overview
orientation
tulips
steam age
jazz & plastic
property
fleece
inflections
snapshot
dotcoms
telcos
peaks
au bubble
actors
media
fiction
accounting
regulators
clean-ups
bubble 2.0?
sinobubble
subprime
landmarks
related
Guides:
Economy
Governance
Networks
eCapital
|
subprime
This page considers the 'subprime crash of 2008', likely
to be more significant than the dot-com crash of 2000.
It covers -
introduction
By mid-2007 some prescient analysts such as Robert Shiller,
George Soros and Peter Hartcher were expressing concern
about -
- systemic
problems in lending by financial institutions (particularly
home loans in the US to people who were unlikely to
be able to repay if there was a major economic downtown
or who simply were unlikely to sustain meaningful repayments)
-
the indifference of governments regarding creation of
and trade in exotic financial derivatives
-
the unreality of prices in some major mergers
& acquisitions
- the
associated unreality of prices in collectibles
markets and
- the
apparent incapacity of major regulators such as the
US SEC and Australia's APRA.
Those concerns contrasted with upbeat pronouncements from
governments, some economic experts and leading financiers.
Former US Federal Reserve chair Paul Greenspan for example
had told the US Senate Banking Committee that
What
we have found over the years in the marketplace is that
derivatives have been an extraordinarily useful vehicle
to transfer risk from those who shouldn't be taking
it to those who are willing to and are capable of doing
so. ... We think it would be a mistake to more deeply
regulate the contracts
In
subsequent years Greenspan repeated mantras about market
self-regulation and the inappropriateness of closer supervision
of hedge funds, insurers,
private equity managers,
home financiers and share markets, for example commenting
that
Not
only have individual financial institutions become less
vulnerable to shocks from underlying risk factors, but
also the financial system as a whole has become more
resilient.
That
reinforced participation by many institutions in what
has been dubbed the global 'subprime' bubble, subprime
being adventurous loans to US homebuyers.
Injudicious use of derivatives was not the only or even
prime danger to financial stability in advanced economies
but attracted attention and calls for re-regulation amid
a cascade of corporate collapses from March 2008 onwards.
The demise of leading institutions such as Lehman Bros,
rescue or outright nationalisation of major banks and
insurers (including Iceland's four largest banks, the
giant AIG insurance conglomerate and Washington Mutual
banking conglomerate in the US, the HBOS, Northern Rock
and Bradford & Bingley in the UK) has led some observers
to forecast a global disruption of economic growth approaching
that of the 1930s Depression.
alternatives
Enthusiasts have sometimes promoted 'alternative investments'
as a refuge from financial crashes (with particular classes
of assets such as fine art
or stamps or even 'e-gold'
supposedly being unaffected by unhappiness in share and
bond markets), as the basis for risk-free investing (eg
diamonds and vintage wine purportedly retain their value
irrespective of what happens on the LSE or NYSE) or as
a mechanism that magically prevents financial giddiness
(eg reliance on a gold-backed currency).
The last weeks of the 2008 subprime crash suggest that
such enthusiasm is unrealistic, with indications for example
that prices for art - particularly contemporary bling
such as pickled sharks and canned ordure - will fall as
unfortunate collectors are forced to unload particular
items and the market heeds scepticism by figures such
as Robert Hughes about the long term value
of work by some artists.
studies
Macroeconomic studies include The Subprime Solution:
How Today's Global Financial Crisis Happened, and What
to Do about It (Princeton: Princeton Uni Press 2008)
by Robert Shiller, The Trillion-Dollar Meltdown: Easy
Money, High Rollers and the Great Credit Crash (New
York: PublicAffairs 2008) by Charles Morris and Supercapitalism:
the Battle for Democracy in an Age of Big Business
(London: Icon 2008) by Robert Reich. Peter Hartcher's
questioning of an icon in Bubble Man: Alan Greenspan
and The Missing Seven Trillion (Melbourne: Black
Inc 2005) looks increasingly prescient.
Works on particular collapses include The Crunch:
the Scandal of Northern Rock and the Escalating Credit
Crisis (New York: Random House 2008) by Alex Brummer.
For the 1980s US Savings & Loans crisis see The
Thrift Debacle (Berkeley: Uni of California Press
1989) by Ned Eichler, From Buildings and Loans to
Bail-Outs: A History of the American Savings and Loan
Industry, 1831-1995 (New York: Cambridge Uni Press
2004) by David Mason, Inside Job: The Looting of America's
Savings and Loans (New York: McGraw-Hill 1989) by
Stephen Pizzo, The Greatest-Ever Bank Robbery: The
Collapse of the Savings and Loan Industry (New York:
Scribner 1990) by Martin Mayer, The Big Fix: Inside
the S&L Scandal: How an Unholy Alliance of Politics
and Money Destroyed America's Banking System (New
York: Wiley 1990) by James Adams, Bailout: An Insider's
Account of Bank Failures and Rescues (New York: Basic
Books 1986) by Irvine Sprague, High Rollers: Inside
the Savings and Loan Debacle (New York: Praeger 1991)
by Martin Lowy, Other People's Money: The Inside Story
of the S&L Mess (New York: Simon & Schuster
1989) by Paul Pilzer and S&L Hell: The People
and the Politics Behind the $1 Trillion Savings and Loan
Scandal (New York: Norton 1993) by Kathleen Day.
next page
(landmarks)
|
|
Ketupa