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| Economy |
| Re-emerging As an Emerging Market |
| 2009-03-27 |
| Via Instapundit Back in the spring of 1998, when Boris Yeltsin was still at Russia's helm, I led a group of global investors to Moscow to find out firsthand where the Russian economy was headed. My long career with the International Monetary Fund and on Wall Street had taken me to "emerging markets" throughout Asia, Eastern Europe and Latin America, and I thought I'd seen it all. Yet I still recall the shock I felt at a meeting in Russia's dingy Ministry of Finance, where I finally realized how a handful of young oligarchs were bringing Russia's economy to ruin in the pursuit of their own selfish interests, despite the supposed brilliance of Anatoly Chubais, Russia's economic czar at the time. At the time, I could not imagine that anything remotely similar could happen in the United States. Indeed, I shared the American conceit that most emerging-market nations had poorly developed institutions and would do well to emulate Washington and Wall Street. These days, though, I'm hardly so confident. Many economists and analysts are worrying that the United States might go the way of Japan, which suffered a "lost decade" after its own real estate market fell apart in the early 1990s. But I'm more concerned that the United States is coming to resemble Argentina, Russia and other so-called emerging markets, both in what led us to the crisis, and in how we're trying to fix it. Over the past year, I've been getting Russia flashbacks as I witness the AIG debacle as well as the collapse of Bear Sterns and a host of other financial institutions. Much like the oligarchs did in Russia, a small group of traders and executives at onetime venerable institutions have brought the U.S. and global financial systems to their knees with their reckless risk-taking -- with other people's money -- for their personal gain. Negotiating with Argentina's top officials during their multiple financial crises in the 1990s was always an ordeal, and sparring with Domingo Cavallo, the country's Harvard-trained finance minister at the time, was particularly trying. One always had the sense that, despite their supreme arrogance, the country's leaders never had a coherent economic strategy and that major decisions were always made on the run. I never thought that was how policy was made in the United States -- until, that is, I saw how totally at sea Treasury Secretaries Henry Paulson and Timothy F. Geithner and Federal Reserve Chairman Ben S. Bernanke have appeared so many times during our country's ongoing economic and financial storm. |
| Posted by:ed |
| #7 risky borrowers via the Community Reinvestment Act Yeah, the Community Reinvestment borrower were risky and defaulted in large numbers - but they were largely defaulting on $50,000 homes, which does not add up to enough to account for trillion dollar problems. To get to the trillion dollar level you have to have risky loans on half million and million dollar homes being defaulted - in other words people with income and assets to own a reasonable home but ambitions for mansions or for 'flipping' homes for big short-term gains. |
| Posted by: Glenmore 2009-03-27 22:43 |
| #6 Perhaps AH9418, but if lenders hadn't been mandated to provide mortgages to risky borrowers via the Community Reinvestment Act and if FMae and FMac hadn't been around to buy up all of the risky mortgages created by said act, which they then bundled up for sale as "collateralized debt securities" to Wall St-- who in turn used them to engage in the various ridiculous credit default swaps which have since cratered-- could this whole mess have been avoided in the first place? I grant that my grasp of the intracacies involved may be less than ideal but if my understanding is correct, the government got involved in the business of mortgage lending and borrowing "for the common good" and removed many of the free market guidelines. Simply put, had the free market not been tampered with, lenders would not have made the loans they did and we wouldn't be in the mess we are in today. I realize I may be grossly oversimplifying the matter. |
| Posted by: eltoroverde 2009-03-27 16:22 |
| #5 Post-inflation, your dog would get invited to get a card. Forget the dog. He wouldn't know what to do with it. The real trouble starts when they give one to your teenage daughter. |
| Posted by: Ebbang Uluque6305 2009-03-27 15:53 |
| #4 Long before the current mortgage racket, the bank/financial institutions got into the credit card racket. Back when the Carter administrative launched us into double digit inflation, most states had usury laws limiting the amount of interests that can be charged by 'legal' institutions. When the banks rightly pointed out they could not lend near or lower than what they borrowed from the Fed, their little agents at the state level got the governments to remove the laws rather than modify them to float with the Prime rate. So when the Prime came back down to the lower single digits, the interest rates remained in the upper teens and lower twenties for years. That's because the banks and financial institution began granting credit/credit cards to nearly everyone. Pre-Carter, you had to be very very qualified to get a card. Post-inflation, your dog would get invited to get a card. The banks never had to carry the losses, they simply passed it on to other card holders. The entire modus operandi was there and running by these institutions when the government gave them fuel, in the form of the mortgages, to throw on their running game. They are not 'victims'. |
| Posted by: Procopius2k 2009-03-27 15:23 |
| #3 I do not believe that the current crisis is fundamentally a political one. The politicians did not force any businesses to generate tens of trillions of dollars in worthless/fraudulent credit default swaps. It is a classical credit collapse, similar to those that have been happening for centuries, and which will continue to happen as long as people do business using credit. |
| Posted by: Anguper Hupomosing9418 2009-03-27 14:16 |
| #2 What Iblis said. |
| Posted by: eltoroverde 2009-03-27 13:30 |
| #1 I expect people to be greedy, selfish, shortsighted bastards. So I'm not exactly shocked that Wall Street and bank executives were trying to make money. What the hell else would they be doing? The problem is and will always be a political one. Congress told banks whom to lend to. Everything else flowed as a natural consequence. |
| Posted by: Iblis 2009-03-27 13:13 |