| Supposedly the financial world almost collapsed. | | | | 'Over the last 20 years, the U.S. securities |
| This lie has much currency. A worldwide write | | | | industry has learned through experience how to |
| down of speculative real estate assets and | | | | navigate through financially stressful events that |
| financial instruments totalling perhaps $1 Trillion or | | | | can damage confidence,'' Hintz, a former Lehman |
| a mere 2% of the world's economy, was | | | | finance chief, said...'” |
| Armaggedon [an ancient hebrew word that has | | | | In other words, the markets are perfectly |
| nothing to do with the world's demise]. | | | | capable to respond to changing market conditions |
| Government created problems – forcing | | | | and asset re-pricing. If Bears went bankrupt the |
| banks to lend to people with no proof of income; | | | | system and the world would not have ended. It |
| cheap interest rates for too long; and a flood of | | | | would have been the same as Drexel Burnham's |
| money – is now blamed on 'markets'. How | | | | bankruptcy in the early 90s, the valuable pieces |
| ridiculous. Governments and politicians create the | | | | would have been picked up by competitors and |
| problem, then come in to 'fix it'. It is laughable. | | | | life would have continued. |
| The 'housing crisis' so overblown and exagerrated, | | | | This is not to deny that problems exist in the |
| had no chance to destroy the financial system, | | | | financial world. But the main problem is not a lack |
| the world's trading system or 'capitalism'. It is a | | | | of regulation – there are thousands of |
| remarkably minor episode in financial terms with | | | | regulatory statutes in the financial world which are |
| far less than a Trillion dollars being the real | | | | never used, or invoked. None of these |
| damage of government inspired speculation and | | | | bureaucratic minions were using their existing |
| land rush lunacy. In fact the major banks and | | | | powers to prevent loans to people with no |
| investment houses are already releasing | | | | income verification for example. We don't need |
| statements that their write-downs over the | | | | more arcane rules and costly fees and yet more |
| coming years, will be written-up, in other words | | | | bureaucrats. We need transparency, less |
| they have taken too many losses and the value | | | | government involvement and smarter, lighter |
| of the underlying assets is worth more than first | | | | regulation. The main problem is of course |
| thought. | | | | government and its constant regulatory – |
| How exagerrated is this 'crisis' ? Consider the | | | | political meddling. |
| following: | | | | Way back in the good old days of Jimmy Carter |
| -Goldman Sachs' estimate of total world wide | | | | in 1977, the American political class created a law |
| mortgage or housing and related financial | | | | termed 'The Community Reinvestment Act' [how |
| instruments write-offs: $1.2 Trillion | | | | sick and Orwellian does that sound?], which |
| -Market capitalisation of major banks and finance | | | | mandated that a certain percentage of bank loans |
| houses listed on New York Stock Exchange : $16 | | | | and mortgages MUST be given to undocumented |
| Trillion or 15 times the total write-offs related to | | | | borrowers who did not need to show proof of |
| the housing mess. | | | | income or assets. The political idea was to force |
| -Total bond market liquidity worldwide: $45 Trillion | | | | banks to create more homeowners amongst |
| -Liquidity available in derivatives worldwide: $300 | | | | minorities and the poor [you know end white |
| Trillion | | | | racism etc. etc.] and thereby stabilise the lower |
| -State managed sovereign funds capital: $25 | | | | classes of US society and energise community |
| Trillion | | | | and economic growth. But such decrees by |
| -Liquid cash on hand in Wall Street's top 4 | | | | government don't work and in fact they distort |
| investment banks ONLY: $200 Billion | | | | markets dramatically. |
| -US total GDP: $13.5 Trillion | | | | What happens when government distorts |
| -World Wide GDP: $45 Trillion | | | | markets by making dumb anti-reality laws? You |
| -Total stock market value worldwide of all | | | | create asset bubbles which at some point in time |
| exchanges: $85 Trillion | | | | will deflate. |
| -Excess cash on hand at the Federal Reserve, | | | | The CRA stimulated speculation; over-buying by |
| undeployed: $400 Billion | | | | un-qualified borrowers and ultimately of course, |
| -Income growth in the US in 2007: $500 Billion | | | | the creation of loans which had little value. |
| An objective observer who looked at this | | | | Combined with low interest rates from 2001 to |
| situation would say, 'well yes there are some | | | | 2004; easy money and relaxed credit lending |
| problems, but there appears to be more than | | | | conditions, the scene was set for a large market |
| enough money, liquid assets, and real assets to | | | | price correction. Yet market priced corrections |
| back up the financial markets'. Indeed. The reality | | | | can be positive. Now US homebuyers can |
| is that the extreme estimate of $1.2 Trillion in | | | | purchase valuable assets at reduced prices with |
| write-offs over the 'mortgage crisis' is really a | | | | reasonable interest rates on a variety of loan and |
| pittance. It is 7% of Bank market capitalisation on | | | | mortgage vehicles. The market in other words is |
| Wall Street as of March 31 2008; it is 2 % of | | | | clearing the over supply of housing stock at |
| world-wide GDP and the bond market; it is 2 | | | | rational market rates. |
| years of income growth; and it is 1% of the | | | | So what does government want to do? After |
| world's stock market capitalisation. Yes $1.2 Trillion | | | | causing the problem in the first place, they want |
| is a significant amount of money, but is it the end | | | | to create yet more regulation; more fees; more |
| of the world? | | | | distortions and in the future, more trouble. It is |
| Of course not. | | | | nothing more than populist and retarded politics |
| The idea behind the current savage round of | | | | and circular irrational reasoning: 'we created a crisis |
| market- hating, is the idea that if Bear Stearns | | | | with government incompetence; there are |
| the 5th largest US investment bank went | | | | problems which need addressing; the voting |
| bankrupt, the entire system would collapse. | | | | population expects action; ergo we will do more |
| Rubbish. Every 5 years a major bank or | | | | of what caused the problem in the first place.' |
| investment house goes bust, and the system | | | | This is a definition of insanity. |
| carries on just fine. Bear Stearns was a badly | | | | The financial system does have problems and |
| managed entity who did not understand what | | | | issues, but the market can work them out. The |
| was on its balance sheet. It was levered 34:1, | | | | 'crisis' is completely exagerrated and over-blown. |
| debt to equity. Thankfully Bear Stearns has no | | | | By any measure the write-offs are minor, and |
| correlation to the balance sheets or strengths of | | | | the impact on the overall system, while strong, is |
| its fomer competitors: | | | | not overpowering. There is enough liquidity, central |
| “Lehman's liquid assets are more than five | | | | bank support, and financial strength to easily |
| times greater than its shareholders' equity. At | | | | overcome the government created asset bubble |
| Merrill Lynch & Co., the world's largest broker, and | | | | in real estate. |
| Morgan Stanley, the second-biggest U.S. securities | | | | Too bad the politicians and the bureaucrats won't |
| firm, the ratio is three times equity. Goldman's | | | | admit that. |
| liquid assets are double its equity...... | | | | |