Econ 102

Andrei Marks · August 13, 2007

Continuing the previous article, from page 6 of the Liberation Daily (解放日报), August 13, 2007. The author here is Xie Peng, and it’s from an August 12th Xinhua Press dispatch.

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From a larger perspective, because the financial relationships of the more developed economies are very close, the American secondary loan market’s effect is not limited to that country alone. In Germany, France, England, and other countries a few overseas investment funds have clearly been affected.

The recent market changes have also caused large scale fluctuations in the captital costs of every type of market. Moreover, America’s credit market has a wide variety of levels and categories. The eruption of the secondary mortgage market crisis has shown itelf in the housing market. But the question is, will it appear in others like the automobile or credit card markets? Does the secondary market problem exist in regular markets? These doubts may become slightly more pressing, and may assist in inducing a new market panic.

- A Reverse Effect Persists

America’s secondary loan market problem has been building up for years. Today’s disastrous result was the culmination of the downward trend in housing prices, the increase in market interest rates, the lowering of credit thresholds by capital suppliers, the overlooking of risky management, and the avalanche of excessive borrowing. The problem cannot be completely or quickly resolved, and its effect will continue to persist.

According to the Swiss Credit and loan Bank’s tracking data, America’s floating interest rates’ peak period, when secondary loans will reestablish loan conditions, will occur before November of this year. At that time the scale of the monthly replacement loans will increase to US$50 billion. Because interest rates depend on the replacement of borrowing conditions, the amount of loans returned by secondary loan clients should increase by over three tenhs. Also, the housing market, which serves as the foundation for the secondary loan market, has not yet evidenced a “turning point.” Standard and Poor’s prediction is that the average housing price will lower in the first quarter of next year, and with the increase in borrowing rates, the pressure on clients to return loans will probably increase greatly, and the rate of forfeiture will rise.

- It Looks Hopeful that the Crisis can be Controlled

Currently, the secondary loan problem has yet to have a huge efffect on the entire American financial market, the American economy, or even the global economy. It also looks hopeful that the crisis wil continue to be controlled. First of all, the scale of the American secondary loan market is not very large in itself. Collecting data from different organizations, the scope doesn’t reach US$3 trillion, and the CDO bond capital, which forms the base of this market, isn’t worth more than US$1 trillion. The entire American housing loan market volume is worth about US$8 trillion. At the end of 2005, America’s bond market was worth US$25 trillion, and in an expansive difference, using market values to calculate it, the current American financial capital is worth US$46 trillion.

Although there is a retraction of the credit market, several days ago Standard and Poor released a report which stated that this was only a temporary adjustment process. Looking at the entire US business environment, until this year business profits increased on average, there was an increase in capital, and the fund requirements for issuing bonds were on the whole not large. Although there was a portion of the banking industry that suffered losses, bank personae estimate that the proportion wasn’t large. And on the whole the degree of stability of their financial affairs has increased, so the effect was limited.

In addition, after the credit market showed a short term “lack of vitality”, currency authorities threw in a large amount of money, greatly lowering the possibility of a crisis that could erupt and influence the entire system. The stock market also exhibited a positive reaction. Although the future money market is still tense, the Federal Reserve continues to offer promissary note window business, and has even lowered interest rates as a means of ensuring the market’s mobility.

The IMF considers America’s secondary loan crisis to still be within a “controllable scale.” The organization maintains the expectation of an increase in the American and world economies that it formulated before this crisis came about. The American growth will drop from 2.2% to 2%, and the global will increase from 4.9% to 5.2%. Of course, there are many market variables, and whether or not the secondary loan crisis will develop in the future also depends on many uncertain factors: for example the trend in housing costs, the direction of interest rates, and even changes in popular feelings within the market. The next few weeks will see if there are any market changes which deserve particular attention.

Translator’s notes:
- No time more than when I’ve translated this article have I felt more like a computer would feel if it could feel when it translates an article. At points I have had no idea what I am translating exactly, I’m just placing words in the correct syntax. Ah! But this article was a particular challenge, in terms of sentence structure, and was pretty fun. I don’t know if the sentences were a result of the subject itself or the personal style of the author.
- I don’t know what “promissary note window business’ is, or if that’s even close to the correct translation.
- Ah, finished! Interesting!

Comments/corrections welcome.

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