Research indicates that by 2007 the percentage of nonprime mortgages that went into default within their first year rose to 10 percent compared with 3 percent of such loans originated in 2003. While falling home prices appear to be the primary factor explaining this sharp increase in early defaults, most of the increase cannot be explained by traditional risk factors. 4 A potential explanation is that individual home buyers often falsely indicated on their mortgage applications that the property they were buying would be their primary residence. Using an extensive set of data on loan performance that we have developed with Equifax, we find that multiple first mortgage lien holders – that is, people owning more than one home – account for about 40 percent of the dollar volume of seriously delinquent mortgage balances, up from about 5 percent in 2004 (Chart 10). 3  There are a few caveats to note about this trend. First, there are several categories of spending by households that are lumped into the personal consumption expenditures category in our official GDP statistics that can fairly be counted as investment. These include spending on consumer durable goods, education, and, possibly, medical care, and their combined share of total personal consumption expenditures (PCE) rose over the period in which the saving rate declined. Second, other forces were at work to push down the personal saving rate. Prominent among these is a secular decline in the share of health care expenditures paid out-ofpocket by consumers, lessening the motivation for precautionary savings.
Mr Chairman, it is clear from the definition that money laundering is a tool that is used by people involved in illegal activities, such as drug trafficking, organised crime, tax-evading, political bribery and th above all, corruption. In addition, the events of September 11 have added another dimension to the problem of money laundering and brought to light the synonymity between money laundering and terrorism. What then are the stages in money laundering? Though the money laundering process seems so complicated, it usually follows a traceable pattern and three distinct stages can be identified. These are: •  Placement Stage. This it involves the disposal of cash proceeds of the illegal activity. It is at this stage that the proceeds are introduced into the financial system in a manner that avoids detection by the banks and the authorities. At this stage criminals use techniques like depositing large amounts of money in several smaller batches so as to avoid suspicion and detection. BIS Review 6/2003  1  •  Layering Stage. This is when the true character of the cash proceeds of the illegal activities is hidden through a series of transactions in order to erase the audit trail. This is done by transferring this money to off-shore banking centres with strict secrecy laws, or to bearer bonds, and/or shell holding companies and accounts held in the name of nominees. •  The last stage is the Integration Stage where the successfully laundered money is integrated into the financial system.