lundi, novembre 03, 2008

Rendez-vous with History (Hysteresis 2)

Regarding the Credit Crunch, I first though : "Well, this should be sorted out by next March-June'08, once the Audited Accounts of the Banks will be released, everybody will see that Banks are sound and Safe and that all this fear was not grounded." How naïve was I! Months after months, Banks were announcing huge levels of write-downs and unrest was never calmed down.

Instead of the calm down I expected by March 08, we heard about the collapse and rescue of Bear Stearn, a major actor in the investment bankin system. More unrest. Things were worsening somehow. We heard about Sovereign founds from emergent countries (China, Emirates) that were willing to or merely capable of hailing the Western financial system with the huge amounts of liquidity they had at their disposal. There were many talks about the Chinese Sovereign fund taking a 10% share of one of Blackstone' funds. Americans fearing to see the jewells of their economy swollen by foreign and powerful foreign investors. However, little by little the financial crisis no longer made the headlines, although experts were pointing out a risk of contamination of the so-called "real economy". Subjects such as the Spanish elections, the US' presidential elections, Sarkozy's first year in power, the narcotrafic in Mexico, the liberation of Ingrid Betancourt or Microsoft'entry in Facebook's share capital, the war between Georgia and Russia were more and more apparent in the news while people were becoming to think that the crisis was about to be overcome. Until Sep'08 and its lot of banks' collapses and nationalizations: Fanny Mae and Freddy Mac, Lehman Brothers, Merryl Lynch, Dexia, Fortis, HBOS, RBS, the Icelandic banks, the insurer AIG and so on. Surprises after surprises, we saw the Western governments taking unprecedented measures one month later. In the US, a $700bn pool was voted, the Paulson plan to save the financial system and buy toxic assets. In Europe, following Gordon Brown's (Bristish Prime Minister) or Angela Merkel's (German Chancellor) plan, Governments guaranteed people's deposits and banks' credit lines.

What will happen next? Will these solutions be effective? It seems that nobody really knows when these rescue plans will be effective nor what will be the consequences. What is for sure, is that, the market effervescence following the announcement of these rescue plans did not last more than one day. Apparently, Stock-exchanges accross the West but also Asia, Latin America and Russia are in turmoil and have experienced the worst fall in their existence. Billions of $ have vanished with the shrinkening of companies' market capitalisation. Somebody said that last Friday, Volkswagen, the car company, was by itself worth more than the IBEX 35, the 35 most important companies in the Spanish Stock Exchange!! Recession has touched the UK, the States and the UK. Spain is certainly next. Everywhere around me, people talk about how they are affected by the crisis. Real economy is already contaminated. Can it be cured quickly?

Well, once again, I can only give another rendez-vous with History. I'd say that in Sep'10 we will have a better idea on whether we are near to see the light of the tunnel. Between Sep'07- Sep'08, experts have scrutinized the Financial Statements of Banks. Now, I'd say Sep'08-Sep'09, it is the turn of industry & service companies to be examined in depth. Corrective measures will certainly be implemented by both industries and banks during 2009 with certainly many job cuts and more or less success. The outcome of these drastic policies will be monitored althrough 2009 but they will be more obvious during the year 2010 and by Sep'10, new conclusions will be made. If people deeply believe that politics have appropriately handled the crisis, that the measures undertaken were becoming to be effective, well, it might be the moment when trust will come back and consumption will boost again the economy. I hardly know how the unemployment issue will actually hamper the recovery of the economy and it will certainly have an adverse effect that will slowdown the recovery process. We'll see. Some said that the Japanese economy did take a decade to recover the Asian financial crisis. Will we follow the same scenario? The 1929 crisis, the Argentinian Crisis, the Asian crisis so many subjects, is there a common denominator? Have we learnt of these crisis?... Rendez-vous in Sep'10.

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