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 :
-financial system deteriorating with a snowball effect
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.