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Last week I saw Mr. Greenspan presentation before Congress. He admitted that his views were not correct regarding the housing market, and the financial models he followed had a big mistake: not enough historical information to come to the right conclusion. During the last weeks, Congress has been very busy putting a show for America. Who can we blame today for this mess? They are questioning everybody in Wall Street to show the World that they are worry about this problem, and that they are taking the necessary steps to protect the American Taxpayer from “all these corrupt people in Wall Street”. I am sorry, but these are just plain excuses. What about their responsibility? What about their participation in 1999 in the decision that Fannie Mae and Freddy Mac should not be as rigorous in lending money to potential homebuyers? When is the American people going to call Congress and ask them why they allowed those irresponsible measures that helped in a big way to create all this mess that now everybody, except for them is paying for? I am sorry, but it is just too easy to blame everybody for a problem while at the same time hiding behind a big desk and title in order not to be accountable for their participation in the problem.
I am not saying that some of the people or companies that are being questioned are innocent. I am just saying we should be very clear why this happened and put everything in the right spectrum in order to avoid happening again. It is very important to understand the political and financial mistakes made by the United States Congress specially now that the US Government is putting money in our biggest financial institutions. The financial system in the United States has a serious danger of becoming a toy tool for politicians in the future. If taxpayers money is in the balance sheets of big financial institutions it will only be a matter of time until some irresponsible member of Congress proposes a law to require those financial institutions to lend money more freely to homeowners, small business and everybody else. They can do that because when things explode it is never their fault; they are only responsible for putting a big show, the “Blame Game Show” for everybody to see.
Until next time,
JCM
Monday, October 27, 2008
Thursday, October 16, 2008
The markets keep falling down and everybody is looking for someone to blame. Main Street and politicians blame CEOs from different companies accusing them of incurring huge risks, getting incredible payouts from those risks and now the American taxpayers have to pay the bill for their mistakes.
Unfortunately things are not that simple. Of course some people made terrible mistakes on their assumptions and basically financial firms created products that did not fully understand. I also think that it would be fair to put some kind of restrictions on the payouts and salaries Board of Directors and top management receive in public companies. But at the same time, it is not fair to blame everything on them. The truth is that those same politicians that are calling every CEO in the country a thief are also to blame and actually they have a huge percentage of the blame in this problem. In 1999 under the Presidency of Bill Clinton, Congress passed a law that aloud and encouraged Fannie Mae and Freddie Mac to lower their standards for mortgage loans. They said that Fannie Mae and Freddie Mac should accept mortgage from people with no so good credit reports because everybody in America has the right to purchase a home. That was the beginning of the credit crisis in America.
Later in 2001 the five investment banks (Bear Stearn, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Goldman Sack) asked the SEC to aloud them to increase their leverage to 40 to 1 instead of the 12 to 1 they were aloud at that time. The SEC accepted immediately that proposal and that was the second most important reason for the real estate bubble to start. The 5 investment banks started to demand more and more mortgages from brokers in order to create the infamous CDS and other mortgage products that started trading with no regulation and no transparency in the markets. More demand in mortgages meant giving more money to people with less and less restrictions.
Finally, in 2005 the Government of George W. Bush tried to pass a law limiting the risks taken by Fannie Mae and Freddie Mac. Congress rejected that law, both parties Democrats and Republicans. We all know what happened next. The Government took Fannie Mae and Freddie Mac, and the 5 investment banks disappeared; only Morgan Stanley and Goldman Saks are still in business but as commercial banks.
Next time you hear your politicians blaming everybody for what is going on today, ask him/her where were them when those laws were passed and why he/she never sounded the alarm based on everything that was going on. Everybody knew there was a bubble in the real estate market, and nobody did everything about it. Today, as always when we are in the middle of the crisis, everybody is blaming at everybody. History will repeat itself because nobody assumes its own faults, in the future will have another crisis and then you will hear again the same politicians calling everybody a thief. We won’t learn from this painful experience.
JCM
Unfortunately things are not that simple. Of course some people made terrible mistakes on their assumptions and basically financial firms created products that did not fully understand. I also think that it would be fair to put some kind of restrictions on the payouts and salaries Board of Directors and top management receive in public companies. But at the same time, it is not fair to blame everything on them. The truth is that those same politicians that are calling every CEO in the country a thief are also to blame and actually they have a huge percentage of the blame in this problem. In 1999 under the Presidency of Bill Clinton, Congress passed a law that aloud and encouraged Fannie Mae and Freddie Mac to lower their standards for mortgage loans. They said that Fannie Mae and Freddie Mac should accept mortgage from people with no so good credit reports because everybody in America has the right to purchase a home. That was the beginning of the credit crisis in America.
Later in 2001 the five investment banks (Bear Stearn, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Goldman Sack) asked the SEC to aloud them to increase their leverage to 40 to 1 instead of the 12 to 1 they were aloud at that time. The SEC accepted immediately that proposal and that was the second most important reason for the real estate bubble to start. The 5 investment banks started to demand more and more mortgages from brokers in order to create the infamous CDS and other mortgage products that started trading with no regulation and no transparency in the markets. More demand in mortgages meant giving more money to people with less and less restrictions.
Finally, in 2005 the Government of George W. Bush tried to pass a law limiting the risks taken by Fannie Mae and Freddie Mac. Congress rejected that law, both parties Democrats and Republicans. We all know what happened next. The Government took Fannie Mae and Freddie Mac, and the 5 investment banks disappeared; only Morgan Stanley and Goldman Saks are still in business but as commercial banks.
Next time you hear your politicians blaming everybody for what is going on today, ask him/her where were them when those laws were passed and why he/she never sounded the alarm based on everything that was going on. Everybody knew there was a bubble in the real estate market, and nobody did everything about it. Today, as always when we are in the middle of the crisis, everybody is blaming at everybody. History will repeat itself because nobody assumes its own faults, in the future will have another crisis and then you will hear again the same politicians calling everybody a thief. We won’t learn from this painful experience.
JCM
Friday, October 10, 2008
The First Blog
Hi everybody, today October 10,2008 is the first time that I write for this Blog. This will be a Blog about Financial Markets, I will give my opinions about the US and the World Economies, about Financial Markets in general like stocks or commodities and I will even give some recomendations every know and then, based in whatever I am looking at.
I hope people find this information helpful and will come back to read about my thaughts and analysis.
As the moment of this writing, the Dow Jones is 400 points down, it started 700 points down and then recovered, and we will see where it goes from here. We are in the middle of a financial crash that will be remember for years from now. We will remember how much money we lost (individually and as a country), we will remember the firms that dissapeared already and the ones that will dissapear in the near future. But we won't remember what brought us to this point and which laws and changes from Washington made all this mess possible. By not remembering how we got to this point, we are setting ourselves for another financial crash in the future, another bubble that will burst.
As I said at the begginning, I will write as often as possible about everything going on in the financial world. For now, my only comment for you is avoid selling your stock holdings at these levels, and if you have money on the sidelines, put it to work on the stock market or the Corporate Bond markets in well known companies with a clear line of business. Avoid airlines, financials, and automobiles for now.
Until next time,
JCM
I hope people find this information helpful and will come back to read about my thaughts and analysis.
As the moment of this writing, the Dow Jones is 400 points down, it started 700 points down and then recovered, and we will see where it goes from here. We are in the middle of a financial crash that will be remember for years from now. We will remember how much money we lost (individually and as a country), we will remember the firms that dissapeared already and the ones that will dissapear in the near future. But we won't remember what brought us to this point and which laws and changes from Washington made all this mess possible. By not remembering how we got to this point, we are setting ourselves for another financial crash in the future, another bubble that will burst.
As I said at the begginning, I will write as often as possible about everything going on in the financial world. For now, my only comment for you is avoid selling your stock holdings at these levels, and if you have money on the sidelines, put it to work on the stock market or the Corporate Bond markets in well known companies with a clear line of business. Avoid airlines, financials, and automobiles for now.
Until next time,
JCM
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