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Wednesday, January 21, 2009

My response to Martin Wolf at the FT.

Below this message, is a response I made to Martin Wolf over at the FT. This was in the Economist forum, where they don't allow "small fries" to respond to their FT blogs, unless it is really worth the salt and you can show some merit.

Basically, the blog is for senior economists, for us to watch them talk about the issues. I, in my Bahamian attitude, shunned the idea and wrote something anyways.

Can't stop me from articulating my point, aye? This is why I like my own blog!

See article here:Why Obama must mend a sick world economy
January 21, 2009
by Martin Wolf
http://blogs.ft.com/wolfforum/2009/01/why-obama-must-mend-a-sick-world-economy/#comment-43459

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Hi Martin,

I could not disagree with you more about the causes of this financial crisis. (which really is a lack in confidence to do business, rather than a lack of true credit and insurance to issuing credit--as world central bank's have stepped up to the plate)

The matter is and has always been false valuation and pricing. We have had a false global economy, fueled by false price inflation and, less directly, unfair dumping subsidies.
No one knows where the bottom of this financial crisis is, because no one knows what the real prices of things are and should be.

Also, the financial firms don't have trust in one another and other diverse large companies (like GE and GM), in the "free market", to, one the one side, give them true and fair valuation's on assets and assets that are "un-tainted" by the now toxic debt, which, in my mind, can never be recovered and the financial practice that led to it's confusion- shorting CDO's- should be banned for ever. But, on the other side, firms are not sure if they would be getting financing at a steady fair interest rate, because they are not sure which bank's are in deep red, from all out bankruptcy.

More relatively, before we had the bursting of the "bubble", we had sky rocketing home prices as well as other stocks and now, we have had a mass deflation of stocks and prices--whether demand was constant, induced or strong.

You can't even argue that the massive amounts of losses in housing, massive write downs and now, losses in stocks, was not due in part to falsely inflated asset prices--this is why the rating's agencies, took most of the blame in this mess as well and as well they should!

A typical example is in the oil market. When demand was going down, prices, kept on going up under false assumptions of the price of oil, fueled by false pricing mechanisms that, for all things, did not price on demand variables. There was and is no variable for "excess credit" in this equation at all--it was false pricing, to start with.

The other issues you mentioned, may have happened as a consequence, but, certainly, not anywhere near the root of the problem if we really would like to fix things!

Fixing things, in my humble opinion, starts with 1. regulating the derivatives market and 2. putting SOX type regulations on ratings agencies.

To all of this now, you have to thank Wall St., Old Broad St. and Canary Wharf, Tokyo, Brussels and China.

Best,

Youri
http://globalviewtoday.blogspot.com/

p.s.
You can get my relevant background, from my website profile at the left hand side of my blog.
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