The Financial Crisis Is An Order of Magnitude Larger Than Believed

This article was translated into Chinese and is the top article in the finance section at iFeng: 厄运来临:这个万亿美元市场要崩溃了

Telegraph: The world's multi-trillion dollar bond market is circling the drain
There are plenty of possible reasons why liquidity might be evaporating. For one thing, there has been a huge increase in the amount of bond trading being conducted electronically and this method of dealing is now responsible for about half of all turnover in the US. This has attracted the attention of high-frequency firms who help provide liquidity and lower transaction costs but only really for small trades, creating the illusion of liquidity, which, like a mirage, disappears when you reach for it.
If liquidity is disappearing amid massive central bank intervention, perhaps the economic models are wrong?
One of the upshots is that it is now much more expensive for banks to hold securities on their own books and therefore provide liquidity in the market. Deutsche Bank recently noted that the amount of outstanding corporate bonds has doubled since 2001 but dealer inventories of these securities have fallen 90pc over the same period.
Risk has been taken off the bank balance sheets because regulators (and politicians, mainstream economists, etc.) believe the financial crisis was solely at the firm level. Remove the risk from the banks and the banking system appears sound. If the risk is in the entire financial system, then it can only be shifted, not eliminated. If the risk is the financial system itself, only major reform stands a chance at preventing a crisis.

Long story short: these bonds cannot be repaid. Nobody really wants to own them, but in a world of financial collapse, government bonds will likely retain more value than corporate bonds.

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