The unrest in the American stock market came not only to Europe, but also to Russia
The unrest in the American stock market reached not only Europe, but also to Russia. Slowly but surely Russians begin to master the unfamiliar words of Mortgage-Backed Securities (bonds for mortgage loans) and Subprime Mortgages (risky mortgage loans) and monitor how the variability of American stock indices affects their wallet. What, in fact, is happening in the world? Why did the Federal Reserve System (the Central Bank of the USA) throw tens of billions of dollars into the American economy, and the European Central Bank in the European - hundreds? Does the crisis threaten us with, similar to the Russian default of 1998 or the bursting IT bubble of 2001?
Sergey Guriev Rector of the Russian Economic School
- American roulette -
In order to answer these questions, you need to understand the reasons for what is happening. The root of the problems - in mass bankruptcy on mortgage loans of a low category (SubPrime Mortgages). In recent years, the rapid development of financial instruments in America has led to the emergence of the most incredible opportunities, including the issuance of mortgage loans to borrowers with poor credit history and without the initial contribution. Of course, investors perfectly understood that such mortgage loans were quite risky, so rather high interest rates were appointed on these loans. In order to diversify the risks of the bankruptcy of borrowers, banks combined them into pools and laid down by bonds of these pools, who were happy to buy those investors who (for the completeness of the portfolio) needed highly profitable, although risky investment tools.
I must say that, unlike the Russian market in America, mortgage loans - not only loans to dubious borrowers - are really considered a rather risky investment. These risks are not just great, they are not even so easy to evaluate. The very idea of issuing bonds on the bail of mortgage loans was implemented only 25 years ago, before that the markets simply did not even know how to simulate the risks of mortgage loans. One of the key risks of mortgage lending is not that the borrower will run away with money or go bankrupt, but the fact that he will return the money ahead of time and the bank will not be able to earn a lot. This risk is always present for loans with a fixed interest rate: if the interest rate falls, the borrower will always receive a new loan at a low rate to repay the first loan. In order to insure themselves from this risk, just dubious borrowers, banks offered loans at a floating rate of interest (that is, a rate tied to a market). Having received a loan at a floating rate, borrowers no longer want to wait for a decrease in bets (they will not benefit from this), but strive to repay the loan as quickly as possible, which reduces the risks of the bank in the case of dubious borrowers.
Another key risk is that a large number of borrowers will immediately go bankrupt and banks will have to put up too much housing for sale, which, in turn, can bring down real estate prices. It was with these problems that the American market has now encountered. A huge number of dubious borrowers took a loan with a floating rate without an initial contribution. Since recently both the American and European central banks have raised interest rates (to combat possible inflation), payments on these loans have sharply increased and mass bankruptcy began. Talk that the overheated market of American real estate can burst into reality.
- The Eurasian problem -
All Americans remember the crisis of Savings and Loans Institions well (credit and savings institutions) of the early 1980s, which was also associated with the mortgage market. Therefore, the market reaction was quite nervous. In addition, unlike the 25-year-old market, now hedge funds have invested in these bonds. For many hedge funds, the game on small fluctuations in the prices of risky mortgage bonds was a key part of the strategy; For these funds, even 10 percent fluctuations in prices for mortgage bonds mean the difference between huge profits and bankruptcy. Another distinguishing feature of today's day is that the problem of American loans is no longer only an American problem. In recent years, investors around the world invested in American mortgage bonds (after all, in other countries there are practically no such markets or they are small or poorly organized compared to American). It was on German and French banks that this crisis hit first of all, therefore, the reports from the market of American risky mortgage loans (those very Subprime Mortgages) are monitored in Europe and Asia.
Crisis: someone loses, -Someone finds-
It is still unclear whether the current problems will grow into a full -scale crisis. Various indicators give a contradictory picture. Short -term loans have grown sharply, but have not yet reached the level of 1998 (from this point of view, the 1998 crisis was similar to what is happening now). However, the central banks reacted very promptly, and it is quite possible that the case will be limited to a small decrease in quotations. It is not even about the danger of inflation: the central banks throw money using the so -called repo operations, when the money is returned to the Central Bank in a few days and do not provide inflationary pressure. Of course, many investors will lose a lot of money, but these will not be pensioners who have lost the latest savings, but rich investors who deliberately invested in risky assets and knew what they are going to.
Until now, the loss of the Subprime Mortgage sector amounted to about $ 35 billion. From the point of view of the American stock market, this is not such a large amount equivalent to a decrease in shares by 0.2%. The main problem is related to the emergence of panic moods: having lost funds at one risky investment, investors begin to overestimate their risks in other tools. In addition, having lost potential income, investors need liquid assets in order to ensure the normal functioning of their business (and the usual standard of living): investors around the world began to sell shares.
That is why the stock market in the United States did not fall on a share of interest, but by several percent, which is why investors began to withdraw funds from developing markets, which, in turn, led to a decrease in the RTS index. However, this will most likely be limited to this.
What is threatening - Russia -
The Russian economy and the financial system have practically nothing to do with the American mortgage market. Even the increased rates on American mortgage loans look an unattainable dream for Russian borrowers. The growth of interest rates will be an unpleasant surprise for Russian corporations, but this will not cause big problems. It is possible that, depending on the depth of the crisis in Europe and America, the exchange rate of the dollar to the euro will change, but this change will not be very significant.
However, events will develop in a completely different way if a full-scale crisis begins in America. In this case, the slowdown in the growth of American consumption of energy and metals can hit the world prices for these goods, which, in turn, will lead to a sharp decrease in the income of Russian corporations and the budget. Again, no one can imagine the scenario of the fall of oil prices to the level of 1998, but it is possible that oil prices will decrease to $ 40-50 per barrel, which will force the Russian authorities to move from the accumulation of funds in the stabilization fund to their consumption for current needs. But in this case, the stab fund should be enough for two to three years.
Which scenario is implemented is not entirely clear. Most investors today believe that there will be no real crisis; However, this is how investors behave before any crisis. On the other hand, the scale of the Subprime Mortgage problem from the point of view of the American, and even more global economy is quite limited, and the actions of the central banks of the United States and Europe are timely and rational.
The central banks of the world, trying to stop the crisis in the US mortgage market, pour money into their economies
US Federal Reserve Bank - $ 62 billion European Central Bank - $ 213.61 billion Canadian Bank - $ 1.55 billion Bank of Japan - $ 8.39 billion Swiss National Bank - $ 1.68-2.51 billion Australia Reserve Bank - $ 4.18 billion Singapore monetary authorities - $ 986.1 million.
