You are on page 1of 26


VERMA 40707006 AMIT KALANIYA 40707004 BHAVYA PABBY 40707009


Submitted To Dr. Piyush Verma Assistant Professor LMTSOM

Date of Submission 14.09.2010

ABSTRACT .............................................................................................................................................. 1 STRUCTURE OF THE US ECONOMY ........................................................................................................ 2 BOOM AND BUST IN THE HOUSING MARKET ........................................................................................ 3 SUB PRIME CRISIS: THE BORROWERS SIDE OF THE EQUATION ............................................................ 5 SUB PRIME CRISIS: THE LENDERS SIDE OF THE EQUATION .................................................................. 8 SUB PRIME CRISIS: THE MARKET ......................................................................................................... 12 SUB PRIME CRISIS: A SCHEMATIC REPRESENTATION .......................................................................... 16 REMEDIAL MEASURES ......................................................................................................................... 18 Economic stimulus ..................................................................................................................... 19 Bank solvency and Capital replenishment ............................................................................... 19 Bailouts and failures of financial firms ..................................................................................... 20 Homeowner assistance .............................................................................................................. 21 CONCLUSION ....................................................................................................................................... 23 REFERENCES ......................................................................................................................................... 24

Money is a critical aspect of the lifeline of any economy. The subprime mortgage crisis is an ongoing real estate crisis and financial crisis triggered by a dramatic rise in mortgage delinquencies and foreclosures in the United States, with major adverse consequences for banks and financial markets around the globe. Approximately 80% of U.S. mortgages issued in recent years to subprime borrowers were adjustable-rate mortgages. After U.S. house prices peaked in mid-2006 and began their steep decline thereafter, refinancing became more difficult. As adjustable-rate mortgages began to reset at higher rates, mortgage delinquencies soared. Securities backed with subprime mortgages, widely held by financial firms, lost most of their value. The result has been a large decline in the capital of many banks and U.S. government sponsored enterprises, tightening credit around the world. Here, we plan to examine the subprime crisis, from the point of view of studying the impact of the two basic forces of demand and supply. We will take up the issue at hand, first from the subprime borrowers point of view, then from the lenders point of view and finally, we shall assess the interaction of the two, which eventually resulted into the subprime crisis.


US is a market-oriented economy, where private individuals and business firms make most of the decisions, and the federal and state governments buy needed goods and services predominantly in the private marketplace. US business firms enjoy considerably greater flexibility than their counterparts in Western Europe and Japan in decisions to expand capital plant, lay off surplus workers, and develop new products. At the same time, they face higher barriers to entry in their rivals' home markets than the barriers to entry of foreign firms in US markets. The American belief in "free enterprise" has not barred a major role for government, however. People in the US rely on government to address matters the private economy overlooks, from education to protecting the environment. And despite their advocacy of market principles, they have used government at times to nurture new industries, and at times even to protect American companies from competition. This is visible from the highly subsidized agriculture in the US. This has been a contentious issue among the trade gurus in the developing countries and they have been demanding that US slash these subsidies. US firms are at or near the vanguard in technological advances, especially in computers and in medical, aerospace, and military equipment, although their advantage has narrowed since the end of World War II. The onrush of technology largely explains the gradual development of a "two-tier labor market" in which those at the bottom lack the education and the professional/technical skills of those at the top and, more and more, fail to get comparable pay raises, health insurance coverage, and other benefits.


Low interest rates and large inflows of foreign funds created easy credit conditions for a number of years prior to the crisis, fueling a housing market boom and encouraging debtfinanced consumption. The USA home ownership rate increased from 64% in 1994 (about where it had been since 1980) to an all-time high of 69.2% in 2004.Subprime lending was a major contributor to this increase in home ownership rates and in the overall demand for housing, which drove prices higher. Between 1997 and 2006, the price of the typical American house increased by 124%.During the two decades ending in 2001, the national median home price ranged from 2.9 to 3.1 times median household income. This ratio rose to 4.0 in 2004, and 4.6 in 2006.This housing bubble resulted in quite a few homeowners refinancing their homes at lower interest rates, or financing consumer spending by taking out second mortgages secured by the price appreciation. USA household debt as a percentage of annual disposable personal income was 127% at the end of 2007, versus 77% in 1990. While housing prices were increasing, consumers were saving less and both borrowing and spending more. Household debt grew from $705 billion at yearend 1974, 60% of disposable personal income, to $7.4 trillion at yearend 2000, and finally to $14.5 trillion in midyear 2008, 134% of disposable personal income. During 2008, the typical USA household owned 13 credit cards, with 40% of households carrying a balance, up from 6% in 1970. Free cash used by consumers from home equity extraction doubled from $627 billion in 2001 to $1,428 billion in 2005 as the housing bubble built, a total of nearly $5 trillion dollars over the period. U.S. home mortgage debt relative to GDP increased from an average of 46% during the 1990s to 73% during 2008, reaching $10.5 trillion. This credit and house price explosion led to a building boom and eventually to a surplus of unsold homes, which caused U.S. housing prices to peak and begin declining in mid-2006. Easy credit, and a belief that house prices would continue to appreciate, had encouraged many subprime borrowers to obtain adjustable-rate mortgages. These mortgages enticed borrowers with a below market interest rate for some predetermined period, followed by market interest rates for the remainder of the mortgage's term. Borrowers who could not make the higher payments once the initial grace period ended would try to refinance their

mortgages. Refinancing became more difficult, once house prices began to decline in many parts of the USA. Borrowers who found themselves unable to escape higher monthly payments by refinancing began to default. As more borrowers stop paying their mortgage payments (this is an on-going crisis), foreclosures and the supply of homes for sale increases. This places downward pressure on housing prices, which further lowers homeowners' equity. The decline in mortgage payments also reduces the value of mortgage-backed securities, which erodes the net worth and financial health of banks. This vicious cycle is at the heart of the crisis. By September 2008, average U.S. housing prices had declined by over 20% from their mid2006 peak. This major and unexpected decline in house prices means that many borrowers have zero or negative equity in their homes, meaning their homes were worth less than their mortgages. As of March 2008, an estimated 8.8 million borrowers 10.8% of all homeowners had negative equity in their homes, a number that is believed to have risen to 12 million by November 2008. Borrowers in this situation have an incentive to default on their mortgages as a mortgage is typically nonrecourse debt secured against the property. Economist Stan Leibowitz argued in the Wall Street Journal that although only 12% of homes had negative equity, they comprised 47% of foreclosures during the second half of 2008. He concluded that the extent of equity in the home was the key factor in foreclosure, rather than the type of loan, credit worthiness of the borrower, or ability to pay. Increasing foreclosure rates increases the inventory of houses offered for sale. The number of new homes sold in 2007 was 26.4% less than in the preceding year. By January 2008, the inventory of unsold new homes was 9.8 times the December 2007 sales volume, the highest value of this ratio since 1981. Furthermore, nearly four million existing homes were for sale, of which almost 2.9 million were vacant. This overhang of unsold homes lowered house prices. As prices declined, more homeowners were at risk of default or foreclosure. House prices are expected to continue declining until this inventory of unsold homes (an instance of excess supply) declines to normal levels [1].


A subprime loan is a loan given to borrowers that are considered more risky, or less likely to be able to make their loan payments, in relation to high quality borrowers because of problems with their credit history. When a person goes to get a loan, he is subjected to a credit check, and what results from this credit check is something that is known as the FICO score. A FICO score is a number which represents how credit worthy a borrower is considered which is based on factors such as the amount of money that he earns, his record of paying back past debts, and how much debt he currently holds. The higher the score the better the borrowers credit is considered, and the more likely the borrower is to get a loan. In order to understand how these subprime loans have caused so many problems, it must first be understood what happened in the years leading up to the recent problems. In the years leading up to the subprime crisis, interest rates (or the cost of borrowing money) had been at historical lows as the Federal Bank had aggressively cut interest rates to avoid going into recession after the tech bubble burst in 2000. We need to understand two things here: 1. When interest rates are low, in general, it causes the economy to expand because businesses and individuals can borrow money easily which causes them to spend more freely and thus increases the growth of the economy. 2. What drives interest rates lower is the fact that there is an increase in the supply of money, meaning that there is more money to go around. Before the Federal Bank lowered interest rates substantially after the bursting of the NASDAQ bubble in 2000, if a person wanted to get a loan for a house, he would have to have a relatively good credit score. Buyers with a FICO score below 620 (generally considered sub-prime) were, in most cases considered too risky to lend to, and therefore could not get a loan. After the Federal Bank lowered interest rates to historical lows however there was so much money (also referred to as liquidity) available that financial institutions started offering loans

to buyers with FICO scores below 620. Because these borrowers were considered less likely to be able to pay the loan back than borrowers with higher credit scores, these subprime borrowers were charged a higher interest rate. Things initially went very well for the financial institutions that made these loans because in the years that followed interest rates stayed low, the economy continued to grow, and the real estate market continued to expand causing the value of most peoples houses (including the sub-prime borrowers houses) to go up in value pretty dramatically. This made it relatively easy for these borrowers to make payments on their loans as if they ran into financial trouble they in more cases than not could tap the equity in their home (which came from the increase in the house price) to refinance at more favourable terms or to make their mortgage payment. Because a relatively few of these subprime borrowers were defaulting on their loans, the financial institutions which held these loans were enjoying the additional profits earned by charging these borrowers a higher interest rate, without many problems. After the initial success and profitability for those offering subprime mortgages the practice expanded dramatically and the terms which borrowers were given in order to allow them to obtain loans became all the more creative. There are now many different types of subprime loans such as: 1. Interest Only Mortgages: These loans require the borrower to pay only the interest portion of the loan for the first few years thus keeping the payment relatively low for the first few years before the interest only component expires and the borrower must pay the principle and interest component of the mortgage payment (of course a much higher amount).

2. Adjustable Rate Mortgages: Unlike traditional mortgages have a fixed interest rate so your payment is the same each month, with an adjustable rate mortgage if interest rates rise (as they have been recently) your monthly mortgage payment goes up as well. Low Initial Fixed Rate Mortgages: Mortgages that initially have very low fixed rates and then quickly convert to adjustable rate mortgages. . Because house prices had increased so rapidly in the last few years many of these subprime

borrowers took out loans that they could not afford in the anticipation that, when the mortgage reset to the higher payment, they would be able to refinance at more favourable rates using the increased value of their home and the equity that they now had as a result of that. So now that we have a background on what was happening on the borrowers side of the equation the next thing that we will look at is what was happening on the lender side of the equation [2].


One of the reasons why this is such a big problem is because so many different types of financial firms and investors have exposure to these subprime loans. To understand how we must understand something known as securitization. Securitization in simple terms means taking a bunch of assets, pooling them together, and offering them out as collateral for third party investment. Securitization happens with many different types of assets but for the purposes of this article we will focus on how they apply to mortgages. Up until relatively recently when a customer went to get a loan for a house from a bank, the bank would lend the customer the money and then hold his loan, earning money from the fees they charge the customer to give him the loan and the interest that the customer pays the bank on that loan. As the money the bank was lending out was the money that people were depositing in the bank, the bank was limited on how many loans it could do by how much money it had on deposit. As the bank was holding all of the loans on its books so to speak it also held all the risk for those loans. As a way of diversifying risk and allowing the banks to make more loans (thus earn more fees) investment bankers came up with a process for securitizing mortgages so they could be sold off to other financial institutions and investors in a secondary market. So basically, instead of holding all the loans they make to home buyers on their books, lending institutions will now pool a bunch of these loans together and sell them in the secondary market to another financial institution or investor. The pools that the loans are put into are referred to as Mortgage Backed Securities (MBS for short), Collateralized Debt Obligations (CDO for short) or Asset Backed Securities (ABS for short). These are very similar in the fact that they all act as a way of taking individual loans and bundling them up so they can be sold in the secondary market. This frees up capital for the bank and reduces their risk, so they can make more loans and earn more fees. The following is very important to understand: 1. A large portion of the financial institutions that are potential purchasers of these mortgage pools will not buy or are restricted from buying subprime debt because it is considered too

risky. 2. To get around this what investment bankers did was take a pool which contained subprime mortgages and divided it up into different levels (also referred to as traunches). Each level was then defined by who would take the first losses if and when any of the subprime borrowers in the pool stopped making their mortgage payments. The lower levels were the first take these losses and the higher levels were the last. 3. Next they got the companies who assign credit ratings to different types of debt instruments which are referred to as ratings agencies to come in and assign different credit ratings to each level. The higher levels which were the last to take losses if and when mortgages defaulted were given high credit ratings and the lower levels that were the first to take losses were given the subprime ratings. 4. What this allowed investment bankers to do was to sell off a large portion of the subprime loans as debt instruments with above prime credit ratings thus expanding the number of potential buyers of that debt.

The types of firms that invested in these instruments varied widely from other banks, to hedge funds, to pension funds, to insurance companies not only here in the United States but all over the world.

The last thing that it is important to understand is that many of the financial institutions which held large amounts of these instruments held them in what is known as a Conduits, Special Investment Vehicle (SIV) for short, or Special Purpose Vehicles (all basically the same thing). These are semi separate off balance sheet entities which allow banks and other financial institutions more flexibility from an accounting and regulatory standpoint in their operation. It is critical to understand that:

1. These entities hold large amounts of mortgage pools as one large pool of pools. So instead of holding say $50 Million in mortgages they will hold a bunch of those smaller pools as one pool of $1 Billion or more.

2. They finance or fund their operations by issuing short term debt to buy this longer term debt essentially having to pay a lower interest rate on the short term debt that they issue to raise money than they earn on the mortgages that they are investing in. 3. Because these loans are short term they have to be rolled over or redone fairly frequently to continue the financing of the Special Investment Vehicle.

Mortgage Loan Fraud Assessment based upon Suspicious Activity Report Analysis

For the first few years as interest rates stayed low, the economy continued to expand, and real estate prices continued to rise, everything went smoothly and pretty much everyone was doing well. However all, this started to change when these trends started to slow [3].



By late 2004 the US economy was growing fast enough that the federal reserve decided to start raising interest rates, which it has continued to do until fed funds rate stood at 5.25% in January of 2007 (up from 1%). Several things happened as a result of this. 1. It became much more expensive to borrow money so less people could afford to buy a house and those that could, could not afford as large a mortgage as they could when rates were at 1%. 2. As there were not as many buyers, the real estate market began to cool and house prices which had been increasing rapidly in the years leading up to this began falling moderately. 3. As mentioned earlier, many of the subprime borrowers took out adjustable rate mortgages where payments rose if interest rates rose and low initially fixed rate mortgages that quickly converted to adjustable rate mortgages. Their plan was to refinance these loans using the expected increase in value of their house to help them qualify for a better loan. As the housing market stalled however and their houses were no longer increasing in value, they could not refinance and therefore were stuck having to pay a much larger mortgage payment as the harsher terms of the loans they agreed to, kicked in. This caused many of these borrowers to not be able to make their house payment and therefore their house was foreclosed on.


So the issue now is that there are billions of dollars in losses relating to rising defaults mostly related to subprime borrowers. From the financial institution side of the equation, the problem would be bad if everyone knew where all these loans were, which financial institutions and investors were going to lose money as a result of this, and how much money they could potentially lose. These loans were for the most part no longer with the financial institutions that made the loans but had been sold off and traded among different financial institutions from around the world. As the subprime portion of these mortgage pools were defaulting at a much faster rate than expected, the institutions that held them stood to lose a lot of money as a result. This has caused what is known as a liquidity crisis where no one trusts anyone else enough to lend them money at reasonable rates, even the largest banks in the world. This is a real problem for these banks, which basically are the financial system, because they rely on large

short term loans from one another to cover their short term expenses. Because these institutions are normally considered very credit worthy, and because these loans are short term, they normally come with a very low interest rate. As no one knows who has been left holding the bag with the subprime debt, the interest rates that are charged on these loans have gone through the roof. This is why you read about the different central banks around the world having to step in and add liquidity to the market by basically injecting billions of dollars into the financial system to try and keep things from locking up. Also with reference to the huge pools of pools which are known as Structured Investment Vehicles, these entities rely on this short term borrowing to buy the longer term debt and have to periodically roll the loans they are issuing over. The problem now is that they can no longer borrow short term to cover their obligations and are therefore in danger of having to sell off huge chunks of these mortgages backed securities to avoid running into financial difficulty. This is why you read about banks like Northern Rock having to be bailed out by the Bank of England and Citigroup having to raise billions of dollars from the Abu Dhabi Investment Authority. As there are so many problems with the mortgage market right now however the market for many types of these pools has dried up as no one wants to buy them. This means that if these institutions are forced to sell they are going to have to do so at very low values in relation to how much the pools they own are probably still worth even with the problems. What this has caused is a situation where everyone that can is holding on hoping that the market will return to normal so they can exit their positions at a reasonable price. Lastly and perhaps most importantly because the market for many of these pools has dried up, it is very difficult to tell how much they are worth. This has brought a lot of suspicion to even those who have come clean about how much subprime exposure they have, and how much the losses are they plan to take as a result, because there is really no way to know for sure if they have valued that loss correctly until the market returns to normal.


Currently there is still a lot of uncertainty as to when this will end and how bad it is going to end up being for the economy. All we can say here is that time is the key factor. If the banks and other financial institutions that are holding this bad debt come to a consensus on how much of it they are going to have to write down and how they are going to value the losses quickly, then things will be a bit painful in the short term but better over the long term. If there is no consensus on where and how much the losses are after the first quarter of next year, then we are probably in for lots of trouble and markets will head lower as a result [4].





Various actions have been taken since the crisis became apparent in August 2007. In September 2008, major instability in world financial markets increased awareness and attention to the crisis. Various agencies and regulators, as well as political officials, began to take additional, more comprehensive steps to handle the crisis. To date, various government agencies have committed or spent trillions of dollars in loans, asset purchases, guarantees, and direct spending. Several remedial measures that were undertaken have been listed below:

Federal Reserve and Central Banks

The Federal Bank has:

Lowered the target for the Federal funds rate from 5.25% to 2%, and the discount rate from 5.75% to 2.25%. This took place in six steps occurring between 18 September 2007 and 30 April 2008. In December 2008, the Fed further lowered the federal funds rate target to a range of 0-0.25% (25 basis points). Undertaken, along with other central banks, open market operations to ensure member banks remain liquid. These are effectively short-term loans to member banks collateralized by government securities. Central banks have also lowered the interest rates (called the discount rate in the USA) they charge member banks for short-term loans. Created a variety of lending facilities to enable the Fed to lend directly to banks and non-bank institutions, against specific types of collateral of varying credit quality. These include the Term Auction Facility (TAF) and Term Asset-Backed Securities Loan Facility (TALF). In November 2008, the Fed announced a $600 billion program to purchase the MBS of the GSE, to help lower mortgage rates. In March 2009, the FOMC decided to increase the size of the Federal Reserves balance sheet further by purchasing up to an additional $750 billion of agency (GSE) mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to

$100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities during 2009.

Economic stimulus
On 13 February 2008, President Bush signed into law a $168 billion economic stimulus package, mainly taking the form of income tax rebate checks mailed directly to taxpayers. Checks were mailed starting the week of 28 April 2008. However, this rebate coincided with an unexpected jump in gasoline and food prices. This coincidence led some to wonder whether the stimulus package would have the intended effect, or whether consumers would simply spend their rebates to cover higher food and fuel prices. On 17 February 2009, U.S. President Barack Obama signed the American Recovery and Reinvestment Act of 2009, an $787 billion stimulus package with a broad spectrum of spending and tax cuts. Over $75 billion of which was specifically allocated to programs which help struggling homeowners. This program is referred to as the Homeowner Affordability and Stability Plan.

Bank solvency and Capital replenishment


Common Equity to Total Assets Ratios for Major USA Banks

Losses on mortgage-backed securities and other assets purchased with borrowed money have dramatically reduced the capital base of financial institutions, rendering many either insolvent or less capable of lending. Governments have provided funds to banks. Some banks have taken significant steps to acquire additional capital from private sources. The U.S. government passed the Emergency Economic Stabilization Act of 2008 (EESA or TARP) during October 2008. This law included $700 billion in funding for the "Troubled Assets Relief Program" (TARP), which was used to lend funds to banks in exchange for dividend-paying preferred stock. Another method of recapitalizing banks is for government and private investors to provide cash in exchange for mortgage-related assets (i.e., "toxic" or "legacy" assets), improving the quality of bank capital while reducing uncertainty regarding the financial position of banks. U.S. Treasury Secretary Timothy Geithner announced a plan during March 2009 to purchase "legacy" or "toxic" assets from banks. The Public-Private Partnership Investment Program involves government loans and guarantees to encourage private investors to provide funds to purchase toxic assets from banks.

Bailouts and failures of financial firms

Several major financial institutions failed, were bailed-out by governments, or merged (voluntarily or otherwise) during the crisis. While the specific circumstances varied, in general the decline in the value of mortgage-backed securities held by these companies resulted in either their insolvency, the equivalent of bank runs as investors pulled funds from them, or inability to secure new funding in the credit markets. These firms had typically borrowed and invested large sums of money relative to their cash or equity capital, meaning they were highly leveraged and vulnerable to unanticipated credit market disruptions. The five largest U.S. investment banks, with combined liabilities or debts of $4 trillion, either went bankrupt (Lehman Brothers), were taken over by other companies (Bear Stearns and Merrill Lynch), or were bailed-out by the U.S. government (Goldman Sachs and Morgan Stanley) during 2008. Government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac either directly owed or guaranteed nearly $5 trillion in mortgage obligations, with a similarly weak capital base, when they were placed into receivership in September 2008. For

scale, this $9 trillion in obligations concentrated in seven highly leveraged institutions can be compared to the $14 trillion size of the U.S. economy GDP or to the total national debt of $10 trillion in September 2008.

Homeowner assistance
Both lenders and borrowers may benefit from avoiding foreclosure, which is a costly and lengthy process. Some lenders have offered troubled borrowers more favorable mortgage terms (i.e., refinancing, loan modification or loss mitigation). Borrowers have also been encouraged to contact their lenders to discuss alternatives. The Economist described the issue this way: "No part of the financial crisis has received so much attention, with so little to show for it, as the tidal wave of home foreclosures sweeping over America. Government programmes have been ineffectual and private efforts not much better." Up to 9 million homes may enter foreclosure over the 2009-2011 period, versus one million in a typical year. At roughly U.S. $50,000 per foreclosure according to a 2006 study by the Chicago Federal Reserve Bank, 9 million foreclosures represents $450 billion in losses. A variety of voluntary private and government-administered or supported programs were implemented during 2007-2009 to assist homeowners with case-by-case mortgage assistance, to mitigate the foreclosure crisis engulfing the U.S. One example is the Hope Now Alliance, an ongoing collaborative effort between the US Government and private industry to help certain subprime borrowers. In February 2008, the Alliance reported that during the second half of 2007, it had helped 545,000 subprime borrowers with shaky credit, or 7.7% of 7.1 million subprime loans outstanding as of September 2007. During late 2008, major banks and both Fannie Mae and Freddie Mac established moratoriums (delays) on foreclosures, to give homeowners time to work towards refinancing.

Homeowners Affordability and Stability Plan

On 18 February 2009, U.S. President Barack Obama announced a $73 billion program to help up to nine million homeowners avoid foreclosure, which was supplemented by $200 billion

in additional funding for Fannie Mae and Freddie Mac to purchase and more easily refinance mortgages. The plan is funded mostly from the EESA's $700 billion financial bailout fund. It uses cost sharing and incentives to encourage lenders to reduce homeowner's monthly payments to 31 percent of their monthly income. Under the program, a lender would be responsible for reducing monthly payments to no more than 38 percent of a borrowers income, with government sharing the cost to further cut the rate to 31 percent. The plan also involves forgiving a portion of the borrowers mortgage balance. Companies that service mortgages will get incentives to modify loans and to help the homeowner stay current.


Estimates of impact have continued to climb. During April 2008, International Monetary Fund (IMF) estimated that global losses for financial institutions would approach $1 trillion. One year later, the IMF estimated cumulative losses of banks and other financial institutions globally would exceed $4 trillion. This is equal to U.S. $20,000 for each of 200,000,000 people. The crisis represents the end of Reaganism in the financial sector, which was characterized by lighter regulation, pared-back government, and lower taxes. Significant financial sector regulatory changes are expected as a result of the crisis The crisis may force Americans and their government to live within their means. Further, some of the best minds may be redeployed from financial engineering to more valuable business activities, or to science and technology. The crash of 2008 has inflicted profound damage on the U.S. financial system, its economy, and its standing in the world; the crisis is an important geopolitical setback.The crisis has coincided with historical forces that were already shifting the world's focus away from the United States. Over the medium term, the United States will have to operate from a smaller global platform -- while others, especially China, will have a chance to rise faster.


[1] [Accessed 12-09-2010]

[2] [Accessed 12-09-2010]

[3] [Accessed 12-09-2010]

[4] [Accessed 12-09-2010]