Chronicle of A Death Foretold I

• Between 1992 and 2007, the U.S. current account deficit increased by more than 1,300%. During the same period, China’s current account surplus increased by over 5,700%, as did the surplus for the oil exporting nations.

• The growth in foreign capital had a profound effect on the global economy. Foreign holdings of U.S. government and corporate debt skyrocketed. China’s monthly average purchases of U.S. long-term securities went from less than $2 billion in 2001 to over $15 billion in 2007.

• In the U.S., mortgage origination as a percentage of total mortgage debt outstanding rose from an average of 6.3% between 1985 and 2000 to 10% between 2001 and 2006. Subprime debt, in particular, grew from just over 2% in 2002 to 14% in 2008. In a sustained environment of cheap capital, lending standards for residential mortgages simply deteriorated.

• In January 2008, there were 12 triple A-rated companies in the world. At the same time, there were 64,000 structured finance instruments, like CDO tranches, rated triple A.

Source: http://www2.goldmansachs.com/ideas/public-policy/lcb-speech-to-cii.html