Econ 101

Andrei Marks · August 13, 2007

From page 6 of the Liberation Daily (解放日报). This one is an economics article in the International Section. I decided to make tentative steps into this field, I’ve always said I’d study it in English, but never brought myself to concentrate on it, so maybe I’ll use studying Chinese as a pretext for studying some econ finally. The author here is Xie Peng, and it’s from an October 12th Xinhua Press dispatch.

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America’s Secondary Mortgage Crisis Is “Controllable”

In the last week, America’s second mortgage loan market crisis was expanding its influence, with strong waves appearing in American, European, and even Asian markets. Afterwards, the currency authorities of the strongest developed economies, America, Europe, and Japan poured large sums of money into the financial system in a response to the risk.

The Short Term Effect has Already Happened

At present, the American secondary loan crisis only directly affects the credit market’s short term movements. In America, because the situation isn’t clear, banks–which are the main source of credit funds, have been employing low risk measures, and the entire market is thick with a “loan-saving” atmosphere. According to data provided by the Economist, recently the difference in the interest rates of the American business loan market and the bonds market has been increasing, comparable to the end of 2006 when it flared up one time. The increase in rates was reflected by the tightening of the supply of capital, and “risky soaring prices” were raised. If the increase in market financial capital costs becomes the standard situation, then the effect won’t be limited to the hedge funds and private equity funds that are the supporting levers of the capital. It will also affect consumer credit and businesses’ normal financial requirements, and will go on to injure the entire economy.

Besides, capital securitization manipulation has already spread the secondary loan market risk to a wider territory. The International Monetary Fund’s latest data shows that the major securitization product of this market comes from collaterized debt obligations (CDO) of American issuers. These are basically dispersed into the hands of five types of financial organizations, which include banks (31%), hedge funds (10%), insurance companies (31%), asset management companies (22%), and retirement funds (18%).

(to be continued)

Translator’s notes:
- Some of the terms I’m not quite sure how to translate, since I’m not entirely up on this subject. But what is interesting is that Chinese often breaks down terms into semantic components that effectively describe the concept, even if it’s not what is normally used in English. English actually does the same, but it’s not as in your face as Chinese.
- Wow, and researching some of this stuff would require more time than I have at the moment. Slowly though, I’ll go slowly.
- This was a little much so I’ll be continuing it tomorrow.

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