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This article is an update of a story reported last December in our article titled “Not Seen on Fox or CNN in
2007.” It was about a municipality in Norway that had bought collateralized debt obligations of dubious quality
from Citicorp. We estimated the impact of events like this on US borrowers:

“US lending standards will be revised based on the demands of the ultimate providers of capital,
not the US government or financial intermediaries (the investment banks). And this realignment
of lending standards is already happening. It will not occur on a schedule that is convenient for
the borrowers.’ (emphasis added)

Here are four recent news reports.

  • On 9/26/08 the Chairman of the Chinese Banking Regulatory Commission called U. S. lending
    “ridiculous.” (AP, 9/26/08)
  • The amount of credit card receivables that were securitized in October 2008 was $500 million, down
    from $50 billion a year earlier. (Wall Street Journal, 11/6/08)
  • The application of the American Express Company to become a bank holding company was approved
    in an expedited manner. (NY Times, 11/9/08)
  • On November 14, 2008 Fannie Mae (now under government conservatorship) reported a $29 billion
    loss in it investment portfolio. More ominously, management disclosed that it was having difficulty
    obtaining new capital, especially from foreigners because its securities have no explicit government
    guarantee. The article also noted that mortgage rates have remained high at 6.2% despite weakness in
    the economy. (NY Times, 11/10/08)