Monday, August 13, 2007

Why Did Financial Markets Crumble?

Last week, we saw a panicky meltdown of global stock markets (with the exception of those in China) with the U.S. Federal Reserve, European and Japanese Central banks all scrambling to pour money into their respective financial systems in an attempt to avert potential credit crunches. What on earth is happening?

Philip Bowring in his Asia Sentinel article tries to identify the proximate causes, which lie with the structuring and shady operation of the global financial markets, while Max Wolff at The Huffington Post helps us understand in his blogpost the ultimate causes, which emanated from the United States’ build-up of the housing bubble along with unmanageable sub-prime debt.

4 comments:

Vin said...

Hello Alice, I recently went to Hong Kong to visit family and your book was one of my treasured prizes to carry back home! Great to see that you're blogging your opinions so we can all hear more regularly of your take on HK and China.

Keep it up! :)

Alice Poon said...

Hi Vin. Thank you so much for your interest in my book and this blog. Your comments and views are most welcome here.

Tom - Daai Tou Laam said...

alice,

I can't see it as just a sub-prime problem. The media has been pushing the story as a sub-prime problem, but at least one major non-sub-prime lender has gone bankrupt already. The problem isn't just contained to poor people with bad credit, but is also found in the non-sub-prime mortgage instrutments that provided excess liquidity to the market for credit worthy people to buy beyond their means. (often with low introductory interest rates that are just now starting to readjust upwards.)

Calling it a sub-prime crisis allows folks who pushed these "buy beyond your means" instruments, like Alan Greenspan, to act innocent, when it really is of their making.

As for Bowring's comments about the repackaging of mortgages as securities, securitisation is bad voodoo.

Might I suggest:
Nouriel Roubini's blog
and his colleague
Brad Setser's blog
as two economists discussing the housing and trade imbalance/Central Bank foreign funds issues.

Alice Poon said...

Thank you, Dai Tou Laam, for your insightful comment and further reading suggestions. I myself think that all these problems have stemmed from the "spending forward" and "borrowing to spend" habit in our era. I heard from NBC's Today Show a little while ago that one in five college students in the U.S. is bankrupt. Doesn't that tell us something? Maybe it's time they start teaching sound money management in junior high schools.