Panics 'R' Us! by Robert J. Samuelson with comments

Washington Post,June 29, 2009 page A17:

"Yale economist Gary Gorton argues that the current crisis did not occur merely because subprime mortgages experienced unexpectedly large losses or even because many of these loans were securitized in complex bonds. The crux of the matter was the failure of the "repo" market. The terms comes from "repurchase agreements" - short term loans(usually overnight) that require the borrower to pledge collateral(usually bonds) in return for cash; the collateral is then "repurchased" by repayment of the loan.

No one knows the size of the repo market; Gorton thinks perhaps $10 trillion at any moment. Banks relied heavily on repo loans, which were routinely renewed. But when doubts arose about banks' subprime securities, the repo market panicked. Loans vanished or became costlier.

In conclusion, Samuelson wrote:"So the next crisis could come from anywhere - perhaps the follies of government, not finance. Between now and 2019, the US federal debt could rise to $11 trillion, projects the Congressional Budget Office. US Treasury bonds are the bedrock of the global financial system; they're considered safe and reliable. What if a glut of bonds causes investors to lose faith? What are the implications? " Such query may not be warranted in light of the supreme clout of US Government.

As far as we know, China, Japan and other nations are still holding US government securities with faith as the reality of global economy.

We must have faith in US government securities as safe and reliable the same way as other nations , private institutions and individuals. We are aware of such TRUST well. Be smart and be mellow under any circumstance!

Francis Shieh a.k.a. Xie Shihao sharing faith, hope and love with all concerned on earth. Monday,June 29, 2009 at 10 a.m.