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Jean Vincent
In search of Understanding.
Sustainable development is not about national security or energy independence. This is about leaving peacefully and healthily in the entire world in harmony with our environment, because we are the environment.
Most Requested by Readers of this Blog:
Become Healthier, and Stay Healthy.
The Fight Against Cancer Starts in the Kitchen.
But isn't that Rewarding Greed and Stupidity, Again?
Second Lowest Record for Arctic Ice Caps.
What is Data Portability and why is it important to all of us?
Open-Source designers, where are you?
Planes can't fly on renewables!
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November 24, 2008
The financial crisis is overrated, nothing more than cool-air.
In the aftermath of the current financial crisis, some call for the end of the Fed, calling it unconstitutional, and abusing the lack of understanding by uneducated people of the fractional reserve system. They want all investments backed by chunks of matter such as gold or silver.
As much as the financial system failed recently, a monetary system based on notes backed-up by any kind of material (to the exception maybe of steel) would be the end of most investments, due to the lack of enough quantity of raw materials to back the current level of investments needed in a world of 6.5 billion people.
Even if we could back investment loans with gold, silver, or steel, this would mean destroying the environment of our planet even more than ever before up to an unimaginable scale. This could mean so much more mercury (used to extract metals from their ores) in the oceans that all fish would become improper for human consumption. Most marine life would essentially disappear, with far reaching consequences for humanity and the rest of the all terrestrial life, a disaster of far greater magnitude than anything created by man so far.
We need a monetary system backed-up by properly risk-assessed promise of future returns, not chunks of processed matter.
That said the current system needs to be fixed. The good news is it can be easily fixed and it is already fixed. Lending money to people who will never be able to deliver on their future promise to return the money to the bank is simply ludicrous and this no longer happens today.
Sub-prime lending was not even the root cause of the problem. The cause was lending money to people who are very unlikely to ever be able to repay their loans. Sub-prime lending contributed to the problem only because it enabled a dysfunctional risk-assessment system to spread without limits.
Basically, banks have been lending money to people who did not have any assets and no revenues or so little revenues that they would never be able to repay their loans other than by refinancing their homes year over year thanks to a bubble-blowing housing market that had to end someday.
The current crisis was not generated by the Fed alone, it is the result of global dysfunction of the banking system, where US mortgage brokers lent money to insolvent people with the complaisance of the many, if not all, US banks.
In turn these banks have sold this bad debt packaged into deceiving funds with good names (e.g. high-grade enhanced structured leverage fund) where the actual risk was criminally under-represented. The world banking system in turn trusted the American banking system and is now paying a dear price for these naive beliefs, most notably with the bankruptcy of an entire nation, Iceland.
As soon as the banking system stopped lending foolishly and criminally, the basis of the current crisis was gone for good.
The problem now is the aftermath of this mess, and the fears coming from the amplitude of this global disaster, fears of recession, of the return of the great depression and other doom and gloom predictions.
Baseless-fear is as stupid as lending money to insolvent people. Fear leads to halting sound investments and some people wanting to halt investments altogether by going back to a matter-backed financial system.
Once fear will be gone, this current financial crisis will be over. If you want to participate in removing these fears, communicate on the fact that these fears are not backed by anything, certainly not gold or any other chunk of matter.
The current state of fear is cool air blown by the same people that were blowing the hot-air than that lead to the current financial crisis.
If you are in danger of loosing your job or have already lost your job, I understand that this message is hard to accept. But as victims of the cool-air bubble you need to be at the forefront of the battle to fight the current state of baseless-fears.
When talking to your boss, prospect employers, investors, bank, venture capitalists, business angels, never accept the current state of fear to disregard sound investments. But please note that I wrote sound investment, not just any investment for which the risk is not properly assessed.
Meanwhile, Warren Buffet, the richest man on earth, is quietly investing in undervalued sound businesses.
As much as the financial system failed recently, a monetary system based on notes backed-up by any kind of material (to the exception maybe of steel) would be the end of most investments, due to the lack of enough quantity of raw materials to back the current level of investments needed in a world of 6.5 billion people.
Even if we could back investment loans with gold, silver, or steel, this would mean destroying the environment of our planet even more than ever before up to an unimaginable scale. This could mean so much more mercury (used to extract metals from their ores) in the oceans that all fish would become improper for human consumption. Most marine life would essentially disappear, with far reaching consequences for humanity and the rest of the all terrestrial life, a disaster of far greater magnitude than anything created by man so far.
We need a monetary system backed-up by properly risk-assessed promise of future returns, not chunks of processed matter.
That said the current system needs to be fixed. The good news is it can be easily fixed and it is already fixed. Lending money to people who will never be able to deliver on their future promise to return the money to the bank is simply ludicrous and this no longer happens today.
Sub-prime lending was not even the root cause of the problem. The cause was lending money to people who are very unlikely to ever be able to repay their loans. Sub-prime lending contributed to the problem only because it enabled a dysfunctional risk-assessment system to spread without limits.
Basically, banks have been lending money to people who did not have any assets and no revenues or so little revenues that they would never be able to repay their loans other than by refinancing their homes year over year thanks to a bubble-blowing housing market that had to end someday.
The current crisis was not generated by the Fed alone, it is the result of global dysfunction of the banking system, where US mortgage brokers lent money to insolvent people with the complaisance of the many, if not all, US banks.
In turn these banks have sold this bad debt packaged into deceiving funds with good names (e.g. high-grade enhanced structured leverage fund) where the actual risk was criminally under-represented. The world banking system in turn trusted the American banking system and is now paying a dear price for these naive beliefs, most notably with the bankruptcy of an entire nation, Iceland.
As soon as the banking system stopped lending foolishly and criminally, the basis of the current crisis was gone for good.
The problem now is the aftermath of this mess, and the fears coming from the amplitude of this global disaster, fears of recession, of the return of the great depression and other doom and gloom predictions.
Baseless-fear is as stupid as lending money to insolvent people. Fear leads to halting sound investments and some people wanting to halt investments altogether by going back to a matter-backed financial system.
Once fear will be gone, this current financial crisis will be over. If you want to participate in removing these fears, communicate on the fact that these fears are not backed by anything, certainly not gold or any other chunk of matter.
The current state of fear is cool air blown by the same people that were blowing the hot-air than that lead to the current financial crisis.
If you are in danger of loosing your job or have already lost your job, I understand that this message is hard to accept. But as victims of the cool-air bubble you need to be at the forefront of the battle to fight the current state of baseless-fears.
When talking to your boss, prospect employers, investors, bank, venture capitalists, business angels, never accept the current state of fear to disregard sound investments. But please note that I wrote sound investment, not just any investment for which the risk is not properly assessed.
Meanwhile, Warren Buffet, the richest man on earth, is quietly investing in undervalued sound businesses.
Comments [0]
September 23, 2008
But isn't that Rewarding Greed and Stupidity, Again?
Following the news of a $700 billion package to salvage the US financial markets, I can't help it but post again this hilarious but incredibly current and clever video from a British comedy duo, John Bird and John Fortune:
Comments [3]
July 21, 2008
But, isn't that rewarding greed and stupidity?
Speaking of understanding (financial markets), here is an hilarious video, that unfortunately is nothing but the truth.
Many thanks to Jean-Hugues who sent me this video a while ago.
Comments [0]
