofish

Twofish — Mon, 27 Oct 2008 12:45:42 +0000

Wikipedia is not necessarily a good source for anything. There are a lot of cranks who post about the Federal Reserve and Social Security. The securities that SSA purchases *are* “full faith and credit securities.”

http://www.ssa.gov/OACT/ProgData/fundFAQ.html

By: Twofish

Twofish — Mon, 27 Oct 2008 12:41:48 +0000

Chidambaram: Even if as you say $100,000 of oustanding securitized debt is ‘reduced credit in the system’ the commercial bank can always borrow the same $10,000 from the Fed that it lost and leverage it up to $100,000 in the market.

No it can’t. If it borrows $10,000 from the Fed or anyone else, it’s balance sheet hasn’t changed, and it can’t use any of that money to increase it’s leverage. If a bank loses $10,000 and goes below minimum capital, then its creditors will demand that it pay back some of its loans.

By: Laurent GUERBY

Laurent GUERBY — Mon, 27 Oct 2008 11:46:57 +0000

bsetser “The US hasn’t technically guaranteed the Agencies liabilities because it doesn’t want their (large) book to be consolidated on the US government’s balance sheet.”

Yet another local USA problem that has nothing to do with China whatsoever. If USA wants foreign money on agencies, it just has to write a one line law giving the proper treatment to agencies, including faithful and honest accounting.

If economists stopped one second to focus on government debt and started to count all debts including household, business and fincancial that would be great.

You can’t get trust without being honnest!

By: рсвркер — Contrarian.ru

рсвркер — Contrarian.ru — Mon, 27 Oct 2008 11:29:25 +0000

[...] And Brad Setser suggests another possible way out of this mess: [...]