There are concepts that seem unimportant to the functioning of economic systems and yet the erroneous evaluation of risk can be considered the cause of a set of phenomena that have a domino effect overwhelmed the markets and financial institutions the whole world.
There is unanimous agreement in considering that the credit crisis in the U.S. is born out of an incorrect assessment of risk in mortgage lending and lending to people who could not offer sufficient guarantees or who were already burdened with other debts. The correct assessment of risk in these cases is an essential tool to safeguard the interest of the provider and the most 'of the economic system in general. For the greed of some fraudulent bankers with the complicity of the political class, the American economic system has tolerated the growing level of indebtedness of households (for housing, consumption, study, etc..) And businesses without there was an effective assessment of their strength economy. It is believed that the goods traded on a market, the chances and risks are incorporated in the price, the obligations arising from these loans with limited warranty, in fact, could initially enjoy a price (interest) more 'high.
In the next phase of these high-risk loans were diluted into other financial products more 'complex and sold to pension funds, investment funds, insurance companies and banks around the world. To marketization risky these instruments were bundled together with the bad debt instruments more 'credible and respectable. In this way the original debts have moved in time and space and have reached financial institutions of many European and Asian countries. The entire global financial system was initially flooded with large amounts of money from the interest that these tools were able to secure before the domino effect. The spread of these securities has been so pervasive that when the debtors have experienced difficulties in coping with the effects of bonds have been seen before in America and then in several European and Asian countries. These financial instruments sick, like cancer cells, have threatened the very existence of institutions that have invested resources and led to the insolvency of banks and insurance American and European.
How the U.S. is trying to get out of this problematic situation? The Paulson plan approved by Congress provides the disbursement by the U.S. government in the coming months to 700 billion dollars to rescue the major financial institutions involved and ultimately the entire economy. The bailout - by some called "cash for trash" - provides for the purchase by the federal government (and taxpayers) of securities of poorly performing assets and written down to provide liquidity to institutions burdened by defaults. In this way the government is to support the debts of the financial system by downloading on citizens the costs of rescue without having access to any profits that may arise after the operation. In addition to measures of the Paulson plan is under discussion in recent days - will soon become a measure - the purchase by the government of significant stakes in nine major U.S. banks and state guarantee on interbank loans. Measures aimed at restoring parity with the conditions laid down by the intervention plans by European governments in a country that already has a very low cost of money and risk of falling into a "liquidity trap".
Across the Atlantic, the Anglo-European strategy sought to guarantee savers' deposits in addition to the loans that banks make on the so-called interbank market. In this large financial market, given the great mistrust that prevails, governments try to secure transactions with public funds in order to eliminate the mutual mistrust. 1000 billion Euros were made available by European governments to guarantee interbank loans until the end of 2009, making more funds available for any recapitalization, and capital into the banks with measures of partial nationalization. This joint initiative between Anglo-European that has restored confidence to the temporary bags and produced temporary increases in the two figures on the major stock markets in the days immediately following. From many interpreted as a clear sign of the success of policies to rescue European - success, however temporary - this act could be the beginning of a period of great hardship: the increase in public spending in a recession could result in an increase in tax burden in countries already burdened by the costs of demographic imbalances. In addition, some already wonder how far states can not borrow that to weigh on them the confidence of the markets.
What may be expected in the coming years if policies are successful rescue? As a first result of this crash, the banks will have to reduce the weight of activities related to the sale of securities at high risk and potentially dangerous that caused the financial collapse and return to their traditional activities: to collect money from banks and lend it to entrepreneurs and economic entities making money on the spread between the different interest rates. In addition to the banking system also changed the world economy emerges from these reversals and manufacturing activities toward the production of things, goods and services will gain importance again at the expense of finance. Economic growth will be slowed by the reduced availability of capital for investment, mergers and acquisitions and will return power to increase productivity and population dynamics. The underlying macroeconomic imbalance according to many observers that sparked the crisis was caused by the accumulated trade deficit the United States and an excess of currency reserves that China and Japan have in recent years. The G8 governments and all countries in the developing world will reach an agreement on how to eliminate this imbalance, which until now has been supported by the American public and private debt. Open macroeconomic scenarios that do not yet know and which could call into question the role that America has had in the past 2 decades or threatens the cohesion and the very existence of the Euro.
of Stefano Angelini
There is unanimous agreement in considering that the credit crisis in the U.S. is born out of an incorrect assessment of risk in mortgage lending and lending to people who could not offer sufficient guarantees or who were already burdened with other debts. The correct assessment of risk in these cases is an essential tool to safeguard the interest of the provider and the most 'of the economic system in general. For the greed of some fraudulent bankers with the complicity of the political class, the American economic system has tolerated the growing level of indebtedness of households (for housing, consumption, study, etc..) And businesses without there was an effective assessment of their strength economy. It is believed that the goods traded on a market, the chances and risks are incorporated in the price, the obligations arising from these loans with limited warranty, in fact, could initially enjoy a price (interest) more 'high.
In the next phase of these high-risk loans were diluted into other financial products more 'complex and sold to pension funds, investment funds, insurance companies and banks around the world. To marketization risky these instruments were bundled together with the bad debt instruments more 'credible and respectable. In this way the original debts have moved in time and space and have reached financial institutions of many European and Asian countries. The entire global financial system was initially flooded with large amounts of money from the interest that these tools were able to secure before the domino effect. The spread of these securities has been so pervasive that when the debtors have experienced difficulties in coping with the effects of bonds have been seen before in America and then in several European and Asian countries. These financial instruments sick, like cancer cells, have threatened the very existence of institutions that have invested resources and led to the insolvency of banks and insurance American and European.
How the U.S. is trying to get out of this problematic situation? The Paulson plan approved by Congress provides the disbursement by the U.S. government in the coming months to 700 billion dollars to rescue the major financial institutions involved and ultimately the entire economy. The bailout - by some called "cash for trash" - provides for the purchase by the federal government (and taxpayers) of securities of poorly performing assets and written down to provide liquidity to institutions burdened by defaults. In this way the government is to support the debts of the financial system by downloading on citizens the costs of rescue without having access to any profits that may arise after the operation. In addition to measures of the Paulson plan is under discussion in recent days - will soon become a measure - the purchase by the government of significant stakes in nine major U.S. banks and state guarantee on interbank loans. Measures aimed at restoring parity with the conditions laid down by the intervention plans by European governments in a country that already has a very low cost of money and risk of falling into a "liquidity trap".
Across the Atlantic, the Anglo-European strategy sought to guarantee savers' deposits in addition to the loans that banks make on the so-called interbank market. In this large financial market, given the great mistrust that prevails, governments try to secure transactions with public funds in order to eliminate the mutual mistrust. 1000 billion Euros were made available by European governments to guarantee interbank loans until the end of 2009, making more funds available for any recapitalization, and capital into the banks with measures of partial nationalization. This joint initiative between Anglo-European that has restored confidence to the temporary bags and produced temporary increases in the two figures on the major stock markets in the days immediately following. From many interpreted as a clear sign of the success of policies to rescue European - success, however temporary - this act could be the beginning of a period of great hardship: the increase in public spending in a recession could result in an increase in tax burden in countries already burdened by the costs of demographic imbalances. In addition, some already wonder how far states can not borrow that to weigh on them the confidence of the markets.
What may be expected in the coming years if policies are successful rescue? As a first result of this crash, the banks will have to reduce the weight of activities related to the sale of securities at high risk and potentially dangerous that caused the financial collapse and return to their traditional activities: to collect money from banks and lend it to entrepreneurs and economic entities making money on the spread between the different interest rates. In addition to the banking system also changed the world economy emerges from these reversals and manufacturing activities toward the production of things, goods and services will gain importance again at the expense of finance. Economic growth will be slowed by the reduced availability of capital for investment, mergers and acquisitions and will return power to increase productivity and population dynamics. The underlying macroeconomic imbalance according to many observers that sparked the crisis was caused by the accumulated trade deficit the United States and an excess of currency reserves that China and Japan have in recent years. The G8 governments and all countries in the developing world will reach an agreement on how to eliminate this imbalance, which until now has been supported by the American public and private debt. Open macroeconomic scenarios that do not yet know and which could call into question the role that America has had in the past 2 decades or threatens the cohesion and the very existence of the Euro.
of Stefano Angelini
