Global Credit Crunch: NOT a
Crisis of Confidence!
Real Estate Analysis Limited
At the time of writing this
article, the global credit crunch crisis (or whatever name one likes) is
still ongoing and
no corners of the Earth appear untouched. Stock markets have reportedly lost
US$ trillions and more banks could fail, thus prompting some to contemplate
their de facto nationalization.
Your humble author does not
intend to dwell on the why, what, where, when, and how
the event has unfolded, is unfolding, and will unfold. There are more than
sufficient analyses, views, and reports on these already.
Instead, while some (or
many) commentators have described the event as a ¡§crisis of confidence¡¨,
your humble author begs to disagree
with such a description. Why? A few reasons are listed below:
Saying it is a ¡§crisis of confidence¡¨ appears to imply that
investors, stakeholders, shareholders, or simply people, are over-reacting
and panicking for nothing
= but that is NOT the case. The loss of confidence is NOT unjustified
and mortgages issued to mortgagors incapable of taking them out financially
in the first place are bad assets irrespective of how the various banking,
ratings, and financial gurus slice and dice them up. The same applies to the
financial derivative products which spring from such (sub*) mortgages.
It is more a ¡§crisis (because) of common sense¡¨
= i.e. people finally realizing that they have been ¡¥had¡¦ in the sense that
the risk elements (e.g. the inabilities to service the debts) might have
been understated while the return elements (e.g. ever rising house prices)
might have been overstated, whether unintentionally or otherwise, not to
mention probable inflated asset prices due to then easy credit. Moreover,
owing to the complexities of the related financial derivative products which
even experts have a hard time in deciphering, can one really blame people
when they seek to minimize their losses via unloading suspected, even if
only slightly, assets?
Business-Finance-Investment confidence relies on trust which has been
breached = and it
may take years to rebuild that trust in business, finance, and investment
between various stakeholders. Yes, there now appears to be a shortage of
trust yet this was not induced out of thin air. There is a good reason for
its lack as someone somewhere somehow sometime ago had, unknowingly or
otherwise, abused it.
In short, people have not
lost confidence for no apparent good reason.
While it may be admirable to demonstrate continued confidence, it is also
prudent to adopt certain loss mitigation measures.
To use an analogy,
confidently following a brave army general into battle does not mean no
ducking from bullets and shells. Suicidal bayonet charges could look
impressive but are usually futile exercises.
is a misnomer as there is nothing prime about such mortgages. Sub is
sufficient as an adjective.
The article and/or content contained herein are for general reference only
and are not meant to substitute for proper professional advice and/or due
diligence. The author(s) and Zeppelin, including its staff, associates,
consultants, executives and the like do not accept any responsibility or
liability for losses, damages, claims and the like arising out of the use or
reference to the content contained herein.
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