Monday, 17 March 2008

Financial Crisis Spiraling Out of Control

The Federal reserve, in an emergency move, again comes at the rescue of the banks by lowering their discount rate to 3.25% while at the same time the majority of customer will still have very elevated rate mortgage rate at around 6%...the idea being that bank rebuild their balance sheet. Indeed the one who lent irrationally are now being rescued...

At the same time, in a coordinated action with JP Morgan, they came to the rescue or bail out of Bear Stern, an American security firm.

All come at a cost :

-plummeting dollar

-financial system deteriorating with a snowball effect

-moral hazard

Moral hazard is the fact to reward bad investment behavior, the same way the Bank of England did with Northern Rock, coming to the rescue to the bank with tax payer money.

One could argue that sometime in order to stabilize the financial system, one has to take any measure, even if anti capitalist... a kind of anti "invisible hand".

So it start to get really bad in the U.S. but since the whole world is using instruments in this global financial platform, in one way or another everybody will suffer. At which degree? nobody knows , we could quite easily get the world slump experienced in the early 90's but it's all in the hand of Mr Ben "academic" Bernanke, U.S. president of the federal reserve and to an extend China, India, Brazil and Russia ..and very little to the ECB that can only try to reduce the collateral damages...

Time is ticking...and we will get the result in 2009-2010. Is it time to invest in real estate, where price are disconnected with fundamentals...yes if you want to play Russian Roulette otherwise you better have a "wait and see" attitude and witness the storm unfold.


Peter M. said...

The threat of contagion and wholesale breakdown is on a scale of 1929 is real.

Yet, President Bush adopts the posture of Herbert Hoover telling us everything will work out soon. He looks more like a man whistling through the graveyard. Bernanke and Paulson look worse than that.

Anonymous said...

"Ten leading figures in Finnish banking do not expect that the full brunt of the banking and finance crisis that has hit the United States will spread to Finland, even though there are some repercussions in the Nordic region...."


I wish I could feel as optimistic as the bank chiefs here...Well at least I don't personally bank with any of the banks quoted in the article!


Anonymous said...

The collective noun for a group of bankers is a "wunch".