All entries for Sunday 19 October 2008
October 19, 2008
According to a columist on Financial Times, the total US spending on buying bad debt is something close to 1.4 trillion (1400 bn) which equals 10% of US GDP. And since a huge chunk of this mortgage is shared by the rest of the world (bank selling bonds to other banks) , the "total loss are now only 5% of US + EU GDP..."
Once again the Americans have let us down
Lately there has been lots of articles written about the financial crisis , not only on the Western media but also in the Taiwan Financial Weekly. In the latest edition is a special article titled "Confession of a Wall Street trader" which detailed a rather intereting story different from the one we have been hearing in GBE class. Instead of focusing on the credit crunch, it tells the stories of how "bright young mathmatical geniuses on Wall Street" jointly created these complex credit default swaps which they then sell to banks and subsequently sold onto general consumers who end up taking a big hit on their investment. Of course, the poor customers were unaware of what they were buying into, they had great confidence in the investment advisors, the bank reputations and bought these investments thinking they would be getting a 6% rate of return (terms saving is 3%). The bank investment advisor on the other hand, has their bosses on their ass to sell as much of these financial derivatives as possible, regardless of means. Those who had some business ethics in them, left the job because they knew what kind of dodgy business this was. Others, stayed and carried on business as usual, justifying their action somehow... human nature.
All salesperson at somepoint during their career face the dilemma of having to sell something even when they do not have the slightest confidence in them. When I worked in retail, I remember my bosses often pushed us to sell these financial packages to customers, "Ask us for easier finance options, 12 month finance, 24 month, 36 months" usually the longer it is the more you end up paying because what they don't tell you is the 19%- 24% interest ... Oh heck~ if I knew pushing for these packages will mean bigger pay check for me , should I do it? and how do I get that guilt over my conscious ? maybe the feelings of guilt will subside the more contract I make ... who knows
While I am writing this, an economic concept come to mind, "law of diminishing returns", I wonder if that apply to money or not.