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Collapsed Debt Market Poses Dilemma For G20

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http://www.ft.com/cms/s/0/7200fb68-7eec-11df-8398-00144feabdc0.html

At the height of the credit bubble in June 2007, European bankers working in the world of complex credit were so optimistic about the future that they held their annual meeting in s*****y Barcelona and threw parties flowing with champagne.

No longer: last week the European Securitisation Forum – the body that represents bankers slicing and dicing debt – held its annual meeting in Edgware Road, a scruffy quarter of London. As attendees sipped their coffee, the group creating a buzz were not hedge funds but government officials, particularly those from the European Central Bank.

Leaders of the Group of 20, meeting in Toronto this weekend, should take note of this symbolic shift. It points to an issue that is becoming increasingly important economically.

In the first seven years of the past decade, the securitisation sector expanded at a stunning pace, providing an ever increasing proportion of the credit fuelling western growth. By mid-2007, for example, groups such as Citi estimate that no less than $8,000bn worth of assets were securitised – ie funded in these markets – which represented more than half of all credit creation in some sectors. Hence all that champagne.

But since the onset of the financial crisis, these markets have collapsed. Last year, for example, a mere $4bn worth of collateralised debt obligations was sold, compared with $520bn in 2006. In Europe, about €30bn ($37bn, £25bn) of securitised bonds have been sold this year, compared with more than €500bn before the crisis.

So far, few non-bankers have really noticed this collapse, largely because governments have stepped into the breach, papering over the gaping hole. In the US, for example, the Federal Reserve has bought $1,250bn of mortgage-backed securities. In Europe, the Bank of England and ECB have gobbled up mortgage-backed bonds, and other securitised assets, via repo deals. Before 2007, eurozone banks sold more than 95 per cent of their securitised products to private sector investors; now it is under 5 per cent – with the rest going mostly to the ECB.

The crucial question is: how long will this pattern continue? Unsurprisingly, all western central banks are deeply uncomfortable about the fact that they, in effect, have replaced, or become, the securitisation sphere. They are thus looking for exit strategies and urging the banking industry to restart the securitisation machine.

From the front page.

No wonder the central bankers have turned on the magic printing press, someone turned off the magical CDO which was creating huge amounts of new debt for people to spend.

Still I'm sure it's all contained........

It's the CDOless recovery.

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http://www.ft.com/cms/s/0/7200fb68-7eec-11df-8398-00144feabdc0.html

From the front page.

No wonder the central bankers have turned on the magic printing press, someone turned off the magical CDO which was creating huge amounts of new debt for people to spend.

Still I'm sure it's all contained........

It's the CDOless recovery.

Contained in a fantasy?

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Its sobering reading and a realisation how much bad debt we taxpayers bought to prop up the bankrupt fraudsters. It kind of makes arguing about Brown's minuscule spending and Cameron's weeny little cuts seem pointless. It will take 50 years to pay all this back if we ever have to.

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  • 259 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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