Word: debts
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...climate of deregulation that dominated the Bush-Greenspan years helped the spread of a new banking model. At its core was securitization: mortgage brokers originated mortgages that they sold on to others. Borrowers were told not to worry about paying the ever mounting debt, because house prices would keep rising and they could refinance, taking out some of the capital gains to buy a car or pay for a vacation. Of course, this violated the first law of economics - that there is no such thing as a free lunch. The assumption that house prices could continue...
...facing a liquidity problem, a solvency problem and a macroeconomic problem. We are in the first phase of a downward spiral. It is, of course, part of the inevitable process of adjustment: returning housing prices to equilibrium levels and getting rid of the excessive leverage (debt) that had kept our phantom economy going...
...government needs to provide equity. In return, it should have voting stakes in the banks it helps. But equity injections also bail out bondholders. Right now the market is discounting these bonds, saying there is a high probability of default. There needs to be a forced conversion of this debt to equity. If this is done, the amount of government assistance that will be required will be much reduced...
...with borrowed money. (Nations typically increase taxes in order to finance protracted military conflicts; the Bush Administration, having cut taxes, has had to rely on the credit of others to wage its wars.) The current credit crisis and economic slowdown will considerably raise the pressure on the U.S. national debt, which had already grown from around $6 trillion in 2001 to near $10 trillion today...
...visit comes at a pivotal moment. His fledgling democracy is not only threatened by terrorism, but is also teetering toward bankruptcy. Spiraling inflation, now at 25%, has eaten into Pakistan's foreign exchange reserves at a rate of $1 billion a month and the country risks defaulting on debt repayment loans. These fiscal headaches have been compounded by a flare-up in tensions with its most vital ally, the U.S., which recently launched raids against terrorist targets in Pakistan's remote tribal areas without notifying Islamabad - actions that have triggered a firestorm of protest and clouded relations with Washington...