An unsavory aspect of the bilateral relationship...

"If you wanted to create a system that is basically legal but designed to facilitate gun trafficking, you couldn't have a better system than you have here."
- TOM DIAZ, a researcher with the Violence Project in Washington, on the flow of guns from the United States to Mexican drug cartels. (from the New York Times, April 15, 2009)

Legacy assets and accounting for distress sales...

While it might be true that a rose by any other name smells as sweet, re-naming toxic assets "legacy assets" and changing the accounting treatment for sales of distressed assets seems to have changed the direction of stock markets.

Today, the same day FASB announced three changes in the rules governing how banks account for the value of mortgage securities on their books, the US and Mexican markets rose for the third consecutive day. The changes, which give banks greater discretion in reporting the value of mortgage assets, essentially allow management to value the assets at more than markets are willing to pay.

The IMF brandishes new tools too...

Today, eight days after the IMF approved its new, condition-free loan facility, the Flexible Credit Line, Mexico announced that it will ask the IMF for a US$47 million line of credit, the maximum for which the country is elegible. The renewable credit line, which Mexico can draw on or not as it chooses, has a one year term.

The purpose of the line, equal to 59.5% of Mexico's reserves as of March 27, is to reassure markets that Mexico has plenty of reserves with which to meet its foreign debt obligations.

The Fed's new role: the Mexico variation...

We're seeing an expansion of the Fed's role in the international financial system through the use to which Banco de Mexico (Banxico) is putting its US$30 billion swap agreement with the Fed. Banxico will use the swap line to fund short-term loans to private companies, which will be accessed through banks.

Chapter 9...

"Chapter 11" is the all too familiar shorthand for corporate bankruptcies. A rarity, "Chapter 9", is what US municipalities, like Vallejo, California, invoke when they declare bankruptcy. In Vallejo, the city is using Chapter 9 to rewrite labor contracts.

Jefferson County, Alabama is facing a different problem. The local government bought interest rate swaps which "broke down" last year (presumably, Lehman Brothers was the counterparty), leaving Jefferson County with US$3.2 billion in debt it can't pay and can't refinance. If Jefferson County opts for Chapter 9, it will test whether bonded debt, like labor contracts, can be re-structured when a local government files for bankruptcy. Alabama's governor has written to Treasury and the Fed asking for their help in stretching out the debt in an effort to avoid repudiating it.

State governments in the US defaulted on debt in the mid-nineteenth century, to the chagrin of their foreign creditors. If the financial crisis isn't contained and if the economy doesn't bottom out, it's conceivable that Vallejo won't be the only city to seek Chapter 9 protection.

Financial crisis: how we got here...

The link below takes you to a good explanation of the genesis of the financial crisis. Thank-you, Michael Rock for the link!

The explanation focuses on mortgages. Be sure to add credit card debt, car loans, etc. to get a full picture of the magnitude of the debacle.

http://www.crisisofcredit.com/

US - Mexico relations

Let's hope that Secretary Clinton's visit cools down the rising tempers in the two countries.

Let's hope, too, that the US finally puts a stop to the arms sales that are fuelling the narco-violence. According to the US Bureau of Alcohol, Tobacco,, Firearms and Explosives, a whopping 90% of the guns the Mexican drug cartels use came from the US.

Another mutually beneficial topic to put on the bilateral agenda would be integration of health care in the two countries.