Foreign Press: About the Bailout, its not the end of the US?
Wednesday, December 14th, 2011(Translated using BabelFish)
Myths and realities of the financial crisis 22 of September of 2008, 04:00 A.M.
By Xavier Serbia
It has been one week, for some, exciting; for another horrifying one.
But, also it has been one week full of myths that are repeated with as much conviction that who says it thinks that it is so. Thus we had personages in the media shouting to us how to make money in the hypothecating market; now they are saying to us that this one is the
economic fiasco of history. Of the same form that motivated us with
the “irrational exuberance”, now they want to fill to us of “apocalyptic”
messages awaiting the “monster of thousand heads”. We go to the point. We take some myths and put them out naked, until we see the reality of each of them.
Myth #1: “We are in a recession like the one of the 29”
Reality: Nothing like that. With 6,1% in the rate of unemployment and 3,3% in the GDP (preliminary), can we say that it is depression? Certainly we are in a deep financial crisis, but to call it the "depression of 2008”? No. In the depression of 1929 there were hundreds of banks closed, the savings (not the investments) were lost, one in four people ready to work were unemployed and the cities were facing long rows of poor men looking for work and food. Do We see that now? Now what we see are long lines of people buying Ipods. Certainly this financial crisis is affecting the investments of many and can open the iron door from a financial to an economic one (so that it happens to other areas of the economy).
But, mechanisms exist that did not exist then to stop the spill. And the leaders are moving towards that direction. My people, the same “catastrophic” shouts occurred after Baring, LTCM, the Asian crisis, dot.com, and with 9/11. Still we are waiting for the depression.
Myth #2: “The greed of the rich ones of Wall street has taken us to this”
Reality: As far as I know, the didn't call that to Wall Street when individuals, families, salesmen, bankers, mass media, politicians, investors were participating in the celebration of the “hypothecating tequila”. They called it “the opportunity of the American dream”.
It is certain that many investment banks, funds of insuring capitalists of risk and insurers took extreme risks when bathing in debts with "the hypothecating tequila"
. But, many drank of the same glass of the greed, and not necessarily they are in the high floors of Manhattan, but in common streets like California, Florida, Nevada, Arizona and the list goes on. For that reason, I prefer to say that “the extreme appetite to risk in Wall street as in Main Street has taken us to this”.
Myth #3: “The banks are falling” Reality: of nearly 8.425 financial institutions assured by the FDIC, How many banks have closed in the period of 2007-2008? Fifteen (15), which have been in their majority acquired by other banks. Do You know how many banks closed during the crisis of “Savings and Loans” in the decade of the 80's? more than 1,600.
Certainly some real estate mortgage banks have undergone the effect of their excesses (IndyBanc, Countrywide, Ameriquest, etc.), investment banks of weight have been carved up (Lehman), others fell to the arms of other banks (Merrill Lynch and Bear Stearn), others
are flirting to be merged with another banks (Morgan Stanley), the GSE like Fannie and Freddie fell at the hands of the government, AIG obtained a financial rescue, “hedge funds” have closed, small banks fell at the hands of others, the FDIC increased the level of reserves and it expects that several banks will close down. But, “the banks are not falling”.
Myth #4: “My investments are assured”
Reality: The investment is not assured, which is assured is the account and its content in case of a closing or fraud on the part of the financial institution. And the protection has a limit. One thing is the loss by fraud or closing of an institution; another thing is the loss by
the fall in the value of the investment. It is the FDIC (in the case of the
banks), SIPC (in the case of the brokerage houses), NCUA (in the case of credit unions) or Funds of State Guarantee (in the case of the insurance companies) who cover in case of bankruptcy, closing or fraud. We say that if I invested $25.000 in Lehman shares, the value of the shares went through the floor, because nobody covers the loss because that is part of the risk that faces investing. If my money is in an institution that has its respective insurance and it closes or exists a fraud, now they insurance me as long as it fulfills the specifications of that certain insurance. In the case of money that we have in the accounts of retirement by contributions with our employer (for example 401k) this is separated from the employer and the
administrator of the money (company of investments that invests the money) in a separated account in our name. Now, if you lost 20% of your value of the investment (example you had $100.
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