New economic crisis ahead. Turning point

Interesting interview in a danish newspaper with the man who foresaw the latest crisis:
Google translation part one:
The crisis is getting worse and worse
In 2004, predicted he cracked on the U.S. housing market, which has drawn deep into the global economy. And now predicts Paul Jorion, french investment expert and anthropologist, to the financial crisis is far from being driven over. He believes we should adopt an international financial constitution. As long as you let banks and investment firms regulate themselves, the scams of the day working in the financial sector.

Tip of the iceberg Central Bank directors and financial advisors in the Western world are currently busy reassuring the public. They preach at regular intervals to the bottom now reached crisis by turning and that we will soon go better days to come.

"The figures confirm not the prevailing pessimism," it sounded so recently the Director of the European Central Bank, Jean-Claude Trichet.

But in reality, there is silence before the storm - or rather before the hurricane. How it sounds extremely bleak prognosis from Paul Jorion, anthropologist and sociologist specializing in economics, who for years has worked as an investment bank man in the U.S..

"There is no recovery time being. It might be, it looks as if the banks and stock markets are feeling better. But it will not last, "he said.

And when Paul Jorion speaking, there is reason to listen.

For he is one of the few financial analysts who predicted the so-called subprime crisis on the U.S. housing market. Already in 2004 described Paul Jorion in the book 'La crises you capital Semitism américain' so step by step how the U.S. and then the global economy would be shaken to its foundations when risky hypotekboliglån - so-called subprime loans - began to cave in. And that happened in 2007 when housing prices in the U.S. fell, while interest rates rose. This led to a dramatic growth in the number of foreclosures and big losses for investors.


Massacre in wait

According to Paul Jorion is delayed two bombs, which most overlook when they looks ahead:

Firstly States own debt, which they must borrow endless money to cover the action. This year alone the United States from 1700 to borrow billions of dollars, but also France, Spain and Japan and Britain to borrow huge sums.

"There is not enough money in the loan market because of the crisis and therefore it would be the weakest states must pay the highest interest rate, which would weaken them further and make the world economy even more fragile," says Paul Jorions assessment.

Secondly, it seems - on top of the international credit problems - the bleak outlook for the commercial part of the U.S. housing market: offices and hotels. Everything is built on credit loan and a great many of these loans to be renewed in 2012.

'But who will borrow to finance these buildings whose value has collapsed because of the crisis? It will be a pure massacre, "said Paul Jorion.

A massacre whose repercussions will spread like ripples across the globe - not least a massacre, according to Jorion will not be back for subprime krise0n.

"Our economies are based on credit, and as the credit system develops, they become more and more fragile. Why? Because a owe money to b, who owe money to c, which in turn owes to d. Completely banal. The more complex debt network becomes, the more interdependent it becomes. And if one suddenly plunges into the abyss, it can pull all the others were in decline because they are suddenly not able to repay their debts and bonds, "explains Paul Jorion.


[edit on 10-8-2010 by laffoe]

Just a few words from me - before the rest of the article:
Interesting point of view from Paul Johnson, who foresaw the latest crisis, where the world economy was deeply shaken, starting with the subprime mortgages.
The link provided is from a danish news source, but I´ve inclued a google-translate full article.
He concludes that a new crisis, or rather a turning point is ahead.
I think the timing of this, together with all the other changes the earth and its inhabitors are going through these days.
The comparisation with the french revolution is intriging: Quote "- In 1788 they did not know that the revolution in 1789 would come. Similarly, there is currently a feeling that things are going badly. But very few can put into words what is wrong. And nobody knows what happens tomorrow. It is rare that there is such a serious crisis in human history. This is not just a crisis but a definite turning point. " Unquote
I hope this haven´t been posted before, if it has I am sorry for wasting your time.
Just wanted to sgare this, which I find interesting.

www.ugebreveta4.dk
(visit the link for the full news article)

[edit on 10-8-2010 by laffoe]

Part two of the translated article:
But banks have not learned anything of crisis? No, says Paul Jorion.

"And why should they basically too? Banks are commercial enterprises, and their only rational goal is to make money. The problem is that basically lets them operate within the same frame as before. There has since beginning of the crisis been a single firm directive and there is no hard steps taken to curb excesses in the leading U.S. Financial District Wall Street. Yet one wonders that the banks are back to business as usual 'and back pay huge bonuses, while people go bankrupt and struggling to stay afloat. It is a huge delusion to think that you can just tell people that they must change their behavior and that they do it. "


Systematically Scams
According to Paul Jorion is the biggest problem that the whole system in its current form based on what he calls "everyday småsvindel '

"We saw in the Enron scandal in 2001 when one of America's biggest companies, energy company Enron, over just a few weeks went bankrupt because of massive fraud and accounting fraud. The same happened on Wall Street's fourth largest financial group Lehman Brothers, and who dare now say that it was not also what happened to investment bank Bear Stearns, "says Paul Jorion.

Every time reveals investigators overly creative accounting, and every time defending the guilty with the argument that others would only step in if not they themselves did, and it would therefore make them an unfair competitive situation to the wider financial market if they should have followed the rules.

"It is so firmly ingrained an argument in the financial world that even the big audit firms assist banks and firms in the fraud," said Paul Jorion.

Energy company Enron's accounting was so favorable endorsement of the global consulting firm Arthur Andersen. In 2005 the audit giant KPMG a prosecution for selling packaged solutions to companies that could evade taxes by transferring financial loss to companies that were created solely for the purpose of collecting others' losses. And in the case of Greece, which in late 2009 appeared to be on the brink of national bankruptcy, it was investment banks Goldman Sachs and JP Morgan, who helped the Greek state to makeup its records, so you could not see the gaping holes.

"Banks continue to think the same way. Since the U.S. financial authorities, for example, tightened auditing rules in 2000, reduced Lehman Brothers only an expert team that would find the best loopholes and identify how best and most effective way to circumvent the rules. We can hardly call to respect spirit of the law, "Sugar Paul Jorion.

It is all of this basic economic logic to be changed, says Paul Jorion. Otherwise, it will always be taxpayers, who ultimately will pay.

The solution is not more complicated rules, directives and bulky Coll. The more complex the rules are, the easier it will be - surprisingly - to the international financial firms to find helpful loopholes:

"Take for example the comprehensive Financial Overhaul Plan (to be tighter regulation of the entire banking and credit sector, ed.), Which President Obama people knitting together. A bulky document of 767 pages that contains as many loopholes and opportunities for lawyers centers and alternative interpretations as there are sides. "

The text will never be able to rein in the runaway capitalism or contain the major financial firms constant excesses, says Paul Jorion.

part three (last part)
Close all loopholes

Instead there is a need for simplicity. Texts strengths lie in their clear and unambiguous. And since the beginning of the crisis has Paul Jorion thus advocated for the adoption of an international economic and financial constitution.

"There is a need for texts that you can not run from. Not unlike the 10 bids. It should be quite a few very simple principles. For example, 'It is forbidden to issue stock options'. A sentence of six words. Simple and impossible to misunderstand or deliberately misinterpreted. No loopholes. Law spirit and form are one and the same case, "he explains.

Another principle could be a prohibition against speculating in price fluctuations.

"It was a tool that was originally created to ensure people who made real and lasting investments in industrial production, import or export. But today it is a speculative way that creates volatility in the markets, which are pumped up artificially. Like locking means that could be used much better elsewhere for investment in production equipment, "believes Paul Jorion.

If we forbade the offering to investors who only speculate short-term price fluctuations in and with a quick profit, would, according Jorions calculations reduce the financial markets mere volume of the order of 80 percent.

"Price Speculation is simply the surest recipe for how to create systemic instability. This is about to speculate on others' losses, "he explains.

The question that remains is whether anybody could agree to make such an international document of international law applicable.

"The economic and financial fields have so far the only area of human coexistence, which escapes all external, international control. But why should we not be able to create such a constitution? We were created because after all, a universal declaration of human rights in his time. And we have an international criminal court. So why not an international economic court on the model, "author Paul Jorion.

He estimates that the time is ripe soon.

"We find ourselves today in the year 1788," he says enigmatically.

'In 1788 we did not know that the revolution of 1789 would come. Similarly, there is currently a feeling that things are going badly. But very few can put into words what is wrong. And nobody knows what happens tomorrow. It is rare that there is such a serious crisis in human history. This is not just a crisis but a definite turning point. "


By Ash Munck; Photo: Ash Munck

9th August 2010 / No 25