Cebu Daily News / Opinion

http://globalnation.inquirer.net/cebudailynews/opinion/view_article.php?article_id=163601

COMMENTARY Commentary : Fueled by greed Cebu Daily News Posted date: September 29, 2008 The financial crisis in the United States is summed up in a phrase: over-speculation fueled by greed. Creating frenzied economic activity with an illusion of growth while progressively traveling away from real market value – economists call it a “bubble” for good reason: shiny on the outside, air on the inside, floating to inevitable poof. In the ‘80s, the real estate and construction bubble that burst in Japan (and held its economy hostage for two decades) also triggered the Asian financial crisis that rippled to Russia and Argentina in the late ‘90s. Another US bubble burst in the ‘80s – the Savings and Loan junk bonds. In the ‘90s, again in the US, another bubble burst with over-valued stocks in Internet start-up companies, a.k.a. the dotcom crisis. The spread of financial derivatives throughout the global banking system makes this present crisis the most lethal bubble thus far. Its lessons begin in housing mortgages offered to (some say the word is “foisted on”) Americans with low resistance, matched by their under-capacity to pay. The name “subprime” is a giveaway on the nature of these loans a.k.a. mortgages – “subprime” means below standard, granted only to borrowers whose “credit history is not sufficient to get a conventional mortgage.” Following that up by squeezing these debtors in a sudden steep rise in interest rates on their loans last year gives the face of American capitalism an ugly leer indeed. Subprime mortgages also used to have little trading value until evil genius on Wall Street arrived at a dangerous scheme, we learn on the Net: Gather large chunks of these mortgages into large pools, cut them up in different ways and sell them to banks and various large investors as first-rate investments. Like previous bubbles, these “investments” built on speculation were worth no more than the paper they were written on. What but greed and indolence made banks sell them to each other, with the excuse of “pumping up the economy?” Bank-to-bank sales touted by financial news enhanced the illusion of value – until the inevitable first defaults on these mortgages began a snowball last year. Economists and observers worldwide are now engaged by two questions: Given the imagination, enterprise and shortage of conscience that blew these bubbles for maximum profit, are they really inevitable in American-style capitalism? If so, what can be done to protect the worldwide public from such schemes, short of declaring the end of capitalism? Trying to answer these questions is worth more chapters of world history, but the picture remains flat without more close-ups on individual lives crushed in crisis. Like the Savings and Loan junk bonds in the ‘80s, suffering most are American retirees losing their savings and income at the sunset of their lives, as they run out of years to recover. — Sylvia L. Mayuga, Inquirer.net