Can a financial crisis arrive without warning?
Hardly. Practically impossible.
Any movement in the financial world is preceded by market indicators, both in the traditional economy and in the day-to-day real economy.
It’s like any disease: Our body will give clues, a set of symptoms or signs that any professional can observe or measure that indicate that a deterioration is occurring in our body and that, surely, it will affect our well-being.
Bad habits, lack of sleep, stress, and other indicators point to the crisis we are about to suffer.
Will we be responsible for that crisis?
On a personal level, certainly… but, although it may sound harsh to say so, in the business, financial, social or political markets, to name a few examples, the crisis may also be organized, planned and even decided as a beneficial element for those who cause it.
Paranoia?
A major financial crisis is approaching, and it is, in itself, just another financial product.
Is it perverse to think like that?
No. It has happened before.
Everyone is starting to talk about the collapse of the housing bubble and subprime mortgages, but it’s not something new… they’ve been there for years (exactly 9 years, that is, before the turn of the century).
It is known,And this is especially known by legislators and those who ensure compliance with the Law, even though their gaze nervously turns elsewhere.
What’s curious is seeing how the media are now starting to warn that this bubble, supposedly caused by subprime mortgages, is the cause of the new global crisis.
Let’s analyze:
Subprime mortgages are just another product of the primary market: mortgages aimed at a consumer market that does not meet credit evaluation levels (due to income, jobs, or credit history), and those who facilitate them know this from their very creation and sale.
The risk of default is very high compared to standard mortgages, therefore the chances of default are enormous… and everyone—those who sell them to banks and those who take them out—knows it. What’s more, they are designed that way, intentionally.
Its existence is justified by the application of higher interest rates and fees.
Once signed, subprime mortgages are bundled into packages that are eventually sold on the secondary market.
Could it be the case that subprime mortgages saturate the market?
Yes, of course… and that, therefore, there is a financial collapse.
Historically, this has been the case, And it doesn’t matter what the product is called. Economic history can list hundreds of such products designed to fail.
So:
- Why, if the risk is known and is even the basis of the business, does everyone seem surprised by the subprime mortgage collapse?
- Can everything happen from one day to the next?
- How is it possible that investment banks are oblivious to a catastrophe with so many warnings of a real possibility of it happening?
- Don’t states ensure that something like this doesn’t happen?
- How can a person without the ability to pay obtain a mortgage?
The official responses are very simple and, apparently, the blame always lies with the other person.
It depends on who we listen to; this is repeated ad nauseam in any media outlet that reaches the public:
- Consumers assume a standard of living that is not appropriate for them, pretending to have, for example, a house beyond their means.
- States act in the belief that the economy will create the levels of work and wealth that will make it possible to pay off those mortgages.
- Banks are optimistic because their rating agencies understand that the danger is not imminent.
- The middlemen earn –a lot– with successive sales (perhaps this is the argument that will be heard the least, although in specialized circles it is the most discussed).
Or at least, that’s what everyone says, but simplification and naiveté are not the principles on which economics is based.
It can also be interpreted that everyone seeks their own benefit (some with more knowledge than others) and ignorance always leads to disaster, especially for some… as happens in everyday life, and in any field.
Ignorance! That key term in economics… especially in capitalist economics.
And the crisis will arrive when individuals, companies, banks, or governments begin to lose control of events.
When lenders realize the market is saturated, they will sound the alarm and summon all parties to find solutions to the collapse and demand outstanding payments. Nothing new.
You only need to consult the newspaper archives and Financial History, for example, in 1929.
If you trace the infamous subprime mortgages, you will see other associated financial products that fuel them, apparently all as guarantees or support elements for junk mortgage operations, and there you will find the markers that are the chronicle of a death foretold.
Arranged alphabetically for easier navigation, they represent a masterclass on where to look to understand how a mortgage-related economy works and, depending on how mortgages are being used, how to detect warning signs that could trigger a crisis:
- ASSET BACKED SECURITY (ABS)
- COLLATERALIZED DEBT OBLIGATION (CDO)
- COMMERCIAL MORTGAGE-BACKED SECURITY(CMBS)
- CREDIT DEFAULT SWAP(CDS)
- DERIVATIVES
- HEDGE FUND
- HEDGING
- LEVERAGE
- MORTGAGE BACKED SECURITIES (MBS)
- SECURITY
Those involved in the entire process are making huge sums by brokering the sale, time and again, of subprime mortgage packages, but the ultimate holders of the debt (remember: those who have the actual capacity to lend their money, that is, the owners of the money) have to collect from those who made the initial commitment, and if they cannot do so, SOMEONE MUST DO IT: and that’s what laws are for, right?
The main argument for demanding payment is that lenders will not be able to continue offering their savings if they do not recover their losses:
THE SYSTEM COULD COLLAPSE!!!
That’s the threat.
But what the truth hides is even more perverse:
They have already made a lot of money, and from the first day they went on the stock exchange or in the successive resales of the same financial product, in a speculative way.
WHAT SYSTEM IS GOING TO COLLAPSE IF THEY’RE RICHER THAN THE DAY THEY LENDED THE MONEY? WHAT LOSSES ARE WE TALKING ABOUT?
- Could it be that the owners of money have designed a perfect plan and that the planetary catastrophe of “if they don’t return my money I won’t be able to lend anymore” is simply another recurring income?
- Are products being created on the market for that purpose?
Everyone is free to consider whatever they wish, although, again, simplifying terms are sometimes the most accurate:
IF SOMEONE THINKS OF A “YES” THEY MAY NOT BE ON THE WRONG TRACK.
IF SOMEONE THINKS OF A “NO” IT IS EVIDENT THAT THEY KNOW NOTHING ABOUT THE REAL ECONOMY.
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