Wednesday, October 31, 2007
Who's On First and What's On Second ...
Sub-Prime Mortgage Crisis and The Environment
If you were to draw a connection between the Sub-Prime Mortgage Crisis that is currently being further and further exposed in the financial markets as a large 'card game', and the Environment, then some would say you were 'nuts'. Financial regulators will probably expose the elements of the sub-prime mortgage fraud shortly, as there are investigations ongoing at this time in many countries. With further banks, like UBS, writing down more debt in significant valuations, and national economies suffering, the search will be on for the masterminds of the whole scheme who have taken the global economy to its resilience limits.
Last week, Stanley O'Neal, Chief Executive of Merrill Lynch, announced a write down on sub-prime mortgage losses, giving his bank high integrity in the financial markets, but allowing some to jump on him for telling the truth. While some newspapers were criticizing him for the write-down and a discussion about a merger with Wachovia, Standard & Poors still reiterated a buy* recommendation on Merrill Lynch saying it was undervalued even after the write-down. (*S&P Analyst: Matthew Albrecht - Oct 24/07)
The real issue is one of integrity and truthfulness and the proper implementation of risk management by financial institutions. What has not hit the press yet is who was the prime dealer in false credit rated mortgage securities that created the market for the sub-prime mortgage companies to sell to? It wouldn't have grown to be the problem it is today, if there wasn't someone buying the loans and repackaging them. The ones to blame are the individuals who packaged CDO's (Collateralized Debt Obligations) that were really just 'junk' and packaged them instead as 'gilt'. Which financial institution(s) pushed fraudulently rated mortgage backed securities into the market and profited from this? How many people were aware of what was going on? Are there still loans being originated against the sub-prime capital today for leveraged buy outs, even though some of the mortgage securities are now perceived as high risk with unknown value?
The core to solving the sub-prime crisis is to do an audit of which mortgage CDO's are good and which are bad and who wrote and sold most of the bad ones into the market.
Integrity and trust are values that affect investment decisions and whether to promote something that is good for a nation or instead good for a few. Currently there are individuals in the markets who care little for the state of national economies as long as they themselves can relax in the spoils of their own wealth. The problem with this is that the world does not move fast enough to create earth saving environmental technologies and long term investment in these, when market players can make a quick buck using destructive financial instruments instead. These selfish individual strategies were not the basis of how the national economies were built up in the first place, and will only lead to the demise of certain countries.Capital investment in Earth saving technologies and their manufacture is what we need for the Environment. The investment climate needs to move quickly to a long term investment wealth creation mode from the card game that we are currently playing. The regulators need to step in and act in the interest of the people and their countries. This is a critical juncture in the preservation of global capital.