The current low price of commodities – especially that of crude oil - had lessened the impact of the global financial crisis to most sectors of the economy even though it will be very bad in the long run. A good time to cry wolf?
By: Ringo Bones
The world’s leading economist had already reached a consensus and had been warning us for sometime that the low prices of economies resulting in the lack of demand due to the global economic downturn. Will be bad in the long run – even if the global economy recovers sometime in the future – because producers are not making the necessary investments to expand current production to meet possible future demands. The proverbial “ticking time bombs” in the commodities market are copper and crude oil whose prices could skyrocket way pass their 2008 peak once the global economy recovers causing an increase in demand.
Violent price rises will be the norm – rather than the exception – when it comes to commodities prices when the global economy recovers around 2010 or so. Due to lack of current investment to expand production, demand for copper and crude oil in 2010 might not be met fast enough - which could be a headache to commodities trading. Especially when it comes to the demands of emerging economies in Asia like India and China whose economies are not as badly affected as those in the United States and Europe despite of the tragic job loss figures. Plus the increased affluence of consumers in Asia could also send prices of wheat, corn, and soybean skyrocketing past their 2008 levels due to these food crops being diverted into meat production as animal feed.
The world’s policymakers better start consulting their economic advisory team on how to plan ahead to avert disastrous and violent commodity price volatility in the near future. Even if the global economy eventually recovers, it could derive our poorer brethren of their daily bread if the recovery plan is ill conceived. Making that “dramatic” percentage-point rises in the global stock market a rather Pyrrhic victory for stock market traders.
Saturday, January 3, 2009
Friday, December 19, 2008
The Global Credit Crunch: Benefiting House Buyers?
Despite the groans of Wall Street insiders over the housing slump, will the ongoing credit crunch be a good thing for prospective house buyers since real estate agents are now forced to slash prices just to make a sale?
By: Ringo Bones
Even though it is a sure sign of our ever-deepening global credit crisis when real estate agents and property developers start to aggressively slash their prices just to make a sale. They are even staring to reduce the prices of their “Root of all Gentrification” luxury-themed gated communities. Fire sale prices without the fire?
The bad news (or good news depending on which side of the transaction you lie) is that prospective buyers are still harboring a wait-and-see attitude. Understandably so given that property prices will certainly be slashed further in the near future. The better deal that’s still at hand in the near future can be too tempting to pass up. Worse still, the housing market could initiate a runaway deflation caused by delayed spending of the wait and see attitude of prospective house buyers.
No matter what side of the transaction you lie, sometimes you’ll wonder if this is just a simple by-product of the global economic downturn or a much-feared anti-gentrification backlash. Given that the new generation can now safely afford to be “noveau-poor” due to the new income opportunity paradigm provided by the Internet, they might be practicing a new form of Socialism for all intents and purposes. And since the “nuclear” family had fallen out of fashion for over 30 years now, real estate agents and property developers better start tweaking their antiquated business models if they chose to survive in our current climate of fiscal and consumer austerity.
By: Ringo Bones
Even though it is a sure sign of our ever-deepening global credit crisis when real estate agents and property developers start to aggressively slash their prices just to make a sale. They are even staring to reduce the prices of their “Root of all Gentrification” luxury-themed gated communities. Fire sale prices without the fire?
The bad news (or good news depending on which side of the transaction you lie) is that prospective buyers are still harboring a wait-and-see attitude. Understandably so given that property prices will certainly be slashed further in the near future. The better deal that’s still at hand in the near future can be too tempting to pass up. Worse still, the housing market could initiate a runaway deflation caused by delayed spending of the wait and see attitude of prospective house buyers.
No matter what side of the transaction you lie, sometimes you’ll wonder if this is just a simple by-product of the global economic downturn or a much-feared anti-gentrification backlash. Given that the new generation can now safely afford to be “noveau-poor” due to the new income opportunity paradigm provided by the Internet, they might be practicing a new form of Socialism for all intents and purposes. And since the “nuclear” family had fallen out of fashion for over 30 years now, real estate agents and property developers better start tweaking their antiquated business models if they chose to survive in our current climate of fiscal and consumer austerity.
The US Economic Downturn: A Boon for Indian Law Firms?
Rumored to have the world’s largest population of underutilized professionals, will the current US economic downturn be a good thing for Indian law firms?
By: Ringo Bones
Ever since globalization created the outsourcing market, low cost services – no matter how far away – has always been too tempting for the richest countries to ignore despite of quasi-protectionism legislation. And while the world markets waited with baited breath whether the US economic downturn will get much worse, the American economic hardship had inadvertently become a good thing to a service sector half a world away – namely Indian law firms.
Basing on the increased visibility of Indian law firms advertising on the Internet like the Singhania & Co. LLP Advocates and Solicitors for example, offering arbitration and all types of business assistance. And given that as a business model, outsourcing has proven to be very economically viable, it is inevitable that Indian law firms will soon be benefiting from the misfortunes of corporate America’s woes.
Outsourcing has since outgrown from the fledgling phoning in of DVD player queries. The evaluation of legal documents via legal outsourcing has recently reduced the cost overheads of US financial lawsuits and other corporate legalese and rigmarole. Given that corporate legal procedures are seldom cheap – especially when it involves filing for bankruptcy – every method of cost reduction, like legal outsourcing, had recently been in vogue. Looks like corporate America’s loss will be every Indian law firm’s gain. Looks like the US economic crisis might wind up helping others before it disappears.
By: Ringo Bones
Ever since globalization created the outsourcing market, low cost services – no matter how far away – has always been too tempting for the richest countries to ignore despite of quasi-protectionism legislation. And while the world markets waited with baited breath whether the US economic downturn will get much worse, the American economic hardship had inadvertently become a good thing to a service sector half a world away – namely Indian law firms.
Basing on the increased visibility of Indian law firms advertising on the Internet like the Singhania & Co. LLP Advocates and Solicitors for example, offering arbitration and all types of business assistance. And given that as a business model, outsourcing has proven to be very economically viable, it is inevitable that Indian law firms will soon be benefiting from the misfortunes of corporate America’s woes.
Outsourcing has since outgrown from the fledgling phoning in of DVD player queries. The evaluation of legal documents via legal outsourcing has recently reduced the cost overheads of US financial lawsuits and other corporate legalese and rigmarole. Given that corporate legal procedures are seldom cheap – especially when it involves filing for bankruptcy – every method of cost reduction, like legal outsourcing, had recently been in vogue. Looks like corporate America’s loss will be every Indian law firm’s gain. Looks like the US economic crisis might wind up helping others before it disappears.
Saturday, December 13, 2008
Pyramid Scheme Killed the Hedge Fund Star?
Dubbed by Wall Street insiders as a scandal bigger than ENRON, will the Bernard L. Madoff hedge fund scandal forever undermine investor confidence?
By: Vanessa Uy
When the 70 year old former NASDAQ chairman Bernard L. Madoff was arrested a few days ago as the result of an on-going investigation over might be one of the largest fraud case of the 21st Century. He is suspected of being responsible for creating a pyramid / Ponzi scheme disguised as a hedge fund firm that dates back to the 1960 which resulted in the defrauding of his investors by 50 billion US dollars.
Bernard L. Madoff started a hedge fund firm called Bernard L. Madoff Securities LLC was even regarded by many Wall Street insiders as “the birthplace of modern Wall Street” due to it’s pioneering business model. Bernard L. Madoff’s business model was deemed to tempting – even to seasoned investors due to his promise of relatively high return of investment when compared to the norm despite of the risks involved or the obvious lack of transparency. During its heyday, Madoff’s hedge fund firm was trading on average of 50 million shares a day. And even during October 2008, when the global financial crisis was already in full steam, his firm was still the 23rd largest market maker on NASDAQ.
What became of Bernard L. Madoff’s undoing is by running his hedge fund firm like a pyramid or Ponzi scheme, where money is being exchanged despite of the lack of trade in goods or services being provided – the primary reason that made it illegal. First tier investors were comfortably living off from the investment funds of latter entrants of their shaky pyramid scheme, which miraculously, only recently collapsed despite dating from the 1960’s. Bernard L. Madoff’s fraudulent dealings even predated mortgage backed securities and other complex credit derivatives which are primarily blamed for the ongoing global financial crisis.
Will Bernard L. Madoff’s stunt forever undermine investor confidence? Well, given that the start of 2008 saw the audacious rogue trading antics of Société Générale junior trader Jérôme Kerviel, lack of investor confidence will be the norm – rather than the aberrant exception – which will probably worsen our ongoing global financial crisis. Those new “green technologies” being peddled by newly elected US President Barack Obama will never get of the ground due to lack of investment. The pyramid scheme did indeed killed one of NASDAQ’s leading hedge fund “stars” by sending its greedy CEO to the slammer.
By: Vanessa Uy
When the 70 year old former NASDAQ chairman Bernard L. Madoff was arrested a few days ago as the result of an on-going investigation over might be one of the largest fraud case of the 21st Century. He is suspected of being responsible for creating a pyramid / Ponzi scheme disguised as a hedge fund firm that dates back to the 1960 which resulted in the defrauding of his investors by 50 billion US dollars.
Bernard L. Madoff started a hedge fund firm called Bernard L. Madoff Securities LLC was even regarded by many Wall Street insiders as “the birthplace of modern Wall Street” due to it’s pioneering business model. Bernard L. Madoff’s business model was deemed to tempting – even to seasoned investors due to his promise of relatively high return of investment when compared to the norm despite of the risks involved or the obvious lack of transparency. During its heyday, Madoff’s hedge fund firm was trading on average of 50 million shares a day. And even during October 2008, when the global financial crisis was already in full steam, his firm was still the 23rd largest market maker on NASDAQ.
What became of Bernard L. Madoff’s undoing is by running his hedge fund firm like a pyramid or Ponzi scheme, where money is being exchanged despite of the lack of trade in goods or services being provided – the primary reason that made it illegal. First tier investors were comfortably living off from the investment funds of latter entrants of their shaky pyramid scheme, which miraculously, only recently collapsed despite dating from the 1960’s. Bernard L. Madoff’s fraudulent dealings even predated mortgage backed securities and other complex credit derivatives which are primarily blamed for the ongoing global financial crisis.
Will Bernard L. Madoff’s stunt forever undermine investor confidence? Well, given that the start of 2008 saw the audacious rogue trading antics of Société Générale junior trader Jérôme Kerviel, lack of investor confidence will be the norm – rather than the aberrant exception – which will probably worsen our ongoing global financial crisis. Those new “green technologies” being peddled by newly elected US President Barack Obama will never get of the ground due to lack of investment. The pyramid scheme did indeed killed one of NASDAQ’s leading hedge fund “stars” by sending its greedy CEO to the slammer.
Monday, November 17, 2008
IMF and World Bank: Obsolete Financial Institutions?
Born out of the Articles of Agreement drawn up during the Bretton Woods Conference of July 1944. Are the IMF and the World Bank still relevant financial institutions in the 21st Century?
By: Ringo Bones
As the scheduled G20 Summit of the November 14, 2008 weekend at Washington, D.C. attempts to solve our current global financial crisis. Many leading academics of the financial world now wonder if there is a need to drastically overhaul the workings of the International Monetary Fund (IMF) and the World Bank since these institutions seem powerless in reversing the tide of current the global financial crisis whose worse is yet to come. Plus the criticisms of an overwhelming majority about the two institutions’ development programs which seems to entrap poor countries into an endless cycle of debt. Barring radical policy changes does the IMF and the World Bank still relevant in the 21st Century economic globalization that’s fuelled by credit and it’s derivatives?
Back in July 1944 at the Bretton Woods Conference - which was held in Bretton Woods, New Hampshire as a post World War II reconstruction and global development plan. The soon to be victorious Allied Nations were already planning their post World War II economic development in which Adolph Hitler was even powerless to utter the phrase “Are you already measuring the drapes?” in protest to this conference. The historic conference led to the establishment of The International Bank for Reconstruction and Development – also known as the World Bank – together with the International Monetary Fund or IMF under the Articles of Agreement. Among the main objectives of the former were stabilization of the foreign exchanges and improvement of foreign economic relations. Since the US dollar was then the form of currency in greatest demand, contributions to the Fund by the United States were to be an important ingredient in worldwide stabilization. The Bank’s headquarters are in Washington, D.C.
Presently, after many years of change, the consensus reached at the Bretton Woods Conference – were its used to be that various currencies were pegged against the US dollar and backed by gold as a means of global financial stability – no longer holds true. There are other countries that had managed to transform themselves into a formidable economic superpower rivaling that of the United States. Like China for example, with the country’s large currency reserves and strong economy has the ability to undervalue her own currency. Thus gaining an unfair advantage when it comes to the pricing of export products. But is our present global economic structure that’s modeled after the consensus reached in the Bretton Woods Conference of July 1944 is now having trouble keeping up with its commitment of promoting development of poor countries without entrapping them to an endless cycle of debt? The inability to efficiently adapt to recent financial trends, not to mention in tackling our current ever deepening global financial crisis.
Recently the G20 Summit in Washington with the official banner of “ Summit for Financial Markets and the World Economy” was beginning to be seen by many as “Bretton Woods Part II” or “Bretton Woods Version 2.0”. This is so because it has set some pretty lofty goals – in the staunchly conservative financial world it does pass muster as lofty - to end our deepening current global financial crisis. The world leaders in the G20 summit had very much reached a consensus to promote free market capitalism or free trade and the rejection of wholesale protectionism. Other notable reforms of the 10-page long G20 declaration include new regulations to curb risky practices of banks and other financial institutions. Credit Default Swaps – those extremely sexy financial instruments that instigated the current global financial crisis – are now targeted for stricter regulation by allowing them to be processed on a centralized clearinghouse for better monitoring.
The existing practices that make “common folks” bedevil the world’s two leading financial institutions, IMF and World Bank, were not tackled. Like measures to end free trade distorting trade subsidies and “debt entrapment” of poor nations. Though the powers-that-be say that the latest G20 Summit is only a part of a series of high-level meetings aimed at resolving our present financial crisis, I just hope that they will to their part to end our existing global financial woes. After all, this recovery process requires the involvement of everyone of us. I mean, isn't the G20's "Global Economic Crisis Action Plan" granting a bigger role for developing nations just a euphemism for "we need everyone's help"?
By: Ringo Bones
As the scheduled G20 Summit of the November 14, 2008 weekend at Washington, D.C. attempts to solve our current global financial crisis. Many leading academics of the financial world now wonder if there is a need to drastically overhaul the workings of the International Monetary Fund (IMF) and the World Bank since these institutions seem powerless in reversing the tide of current the global financial crisis whose worse is yet to come. Plus the criticisms of an overwhelming majority about the two institutions’ development programs which seems to entrap poor countries into an endless cycle of debt. Barring radical policy changes does the IMF and the World Bank still relevant in the 21st Century economic globalization that’s fuelled by credit and it’s derivatives?
Back in July 1944 at the Bretton Woods Conference - which was held in Bretton Woods, New Hampshire as a post World War II reconstruction and global development plan. The soon to be victorious Allied Nations were already planning their post World War II economic development in which Adolph Hitler was even powerless to utter the phrase “Are you already measuring the drapes?” in protest to this conference. The historic conference led to the establishment of The International Bank for Reconstruction and Development – also known as the World Bank – together with the International Monetary Fund or IMF under the Articles of Agreement. Among the main objectives of the former were stabilization of the foreign exchanges and improvement of foreign economic relations. Since the US dollar was then the form of currency in greatest demand, contributions to the Fund by the United States were to be an important ingredient in worldwide stabilization. The Bank’s headquarters are in Washington, D.C.
Presently, after many years of change, the consensus reached at the Bretton Woods Conference – were its used to be that various currencies were pegged against the US dollar and backed by gold as a means of global financial stability – no longer holds true. There are other countries that had managed to transform themselves into a formidable economic superpower rivaling that of the United States. Like China for example, with the country’s large currency reserves and strong economy has the ability to undervalue her own currency. Thus gaining an unfair advantage when it comes to the pricing of export products. But is our present global economic structure that’s modeled after the consensus reached in the Bretton Woods Conference of July 1944 is now having trouble keeping up with its commitment of promoting development of poor countries without entrapping them to an endless cycle of debt? The inability to efficiently adapt to recent financial trends, not to mention in tackling our current ever deepening global financial crisis.
Recently the G20 Summit in Washington with the official banner of “ Summit for Financial Markets and the World Economy” was beginning to be seen by many as “Bretton Woods Part II” or “Bretton Woods Version 2.0”. This is so because it has set some pretty lofty goals – in the staunchly conservative financial world it does pass muster as lofty - to end our deepening current global financial crisis. The world leaders in the G20 summit had very much reached a consensus to promote free market capitalism or free trade and the rejection of wholesale protectionism. Other notable reforms of the 10-page long G20 declaration include new regulations to curb risky practices of banks and other financial institutions. Credit Default Swaps – those extremely sexy financial instruments that instigated the current global financial crisis – are now targeted for stricter regulation by allowing them to be processed on a centralized clearinghouse for better monitoring.
The existing practices that make “common folks” bedevil the world’s two leading financial institutions, IMF and World Bank, were not tackled. Like measures to end free trade distorting trade subsidies and “debt entrapment” of poor nations. Though the powers-that-be say that the latest G20 Summit is only a part of a series of high-level meetings aimed at resolving our present financial crisis, I just hope that they will to their part to end our existing global financial woes. After all, this recovery process requires the involvement of everyone of us. I mean, isn't the G20's "Global Economic Crisis Action Plan" granting a bigger role for developing nations just a euphemism for "we need everyone's help"?
Thursday, November 13, 2008
Should the US Government Bailout Heritage Companies?
As the US financial crisis grows inevitably deeper, should the US Government bail out “heritage companies” via the American taxpayer’s money?
By: Ringo Bones
America’s “big three” automakers, namely: GM, Chrysler, and Ford had been in the headlines lately but not for the good reasons. The US top three automakers had been hard hit by the ongoing economic crisis, which if left alone the three leading car manufacturers would go bankrupt. But the question now is, should the US Government do what it can to save heritage companies – which America’s three leading carmakers surely does qualify as such – even to the extent of using the taxpayer’s money?
Throughout the developed world, heritage companies had always been perceived as an integral part of the country that they originate. The German government even legislated laws that only allow overseas Sovereign Wealth Funds extremely limited investments in their own heritage companies despite howls of protectionism accusations.
Ever since the global financial crisis became too big to ignore, the US Government acted upon several schemes to save ailing companies, which are perceived as heritage companies by many. Like the two leading equity loan providers of America: Fannie Mae and Freddie Mac, which if allowed to go bankrupt could make millions of American families homeless. Thus qualifying them as the most indispensable of the American heritage companies.
Though cars can be considered a luxury when compared to a secure roof over your head, America’s “top three” automakers are thus nevertheless very important heritage companies. Due to their historical significance and they also employ thousands of workers across the country. America would never be the same without them. But should the US Government save them? After all President-elect Obama’s economic recovery plan has a heavy emphasis on fiscal discipline.
To me at least, a financial bailout by the US Government on ailing heritage companies do make fiscal sense. And since the breakdown of the preexisting American free market capitalism is due to too much laissez-faire when it comes to government regulation. The switch over to state capitalism would be smoother and could serve as one of the conditions of a government funded bailout package. Which would make the economic recovery process more efficient since the companies can now be tailored to be in sync with the government’s economic recovery process.
By: Ringo Bones
America’s “big three” automakers, namely: GM, Chrysler, and Ford had been in the headlines lately but not for the good reasons. The US top three automakers had been hard hit by the ongoing economic crisis, which if left alone the three leading car manufacturers would go bankrupt. But the question now is, should the US Government do what it can to save heritage companies – which America’s three leading carmakers surely does qualify as such – even to the extent of using the taxpayer’s money?
Throughout the developed world, heritage companies had always been perceived as an integral part of the country that they originate. The German government even legislated laws that only allow overseas Sovereign Wealth Funds extremely limited investments in their own heritage companies despite howls of protectionism accusations.
Ever since the global financial crisis became too big to ignore, the US Government acted upon several schemes to save ailing companies, which are perceived as heritage companies by many. Like the two leading equity loan providers of America: Fannie Mae and Freddie Mac, which if allowed to go bankrupt could make millions of American families homeless. Thus qualifying them as the most indispensable of the American heritage companies.
Though cars can be considered a luxury when compared to a secure roof over your head, America’s “top three” automakers are thus nevertheless very important heritage companies. Due to their historical significance and they also employ thousands of workers across the country. America would never be the same without them. But should the US Government save them? After all President-elect Obama’s economic recovery plan has a heavy emphasis on fiscal discipline.
To me at least, a financial bailout by the US Government on ailing heritage companies do make fiscal sense. And since the breakdown of the preexisting American free market capitalism is due to too much laissez-faire when it comes to government regulation. The switch over to state capitalism would be smoother and could serve as one of the conditions of a government funded bailout package. Which would make the economic recovery process more efficient since the companies can now be tailored to be in sync with the government’s economic recovery process.
Mortgage Backed Securities: A Serious Reaganomics Oversight?
The impact of unregulated Mortgage Backed Securities only reared its ugly head during the second half of 2007, turning the subprime mortgage crisis global. Human greed at it’s worst?
By: Ringo Bones
Well known for his staunchly laissez-faire economic policies, the former US president Ronald Reagan and his administration will forever be remembered for defending the underlying principles of American free enterprise. And also of promoting the Protestant Work Ethic as one of the leading principles that made the American economy what it was which made it outlast the former Soviet Union. But despite of the Reagan Administration’s sweeping economic reforms – affectionately nicknamed “Reaganomics” – that made the “Go-Go 80’s” possible. One of its serious oversights will forever mark the 1980’s as the “Decade of Greed”. Sadder still, the problem that drove our current global economy to the brink originated during this time period.
Back in 1977, Salomon Brothers and Bank of America jointly introduced the world’s first ever Mortgage Backed Securities or MBS. A college dropout initially hired to work in Salomon Brother’s mailroom, Lewis Ranieri, was assigned the task of selling these somewhat untested securities / bonds. Before the extensive Reagan Administration era lobbying in Capitol Hill made it available throughout America, Mortgage Backed Securities used to be legal in only 15 US states. Lewis Ranieri was then known to have a trader’s nerve and a salesman’s persuasiveness won lobbying battles in Washington that eventually removed legal and tax barriers against MBS. Ranieri then headed up a Salomon Brothers’ team that developed Collaterized Mortgage Obligations. Collaterized Mortgage Obligations are 2-year, 5-year, and 10-year Mortgage Backed Securities that are packaged to appeal to a variety of low, medium, and high-risk investors. Thus paving the way for the subprime mortgage crisis.
Though it is worth noting that the preexisting ideological climate of the Reagan Administration frequently confuses the Protestant Work Ethic with massive corporate earnings thus causing them to turn a blind eye when it comes to financial regulation. After all, it something earns money, then it must be good - right?
But everyone back then was too blind to see that Mortgage Backed Securities for all intents and purposes were high-risk bonds. As financial instruments, they are backed by more speculative or subprime mortgages, loans made out to high-risk borrowers. Which made them yield more interest than low-risk bonds. For 30 years or so, it was a veritable source of easy money until it triggered a subprime mortgage crisis that even hedge funds can’t even smooth out.
The incoming Obama Administration will now be facing a monumental task of solving a financial mess that can trace it’s roots back 30 or so years ago. It took 30 years of regulatory oversight to create our current financial crisis that is now sweeping across the entire world. Even the “greedy” people who caused this problem in the first place are no longer as rich as they used to be. And they used to claim that greed is good.
By: Ringo Bones
Well known for his staunchly laissez-faire economic policies, the former US president Ronald Reagan and his administration will forever be remembered for defending the underlying principles of American free enterprise. And also of promoting the Protestant Work Ethic as one of the leading principles that made the American economy what it was which made it outlast the former Soviet Union. But despite of the Reagan Administration’s sweeping economic reforms – affectionately nicknamed “Reaganomics” – that made the “Go-Go 80’s” possible. One of its serious oversights will forever mark the 1980’s as the “Decade of Greed”. Sadder still, the problem that drove our current global economy to the brink originated during this time period.
Back in 1977, Salomon Brothers and Bank of America jointly introduced the world’s first ever Mortgage Backed Securities or MBS. A college dropout initially hired to work in Salomon Brother’s mailroom, Lewis Ranieri, was assigned the task of selling these somewhat untested securities / bonds. Before the extensive Reagan Administration era lobbying in Capitol Hill made it available throughout America, Mortgage Backed Securities used to be legal in only 15 US states. Lewis Ranieri was then known to have a trader’s nerve and a salesman’s persuasiveness won lobbying battles in Washington that eventually removed legal and tax barriers against MBS. Ranieri then headed up a Salomon Brothers’ team that developed Collaterized Mortgage Obligations. Collaterized Mortgage Obligations are 2-year, 5-year, and 10-year Mortgage Backed Securities that are packaged to appeal to a variety of low, medium, and high-risk investors. Thus paving the way for the subprime mortgage crisis.
Though it is worth noting that the preexisting ideological climate of the Reagan Administration frequently confuses the Protestant Work Ethic with massive corporate earnings thus causing them to turn a blind eye when it comes to financial regulation. After all, it something earns money, then it must be good - right?
But everyone back then was too blind to see that Mortgage Backed Securities for all intents and purposes were high-risk bonds. As financial instruments, they are backed by more speculative or subprime mortgages, loans made out to high-risk borrowers. Which made them yield more interest than low-risk bonds. For 30 years or so, it was a veritable source of easy money until it triggered a subprime mortgage crisis that even hedge funds can’t even smooth out.
The incoming Obama Administration will now be facing a monumental task of solving a financial mess that can trace it’s roots back 30 or so years ago. It took 30 years of regulatory oversight to create our current financial crisis that is now sweeping across the entire world. Even the “greedy” people who caused this problem in the first place are no longer as rich as they used to be. And they used to claim that greed is good.
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