This is written along the lines of my favorite TV show, Heroes.
It is boom time and the year is 2006. Citibank Financial, the most aggressive mortgage lenders ordered their sales team to sell, sell, sell loans to anyone they know as long as they look like humans. So their agents went to the ghettos to lend to people who has no income (called Ninjas). Why take such big risks (u may ask?)....well, according to these MBA whizzs there are no risk for Citi as they can transfer all risks to foreign investors via securities called CDO. These risky loans are called sub-prime now, and were packaged into paper investments (like bonds) & sold mainly to European banks, Asian banks, rich people (via Citi private bankers).
Fast forward to August 2007, when the first time bomb exploded. Bear Stearns (another American banker) closed two CDO funds as their values plunged. Fast forward to March 2008, Bear Stearns are running out of capital fast .... and they need more injection.
In all these sagas, the individual American bankers all raked in millions of dollars of bonus. CEOs were fired bt not before being paid >$100m. They have just destroyed the global economy and yet they were richly rewarded. They seem to have done more damage than a certain Saudi national now hiding in Afghan.
How have they damaged the world's economy:
1. The US Fed is trying to bail out all these bankers by lowering interest rates. With lower short term rates, banks can borrow cheap and lend out expensive and make a good margin. The problem is that nobody is borrowing except the US govt because everyone is trying to reduce debt.
2. As US rates is likely to dropped all the way to 0%, global interests rates are likely to plunged. Already, Singapore saving rates is less than 1%.
3. With such low rates, global investors are running scare as US$ crashed. As US$ are used global in transactions like commodities, these have risen in prices (every commodities have gone up because US$ crashed ...... oil, wheat, soya, gold).
4. Global inflations are now accelerating. Singapore CPI is expected to go up 6% in 2008 ... we now have severe negative interest rates. Our savings are eroding in value.
5. The world as we know before 2008 has changed forever. We are now entering a period of great uncertainties. From history books, Germany started World War 2 because their economy was in tatters due to high inflation.
6. My view is that US has entered a period of 1930s type depression where unemployment rates were 30%; a heavily armed nation in such depressed state may easily engage in armed conflict. Even when they were booming, they were already in conflict.
7. European nations like Spain & Italy were already in recession as their housing industry plunged. Now they are relying on funding from Germany, who is not too happy I suppose. What will happen to the Euro currency ...... disintegrated?
8. UK & Australia are now heading towards recession ... again, housing is a major contributor.
9. What are the prospects of the housing market in Singapore? Can anyone like to comment ...........