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 #2 (permalink) Sun Mar 09, 2008 13:29 pm Is the US subprime credit crunch causing an internatinal crisis? |
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Hi Hans_Ulrich,
Thank you for your comments on the newsletter, I do appreciate it when people respond. As I sit here in my tiny office overlooking the garden, I often wonder how my words will go down in our ever growing community. As for your question about the world economic question, I think I still have faith in those who you refer to as the 'international banking elite' and share your hope in your statement:
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| I hope that the learning capacity of the human civilization is big enough to draw the correct teachings from these historic events. Otherwise we will have a very critical situation that nobody can control. |
You may have heard that last summer we visited Leipzig and were grandly shown around there and in Dresden by Torsten. Apart from the architectural delights I found it very stimulating to see the extent to which people are actually carrying out rebuilding and reconstruction..
Best wishes
Alan
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Alan
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| #3 (permalink) Sun Mar 09, 2008 14:41 pm Is the US subprime credit crunch causing an internatinal crisis? |
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hi Alan,
many thanks for your quick reply and your hope in "the learning capacity of the human civilization ... to draw the correct teachings from these historic events. Otherwise we will have a very critical situation that nobody can control....".
I fully agree to you and share your hope.
I hope to meet you during your next working visit to Germany.
Best wishes
Uli |
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 Hans_Ulrich
You can meet me at english-test.net
Joined: 14 Oct 2003
Posts: 58
Location: Germany, Leipzig
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| #4 (permalink) Mon Mar 10, 2008 11:24 am Is the US subprime credit crunch causing an internatinal crisis? |
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| Hans_Ulrich wrote: |
| How I am a bit concerned about the situation with the US subprime credit crunch as well as the uncontrolled operation of super hedge fonds worldwide participating in the privatization programs of today public services etc. pp. |
Hi Uli,
I think that 'the subprime credit crunch' is primarily a buzzword which has been promoted by certain parts of the mass media. The US is a country with one of the highest level of private homeowners, credit card users, private investment product buyers, etc. This means that the average American knows more about financial investment issues than the average European, Asian or African. Large parts of the European mass media are trying to tell us that the US economy is in a critical state and that this has a negative impact on the world economy. What we really need is balanced and factual information rather than 'ideologized' propaganda.
| Hans_Ulrich wrote: |
| I feel extremely great imbalances in international economic relations (enormous twin deficits in the US budget and foreign trade; very often expressed "fear" that the big state/ public fonds of China, Russia , UAEmirates etc. could destroy the world wide market equilibrium...) and the potential very contradictional repercussions we all will feel. |
The world economy is driven by a natural law that human beings cannot change. We can only educate ourselves in order to use this law to our best advantage. It's the law of supply and demand and nobody can 'destroy' it.
| Hans_Ulrich wrote: |
I should like to ask you how do you see these existing challenges?
Will the "international banking elite" (FED, BIS Basel, IMF, IBRD ... top managers) be able to manage this very contradictory situation for the benefit of a constructive outcome / solution? |
Uli, I don't believe in an "international banking elite". I believe in my ability to create value for other people and I also believe in the "law of increasing returns'. The Internet gives me the ability to help a lot of people achieve their goals and the law of increasing returns guarantees that I'm being rewarded for my efforts. As long as I concentrate on what I'm good at I don't have to bother about a so called 'elite' because I can make my own decisions.
| Hans_Ulrich wrote: |
| Or are there so many different interests (short term versus long term, globally collective versus individualistic interests ....) that we (the human civilization in the today structure...) will not be able tomanage the existing challenges with very problematic consequences. |
Uli, what exactly do you mean by 'problematic consequences'?
| Hans_Ulrich wrote: |
| I should like to see more democratic transparency, more long term interests be taken into consideration when we are looking for constructive solution. |
Uli, the vast majority of people are so mired in their daily routines that they don't have any interest in issues like 'globalization', 'the credit crunch' or 'the international banking elite'. They don't have any interest in these issues because they think they can't change anything about their situation and as a result they can't change anything. So, any 'problems' we have today stem from a mismanaged thinking process of the average person rather than an elite. It is true that only a tiny little fraction of the 6,7 billion + people on our planet are 'leaders'. The rest are like sheep who just follow praying that the elite will improve their personal situation instead of making decisions for themselves.
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Torsten
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| #5 (permalink) Mon Mar 10, 2008 13:59 pm Is the US subprime credit crunch causing an internatinal crisis? |
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| Torsten wrote: |
| I think that 'the subprime credit crunch' is primarily a buzzword which has been promoted by certain parts of the mass media. The US is a country with one of the highest level of private homeowners, credit card users, private investment product buyers, etc. This means that the average American knows more about financial investment issues than the average European, Asian or African. Large parts of the European mass media are trying to tell us that the US economy is in a critical state and that this has a negative impact on the world economy. What we really need is balanced and factual information rather than 'ideologized' propaganda. |
The same thing is true in the US. In the state with the highest foreclosure rate, only 7% of the mortgage holders are in default. This means that in the very worst afflicted US state, 93% of the people are on time with their mortgage payments. In other words, in relative terms, hardly anyone is in default, and most of them are in default because of their own foolish financial decisions. I personally don't know anyone who's defaulted, because all the people around me bought only what they could afford, and they read and questioned the potential loan contracts before they chose to sign one. After all, what person in his right mind, and who had actually read the contract, would take out a loan for 150% of the value of his collateral?
Not all Americans know very much about economics, and the US media are trying to pump the story up because they think it will favor the Democrats in the election.
The last time we had a similar banking crisis, it was not because of subprime mortgages, but because the largest banks had made enormous loans to Latin American governments, almost all of which defaulted. The root cause was the same as that of the subprime mortgage crisis: The economy was booming, and the banks had a lot of money to lend but fewer and fewer qualified borrowers in proportion to the available funds. There is always government and public pressure for the banks to be "good Samaritans" and "help the disadvantaged". In the previous case, the banks chose the Third World, and in this case they chose "low-income homeowners". And our banks are forced by the government to enter into all kinds of losing deals with insolvent borrowers in order to prove they're not "racist". Either way, whenever that happens, the banks are being pressured by the government to lend to borrowers that the banks can easily determine will never be able to pay their loans back.
| Torsten wrote: |
| Hans_Ulrich wrote: |
I should like to ask you how do you see these existing challenges?
Will the "international banking elite" (FED, BIS Basel, IMF, IBRD ... top managers) be able to manage this very contradictory situation for the benefit of a constructive outcome / solution? |
Uli, I don't believe in an "international banking elite". |
Often the term "international banking elite" is a code word for "The Jews". There are thousands of banks competing for business, but somehow Uli imagines they're all coordinated and plotting together instead.
It seems that Uli has a Marxist-Leninist conception of the world in which a few little oligarchs are manipulating the entire world for their personal benefit and in order to damage "the people". When he calls for "democratic transparency", I don't think he means what most people think of as democracy, but state control of the banking system, which is not democratic and is generally a disaster.
The "subprime crisis" is a relatively small problem that will work itself out in a year or so, as long as the government keeps its nose out. |
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Jamie (K)
I'm a Communicator ;-)
Joined: 24 Feb 2006
Posts: 5332
Location: Detroit, Michigan, USA
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| #6 (permalink) Thu Mar 13, 2008 10:18 am Is the US subprime credit crunch causing an internatinal crisis? |
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Hi Jamie,
Many thanks for you interesting remarks concerning my concerns about the present state of the international financial markets systems.
I fully agree with many of your intelligent remarks but with some I can not agree.
Some general remarks:
We all are rationally thinking human beings who know very well from our experiences as well as our basic theoretical understanding of our world:
The majority of the existing markets have no in-built mechanisms for rational self-regulation. For this basic reason vital markets should be/must be wisely regulated, controlled, supervised… if not we have seen and we will see the catastrophic consequences (the contradictory history of the human civilization is full of these "misdevelopments" with enormous negative repercussions for mankind….).
In my understanding this has absolutely nothing to do with an alleged "Marxist" position.
By the way, I find it not so very constructive to label a partner in an open well performing forum as an " …ist". In my understanding this is a bit superficial and could bring a confrontation we all are not at all interested in. Nobody in our partnership is an "… ist".
We all are human beings with different biographies, different values, different social communication skills, different education, and different interests….
We should take this always in consideration when arguing about the forum partners.
Dear Jamie, you wrote:
| Jamie (K) wrote: |
| "It seems that Uli has a Marxist-Leninist conception of the world in which a few little oligarchs are manipulating the entire world for their personal benefit and in order to damage "the people". When he calls for "democratic transparency", I don't think he means what most people think of as democracy, but state control of the banking system, which is not democratic and is generally a disaster. |
Quite contrary - without a wise control (by the BIS, FED, CB, IMF, Bafin etc. pp. …) we all will be in hell….
These sensitive markets must very intelligently be supervised, regulated… this is the crucial point:
Who will regulate these world wide financial markets and for what targets?
Who has the power to regulate?
Who will determine the future rules of the game after the collapse of the Bretton Woods system, the today existence of a "voluntary Bretton Woods II"?
Who will pay for the systemic costs of reproduction of our global networks?
The hedge funds as well as some "daughters" in off shore places have escaped from this control and we see very clearly the terrible results and the many innocent victims.
Without o rational protection we all are victims!
Now after the collapse of the centrally mis-managed economies (very superficially labelled as "socialist or communist" economies ..) we see a world wide transfer to market economies. The great challenge in my understanding is to shape this very quick transfer in humane forms, otherwise we all have no good future (you know very well the big discrepancies in the transfer economies like Russia, China, where a very small minority is controlling the rich resources of these countries and the vast majority is the victim of this transfer with terrible consequences you know better than me…).
| Jamie (K) wrote: |
| "Often the term "international banking elite" is a code word for "The Jews". There are thousands of banks competing for business, but somehow Uli imagines they're all coordinated and plotting together instead. |
Dear Jamie, (this very stupid "Jewish" buzzword we should not use in our Forum…) when we analyse the many side aspects of today's world wide subprime credit crunch even very superficially we all should accept that the greed of some very intelligent but short sighted "bankers" for short term maximum profits is one of the reasons behind this crisis.
Many diligent savers are loosing their savings because some very greedy uncontrolled "bankers" are managing the OPM (other people's money) very short sighted for selfish targets (please understand the terrible outcomes of the financial catastrophes in Germany 1923, Argentina 2006, Thailand, etc. pp.).
Without the existing control mechanisms the situation would be catastrophic.
The majority of savers (consumers…) have little understanding about these complex systems…. for that reason they should be protected – in a civilized society - against the greed of some criminals …. Or do you really follow the "liberal ideology" arguing that all consumers have a correct understanding of the very complex markets and are able to decide rationally..?
Moral hazard, public choice, segniorage, fiat money, justice, democracy, transparency of the world wide financial markets... should be taken into consideration…
Dear Jamie, so far some very simple ideas only for you …
I think you agree that this is not the adequate topic for your excellent forum where we should meet with mutual democratic respect in order to stimulate an open minded discussion without a discrimination of partners who present their personal understanding of the very complex situation in our globalized world (without repeating any stupid oversimplified ideological pattern…).
For that reason I am hoping for a further constructive discussion.
With my best regards,
Uli |
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Hans_Ulrich
You can meet me at english-test.net
Joined: 14 Oct 2003
Posts: 58
Location: Germany, Leipzig
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| #7 (permalink) Fri Mar 14, 2008 19:20 pm Is the US subprime credit crunch causing an internatinal crisis? |
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Hi Uli,
Thanks a lot for sharing all your interesting thoughts with us. Maybe it helps if we approach this topic one aspect at a time. Let's start with the question what or rather who started the so called credit crises. As far as I understand, a so called 'subprime mortgage' is a mortgage that is made available to a person who has a subprime credit risk. In other words, a certain number of US Americans with poor credit histories got bank loans when they actually should have. Now the question is who is to blame for this? The bank which extends the loan or the customer who takes it? Interestingly enough, the number of mortgage holders who are in default is rather low. Let's take a look again at what Jamie had to say on the subject:
| Jamie (K) wrote: |
| The same thing is true in the US. In the state with the highest foreclosure rate, only 7% of the mortgage holders are in default. This means that in the very worst afflicted US state, 93% of the people are on time with their mortgage payments. In other words, in relative terms, hardly anyone is in default, and most of them are in default because of their own foolish financial decisions. I personally don't know anyone who's defaulted, because all the people around me bought only what they could afford, and they read and questioned the potential loan contracts before they chose to sign one. After all, what person in his right mind, and who had actually read the contract, would take out a loan for 150% of the value of his collateral? |
Now you can try to fix the problem through institutions, regulations and restrictions. Or you can try to educate those mortgage holders about basic finanical principles. Which do you think will be more effective?
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Torsten
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| #8 (permalink) Fri Mar 14, 2008 19:51 pm Is the US subprime credit crunch causing an internatinal crisis? |
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| Torsten wrote: |
| Now you can try to fix the problem through institutions, regulations and restrictions. Or you can try to educate those mortgage holders about basic finanical principles. Which do you think will be more effective? |
No regulation can be written that doesn't have a loophole that someone will figure out a way to get through. So more regulation will just create more inconvenience but will not prevent a similar problem later.
Secondly, more regulation will shut out people who have subprime credit on paper, but who are actually good credit risks in real life. This sounds absurd, but what about, for example, a person who needs a mortgage after years of taking care of his dying parents? Now her parents are dead, her income for the year has reached normal levels, but because her income during her family crisis dropped, no bank will touch her. I know a man who was in a similar situation, and a "no documentation" loan made it possible for him to get a mortgage, and he is paying it off just fine.
Thirdly, any regulations that restrict subprime lending will cause the banks other problems, because they won't be able to meet the federal regulations for lending to racial minorities. Part of the reason for this mess in the first place is that the government was pressuring banks to increase their lending to minorities that also happen to have much worse credit than the population as a whole. |
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Jamie (K)
I'm a Communicator ;-)
Joined: 24 Feb 2006
Posts: 5332
Location: Detroit, Michigan, USA
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| #9 (permalink) Mon Mar 17, 2008 23:13 pm Is the US subprime credit crunch causing an internatinal crisis? |
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Hi Torsten and Jamie,
many thanks for you interesting remarks reflecting the very complex situation of the US subprime credit crunch respectively the international financial markets’ architecture in general.
I think the most important reason ( the economic fundamentals ) behind the US subprime credit crisis is the immense US triple deficit ( huge deficit in the Federal budget respectively the long-term public indebtedness, the balance of payment deficit and the indebtedness of many US households – the US is at the moment the most indebted state worldwide / 309 % of GDP) . (…. the US subprime credit crunch is only a very small aspect in the whole very complex financial system…)
Up to August 2007 these huge deficits were more or less financed by the US Federal Reserve Banks’ Seignorage respectively by the “Voluntary Bretton Woods II gentlemen agreement” between the major players of the international financial markets.
Now some partners ( EU, China, Japan etc. ) are hesitating to continue according to these “traditional“ rules.
For hat reason we witness now the very contradictory “discussions” how to reshape the international financial architecture.
Very important questions in this respect are :
Who will pay for the systemic costs ( war against the terror ? Iraq and Afghanistan war …)?
Who will be punished for the cardinal mistakes ( some responsibles or the whole tax paying society respectively all these savers who deposited their money with banks whose managers have “mismanaged” these gigantic funds ( moral hazard …) ?
Can one country continue to practice seignorage at the expense of the international community ? etc . pp.
I think we all will witness during the next years some very interesting developments in the international financial architecture reflecting the changes in the international balance of power.
This also will reflect directly and indirectly the way how this financial crisis ( mainly a crisis of trust ) will be managed.
I hope the long-term interests will dominate in this contradictory system of relations.
We should always take into consideration that there are very different interests of the many players in this “game” .
The great challenge in my understanding is to find and to implement a lasting compromise accepted by the most powerful players in this “game”.
It will be very interesting like in a very great detective story.
Many thanks and all the best for you.
Best regards Uli . |
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Hans_Ulrich
You can meet me at english-test.net
Joined: 14 Oct 2003
Posts: 58
Location: Germany, Leipzig
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| #10 (permalink) Wed Mar 26, 2008 3:11 am Is the US subprime credit crunch causing an international crisis? |
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Here is some perspective from Rich Karlgaard's column in Forbes a couple weeks ago:
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Trouble with numbers. When reading about any business problem or challenge, how often do you see the problem stated in relative terms? For example, what dampens spirits today? The subprime mortgage mess. How big a problem is this? No one really knows, but so far banks have written off about $150 billion in bad loans. Now, $150 billion sounds huge. But it is only 1% of America's annual GDP. It is also less than 1% of the market capitalization of U.S. stocks. In any typically volatile trading day U.S. stocks gain or lose $150 billion every hour. How often does one hear that?
"Surely that $150 billion will grow," you say. No doubt. Let's say the amount of bad paper doubles or triples. Would that finally bring the U.S. economy to its knees? I don't think so. The nearest historical comparison we have is the savings-and-loan crisis of 1986--95. On a constant dollar basis--so we can compare apples with apples--the S&L crisis saw $700 billion in bad loans. Nearly five times as much as we've seen in the subprime mess so far.
The S&L crisis caused some damage, to be sure. But during the 1986--95 period the U.S. economy grew and stocks went up. We survived stock shocks in 1987 and 1989 and a mild recession in 1990. The country did not collapse into a 1930s-like depression.
The financier George Soros calls today's credit crunch the worst global financial crisis since World War II. He's wrong. See the second reason for the explanation. |
You can read the rest of the article here:
http://www.forbes.com/columnists/forbes/2008/0310/027.html |
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Jamie (K)
I'm a Communicator ;-)
Joined: 24 Feb 2006
Posts: 5332
Location: Detroit, Michigan, USA
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