The next financial boom seems likely to be centered on lending to emerging markets. Sam Finkelstein, head of emerging markets debt at Goldman Sachs Asset Management, summed up the prevailing market view - and no doubt talked up his own positions - with a prominent quote in Monday's Financial Times (p.13, front of the Companies and Markets section):
"Debt-to-GDP ratios in the developed world are about double those in emerging markets and they're growing. This makes emerging markets interesting because you're pick up incremental spread [higher interest rates compared with developed world rates], and in return you're actually taking less macroeconomic risk.
This is a dangerous view for three reasons.
First, against all historical evidence, it assumes that the only macroeconomic risks we should worry about - in general or for emerging markets - are related to standard measures of government fiscal policy. "Less risk" and "more yield" was exactly what securitized subprime mortgages and their derivatives were purported to offer; this combination typically proves illusory.
Second, emerging markets got into serious trouble through private sector overborrowing both in the 1970s (Latin America, communist Poland and Romania) and in the 1990s (many parts of Asia). In some crises, the government stepped in and ended up holding a great deal of debt - but this does not change the fact that the exuberance was all about private sector banks (in the US and Europe) lending to private sector corporations (financial and nonfinancial) in a mispricing of risk that started out at modest levels but grew over the cycle.
Third, when your ability to borrow depends in part on the value of your collateral - see the academic work of Ben Bernanke and the experience of Japan in the late 1980s (e.g., the classic Hoshi-Kashyap volume) - then rising asset prices enable you to borrow more. This does not necessarily have to go bad in a macroeconomic sense, but experience over the last 30 years is not encouraging. Global moral hazard - the idea that someone will provide a bailout - does not mix well with free capital flows and this kind of financial accelerator.
Goldman Sachs knows all this, of course. But, as they will tell you correctly, reforming incentives or even discouraging this kind of cycle is definitely not their job. Their role is to make money, pure and pretty simple given their market share.
It's the responsibility of government to make the world financial system less dangerous. Judging from the G20 summit (see my comments on the communique) this weekend, we are making no progress at all in that direction.
It's the responsibility of government to make the world financial system less dangerous."
Tell it Si!
But you'd think that 234 years after the Dec. of Ind. and after over 200 years of being a so-called "democratic-republic", you wouldn't have to explain this basic fact to US...wouldn't you?
http://buythecover.com
part of that is due to YOUTH: this is still a very young country. much like a petulant but precocious child, it still has much to learn; much to experience. much of that will NOT be good...simply examine the current state of affairs...!!!
america truly BELIEVES that it created CAPITALISM. it has little knowledge of the european experiments with the capitalist model...and why it no longer holds prominence across the atlantic. it disdains SOCIALISM without recognising that this is exactly what happens when capitalism FAILS...and suffer no illusions...CAPITALISM IS FAILING IN AMERICA...!!!
so, we have the concept of "too big to fail". if you ever needed a signpost...a yardstick...that the shit has hit the fan, there you go...! and while we pay mere LIP SERVICE to this idea, the corporate barbarians continue to pillage the middle class to the detriment of the country...!!!
"fundamental changes in the economic & political structure of a social system are often achieved only after traumatic & violent social conflict...!"
america is not a country that learns its lessons easily...the most painful are yet to come
The United States must have that heart to heart with the financier elite; "you can't have it your way." We tell children all the time that there are boundaries, etc. Simply state " the nation, the United States, is not yours." And then go about recovering the bailout trillions, before they ask for more. Put the Fed into bankruptcy protection, Banks that qualify will join the US National Bank under Glass-Steagall standards.
These are the minimum tasks that will stabilize the United States, the now paramount objective.
Crisis economy formation measures must be implemented now or this great nation is doomed.
...and do these guys ( the GSovernment ) make anarchy look good, or what? Sigh...
There are no laws about money-laundering that will be enforced.
There are no laws about bribery that will be enforced.
There are no laws about bid-rigging that will be enforced.
There are no laws about emitting fraudulent securities that will be enforced.
And there are no laws about intentionally screwing counterparties that will be enforced.
Everyone else has to follow these laws.
But if you're Goldman or a big bank, you can do all these things and more, and there is absolutely no criminal or civil enforcement available to anyone to do anything about it.
May I ask, quite politely, why the American public peacefully accepts this state of affairs?
(thanks Karl...)
From the Federal Reserve straight on up to the Mega Banks-corporate debtors.
THIS IS THEIR LIFEPLAN.
Why do YOU think Greenspan kept rates dangerously low 2002-2007? They were testing the no-inflation theory of outside-America development on the back of the U.S. dollar, the global reserve.
The Fed Res Act MUST be amended. The two mandates can no longer be 1) full employment and 2) inflation. They figured out a way AROUND inflation. Lending outside the United States. Multinationals, foreign labor.
They're using our greenback for this whole scheme. If a third mandate were included, a bubble preventative or supply restriction, the bubble would have been averted, because we learned, no matter if you keep inflation low, the asset bubble will COME BACK to the U.S.
It did. Now, we need to amend the Act to prevent it again.
I really hope you pick up on this idea. I think it's necessary.