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Economy Anyone?
By Rowan Wolf (about the author) Page 2 of 2 page(s)
From there on we have what amounts to a domino effect - which we are already starting to see. Sub-prime leads to prime leads to credit leads to a rapid downward spiral.
In all, argues Prof Roubini: "Total losses in the financial system will add up to more than $1,000bn and the economic recession will become deeper more protracted and severe." This, he suggests, is the "nightmare scenario" keeping Ben Bernanke and colleagues at the US Federal Reserve awake.
Walden Bello writes Capitalism [is] in an Apocalyptic Mood over at Foreign Policy In Focus:Skyrocketing oil prices, a falling dollar, and collapsing financial markets are the key ingredients in an economic brew that could end up in more than just an ordinary recession. The falling dollar and rising oil prices have been rattling the global economy for sometime. But it is the dramatic implosion of financial markets that is driving the financial elite to panic.
F. William Engdahl writes at the Centre for Global Research, that the cascade will hit the global economy - not just the U.S. economy. Something that we are already seeing in both Asia and Europe. The initial reason for the global impact was the packaging of the sub-prime loans with other debt instruments and selling those packages to big investors who sold them on. Deutsche Bank being the object lessen in Engdahl's article. A ruling by an Ohio court that the bank could not foreclose on fourteen homes in Cleveland. This means that foreign mortgage holders (and there are a bunch of them) are going to have difficulty claiming the assets underpinning the failed loans.
However, what Engdahl, Bello, and Martin really don't state is that the reason this is not just a sub-prime loan issue is that the loans were not sold to investors as sub-prime loans. The loans were packaged and repackaged until it was impossible to separate sub-prime from prime from stock offering. While this might have been "creative," it will also making sorting out who did what very difficult as each investment house apparently repackaged the "investments" again - effectively blurring any fingerprints that might have "stuck" to the "packages."
This is where the profit - not losses - comes in. At each step along the way these monies were effectively laundered before they were sold on (at a profit) to someone else. Now, when the house of cards falls apart, the central banks step forward to offer sub-prime loans to the financial industry. However, while sub-prime is interpreted as "risky" when they are selling houses to "just folks," it is good business and national economic policy to give financial institutions sub-prime loans.
Do you think it is accidental that the same term is used for purportedly opposite situations?
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