International Central Banks Team Up

[kork13]

CNN.com "Central banks join forces over credit squeeze"

News of the central banks' plan cheered stock markets in Europe, with Britain's FTSE-100 up nearly 1.9 percent, Germany's DAX up nearly 1.5 percent and France's CAC 40 index up 1.6 percent.

Russia's main stock exchanges suspended trading for a second consecutive day as the government tried to stop plunging in share prices and restore confidence.

Hong Kong's Hang Seng sank more than 7 percent at one point on Thursday, but closed flat as Asia shares staged an afternoon comeback to partially recoup losses.

Interesting... I understand that the global economy is inter-connected due to the wonders of a strong capitalist market. But how does a problem like this which was caused by irresponsible lending/borrowing here in the US echo into the markets around the world? Is this simply a matter of import demand and export availablility, or something larger at work?

[tripods68]

It's complicated, let me try to explain it.

Those countries bought billions of CDOs or SIVs or subprimes loans with coupon HIGH interest rate, held by Lehman, Morgan Stantly, Bear Stearns and the likes. When those CDO, or SIVs became due, those Institutions could not pay at maturity date caused by the declining home values and homeowners unable to pay their mortgages. It caused literally "run on bank" like its 1929 all over but on a global scale. In order to add liquidity and add confidence throughout the financial market, all the Central Banks around the world added Billions of dollars more to avoid the "run on the bank" into their system before it becomes even worse. That is why you see all this bail out from the feds.

There are more to come on CDOs and SIVs that will be due in "maturity", like the 3 year arm, 5 year arm, 7, 10 year, interest only loan in the next few months or years UNLESS Feds or the Congress do something about it. This is just the tip of the iceberg.

[tripods68]

The landscape is a lot more different. You have the feds bailout by buying "all the bad debts' subprime loans, credit debts, etc without knowing the true cost and repackaging by selling it to the secondary markets. The say way they handled the S&L debuckle in the early 90s.