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This research paper from the Board of Governors of the Federal Reserve caught my eye… Foreign Exposure to Asset-Backed Securities of U.S. Origin …

This is a follow-on to my statement that low quality securitized assets had become a major recent US export…

The Federal Reserve’s modeled estimate …

~~ ” …Using a hypothetical 20 percent markdown in the price of all ABS held by foreigners, we estimate that foreign mark-to-market losses will be $475 billion…

..Using a hypothetical scenario of default rates and recovery rates, we estimate foreign ultimate losses of about $75 billion…”~~

It doesn’t look like the US export trade statistics include financial products… it would be interesting to see that data blended into the overall trade stats… You can subscribe to these papers via the Central Bank Research Hub Alert

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~~ “The financial turmoil that began in August 2007 originated, in part, because investors reassessed the quality of the assets underlying many asset-backed securities (ABS), particularly U.S. mortgages.

The prominence of European banks in the early stages of the turmoil created the perception that foreigners held an outsized share of risky U.S. securities and prompted questions of why Europeans were so exposed.

This paper evaluates that perception by quantifying foreign exposure to ABS with U.S. underlying collateral.

Using the latest survey data on foreign portfolio holdings of U.S. securities, we anticipate that the ultimate losses that foreigners could incur arising from U.S. underlying assets are small relative to most scale variables; although initial total mark-tomarket losses are expected to be significantly larger.

The main reason for the difference is that the base used in calculating ultimate losses is about one-third of that used in calculating mark-to-market losses.

Also, the loss rates for calculating mark-to-market losses are higher because they include illiquidity discounts, and these discounts can be further amplified along the securitization chain.

Finally, we show that, relative to the size of the market, foreigners’ holdings of U.S. mortgage-backed securities (MBS) do not appear to be elevated compared to their holdings of other U.S. assets.

The general term “exposure” has been used widely in the press and turmoil analyses, but it is rarely a well-defined concept.
 
For example, exposure of a specific set of entities, such as European banks, is different than the exposure of the whole foreign sector.

Similarly, exposure for regulatory purposes may differ from ultimate expected losses.

Therefore, to address our question of how much foreigners would lose, we first develop a conceptual framework for understanding exposure.

We then quantify foreign holdings of, and exposure to, ABS whose underlying collateral originated in the United States.

We consider a broad set of underlying assets, encompassing not just residential mortgages but also several types of consumer loans and commercial mortgages.

This choice of assets is partly determined by data availability but also seems appropriate as the turmoil has raised uncertainty about the creditworthiness of many similar types of collateral…:~~