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Banking, Mortgage Backed Securities, and Investment Vehicle Problems Still There

The story began with a small lake of money that became an enormous reservoir looking for a place to flow. In 2000 the lake held 36 trillion dollars. small pondBy  2006 the lake had become a reservoir containing 70 trillion dollars looking for a place to flow. large pond

The pool of money comes from savers around the world. It comes from you and me, from the people and companies in India and China who have been manufacturing the goods we buy—they made a lot of money, banked it, and saved it. It comes from all the oil producing countries, from individuals in France, Brazil, Russia, Ireland, England, South Africa, etc. It comes from premiums insurance companies charge and save until they need them for a catastrophe, from pension funds that are waiting for people to retire and start drawing their retirement checks, and from central banks that save for all the reasons they save.

In 2010 this is money  looking for a place to be invested. True some of it was lost in the market, but others have made money in the current market. It is out there looking for an investment vehicle that will provide a return on the investment. New vehicles, new versions of Mortgaged Backed Securities, will be invented.

Chart-of-the-Day: Credit-Expansion-vs-GDP

Read Clusterstock’s updated explanation of this phenomenon in the commentary on the above graph: It’s Going to be Brutal Putting the Banking Genie Back in the Bottle.

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