It’s Those Pesky Slovenians Again…
Dr. ARF failed to submit his post this week. I take it he has more pressing engagements, so you’ll have to bear with me today
I always find it funny how most of world financial experts tend to swear by their models, analysies, trends, historical data, reports, indices and whathaveyou, but in the end it all comes down to a psychological trick.
It’s all about how long they can pretend that a problem doesn’t exist. As soon as someone calls spade a spade they all panic and create a crisis that could have been averted if they all had the guts to talk about a particular elephant in the room. In this case - the subprime mortgages
And of course it was up to a Slovenian to bring it up. Unfortunately this artice in Financial Times Deutschland, where Marko Kranjec, the finally-named Governor of Slovene Central Bank talks about dangers the subprime mortgages in the US pose to global markets is in German, but the point is that he said out loud what everyone was whispering about for years now. That the subprime mortgages will kill consumer spending in the US as the inevitable raise of interest rates will mean that more money will have to be spent on returning the loans rather than spend it (either on goods and services or on new loans).
Sure enough only a day later the exact same thing happens.
But there are a couple of incosistencies in this whole business that I find rather amusing:
1.) The way the media claim that money had just vanished: It didn’t vanish. Money doesn’t just dissapear. Someone is making a hefty profit out of all of this. Probably the Chinese.
2.) The fact that the central bank all over the world intervened to stabilise the markets: I’ve no quarrel there, but I’d like to ask (in a very strong voice) all the neoliberalists and laissez-faire economists, where are your fancy theories now, huh? Shouldn’t the market sort itself out? Mičo Mrkaič, eat your heart out!
3.) Everyone was quick on their feet at reassuring everyone else that this is just a fluke and that it is manageable:: If it were manageable then it would have never occured. Either that, or there are some extremely bad global managers around.
P.S.: As of yesterday, pengovsky is officialy on vacation. 
August 11th, 2007 at 10:02 pm
Enjoy your vacation and come back full of energy, kinky ideas and positive attitude!!!
P.S. I hope at least Monday and Friday posts are already stored on your comp and planned for publishing with a delay in your absence.
August 11th, 2007 at 10:05 pm
Yes, at least Monday, as on Friday I’ll be enjoying my vacations as well. Well, maybe I’ll come across some cyber caffee in London and check out on Friday too
August 12th, 2007 at 6:14 pm
I just finished reading an interesting Metafilter thread about this, so it was nice to get your two cents as well.
The one thing I can’t find is what exactly what things one could expect, especially for people in Europe. Obviously, whenever the U.S. economy sneezes, Europe and Asia catch colds, but what kind of things could happen? Runaway inflation? Recession? Some kind of Mad Max scenario?
I suppose we’ll find out. In the meantime, enjoy your vacation!
October 17th, 2007 at 5:14 pm
[…] Speaking of retention, ahem… Financial Times reports that banks’ debts threaten growth. Big US commercial banks have seen $280bn of new debt come on to their balance sheets since the credit squeeze, threatening to undermine economic growth by inhibiting their ability to make new loans. Large bank capital – represented by net assets – had reportedly declined by $40bn since the beginning of August. European banks are said to be facing similar pressures with many observers expressing concern at the ability of some smaller lenders to handle the potential strain on their balance sheets. Perhaps time to re-read Pengovsky’s two cents’ worth on the subprime-lending-induced crisis? […]