Sunday, November 04, 2007
Financial Crisis - Extracting The Truth
Things Get Better As The Truth Emerges
There is one human element that is emerging for the better in this whole global financial crisis and that is the Truth. When a bank comes forward and tells you that one week they have no write-downs and the next week there are massive write-downs, somewhere in that process something got lost. What is emerging for a number of the banks who have properly written down their positions for their exposure to CDO's (Collateralized Debt Obligations) is that they are now in a position to enter the stock market, just like any other corporation, and promote their real asset value for inward investment.
The gradual process of extracting the truth, through better transparency, is bringing strength to the financial markets and not weakness. The banks who have written down their debt are emerging as institutions that carry less uncertainty, and are able to deal in debt markets amongst their peers. This painful reconcilliation process will improve the overall financial liquidity and put less pressure on the Central Banks because commercial banks can re-establish their trust with each other and trade.
For the financial regulators, this is a difficult period as it will be a question of how much of a 'green light' they are given to go after the 'big game' versus the impact it has on the economy. What is clear is that some of the financial schemes have been very destructive and have come at a huge cost to people, particularly for those who have lost their home. From a justice perspective, there will probably be much written in the media of who knew what, when and how much as the financial trail is meticulously unravelled. From the investigations will emerge more honesty in general, and hopefully enough to promote and build long term capital investment mechanisms that are urgently needed for environmental industries.
For investors, the good news is that the economy will once again expand with many new jobs to be created in renewable energies and ecological conservation initiatives . Hard work must overtake the 'quick buck' and 'media blitz' of shares and options game. Hard work was at the core of the capital growth process and it is the only way to preserve it for everyone.