Home > Economics, Future, Money, Organisations, Opinion > Sub Prime – where we are we now and how do we move forward..

Sub Prime – where we are we now and how do we move forward..

September 19, 2008 Leave a comment Go to comments

I had a similar entry yesterday – but it didn’t do it for me – so lets have another look at it.

The Sub-Prime is not the cause of this world wide financial disaster – the originators of the CDO’s are responsible. We are in a mess – we feel out of our depth, big time, in a deep dark place. Some are feeling anxious, panic and hopefully, some are feeling regret (though I doubt it) for past actions which has amounted to gambling by playing roulette with the whole World’s economy and loosing. We think there is no way out..but there is – well I think there is.

Here is what I am going to suggest:-

  1. All of these problems keep on coming back to what is called the Sub Prime paper – but is really a collateralized debt obligations (CDOs) which are an unregulated type of asset-backed security and structured credit product.  For a full and complete definition of these types of “investments”, we will come back to this.

    To stop the rot – what we need to do is somehow isolate these CDO’s which is particular are related to the Sub-Prime Mortgage markets, but also can apply to other risky paper.

    Perhaps the Central Banks in each country can transfer these CDO’s and other of the same ilk into a trust perhaps – in isolation from the mainstream financial market – the “owners” of these CDO’s would then be compensated with a cash equivalent – of their value at the time of entry into the trust – we are of course assuming here that these CDO’s do have a cash vale – some of course may been to be written off in total.

    In the future, how these CDO’s are transferred back to the original owners has it issues – after all who would want them back, nevertheless there has to be a process to value or even combining several into one to give the current market value at the time of their return – if of course they have a value.

  2. Large sums of cash in the area of trillions of dollars over time will need to be injected into the markets by their various Central Banks to improve liquidity.
  3. To ensure various companies long term viability – they will need to be re–capitalised, this may need to be a medium term goal, because essentially we know that these funds will need to come from the market – and their may be considerable reticence to do this in the short term – perhaps companies that are viable and need funds could be injected by the Central Banks with the necessary equity. When market confidence has returned which maybe a long term goal, these funds that were provided by the Central Banks could then be repaid, by the stock market. The good thing is that at this time – the company (assuming it is still in business) would have a track record of profitability – which would add credibility and hence for the limited market recapitalisation of these companies into the wider stock market. I am here assuming we will have one –  I think we will – this has been a huge wakeup call – and at least for the next ten to twenty years of so, in may engender some amount of care and responsibility about the deals that are done.
  4. China – has to be involved in the “repair and rebuilding” process – they have as much, actually ,considerably more to lose than anyone country – the result of the huge trade surplus is a lot of cash, Treasury bonds, companies and other hard and soft assets to protect – they also are relatively uninjured so far in the world wide process. They maybe able to help in other ways.  The only other county that could help, a former major driving force in the Pacific is currently having its own problems and I don’t believe that they will be able to help – I am obviously speaking of Japan here.
  5. We need a systematic program to fight this disease in the financial system, we have identified the cause – so as in (1) above lets nullify the effects by withdrawing this “virus, cancer – whatever” from the body of the worlds financial system, The current actions – appear like we are all running around “putting out bush fires” – a bit here a bit there. Hence my suggestion is that we – sorry not me – the powers across World finance system – broker the best way for a World wide expedited and “prompt” response to this situation. Put aside your agendas, your egos and other negative feelings and work together to come up with a systematic response to this situation – please.

    Whatever is the outcome – the effect will be that billions of dollars will be lost and written off the assets not only of countries, companies, but the most important what this does to the perception around the world of the mystery of the Worlds Financial Markets – this will affect the finances of ten of millions of families around the world impinging on the hopes and dreams, their children’s education, their homes and retirement nest eggs.  I am sure that time will help us move on – however I can never see the hysteria and hype that we have seen in the last few years occur again – as I hope that there will be some kind of improved regulatory framework in place including legislations to make companies, employees or individuals accountable for any actions of any dubious nature in the future. I am sure that there will be changes in laws from the SCC, Treasury, Stock Markets and the Central Banks about how business will be done in the future, particularly in the areas for banking especially regarding increases in the reserves that will be necessary to be kept with the Central Banks, the Rating services, and accountability for these cowboys.  So these news laws should be laid down under the legislations name of the WILD WEST IS DEAD .. Gambling is illegal with our money

    Whatever the short to mid term outcome is – one thing is for sure that this financial disaster that has been created by corporate greed and therefore originally by someone – perhaps someone who’s payment package was all about a small retainer and large amount of bonus or performance income – we need to re-look at this and frankly I will be thinking about it over the weekend.

    When this is over and so long as no one panics – with some level of political honesty and collaboration across party lines, but most of all political competency in the rebuilding process – we have a chance.  However the USA will loose probably trillions of dollars – and with this crippling ongoing war the recovery will be further delayed – however at least with Iraq, the USA is looking as though it might be soon placed for a honourable withdrawal, retreat (call it what you like) – the healing process can then begin in earnest.

    I believe America can come back from this – it has the energy in its people and so long as it has the political will, support and most of all competency it will recover , to again return leaner, stronger, wiser and a more accountable player in the financial world.


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