Post-Financial Melt-Down

Around 12 years ago I have started this blog- I thought we are on the way towards a new financial regime and I thought after the blow-up in 2008 things will change. Forever.

Time has moved on and around 2014 I realized that probably nothing will change.

We all witnessed events, which consumed our attention

- near-default of Greece

- near-collapse of the EURO

- covid

The treatment is always the same.

1. Apply Cortison 

2. Monitor and Wait

3. More Cortison

Treat the root-cause - Never. 

No time, next crisis - same treatment.

We are not trying to resolve an issue anymore - we are chased by events and simply act.

Why?

This has a lot to do with the overwhelming news flow and the way we are presenting events.

Have you ever watched a NEWS channel on TV?

Do you believe you know more afterwards?

Global Financial Crisis (GFC) 2008

We all know, that the root cause of the GFC 2008 was not the evil Wall-Street Banker, who structured (bundled), let's say risky assets. 

No, the key question is, why did people get a loan for a house, who can not afford a house / mortgage.

Here we are in the early 90' in the Clinton administration, where the promise to the people was simple. If you work you should be able to afford a home.  So state owned loan providers (Fanny Mae etc.) had a clear political instruction to grant loans and apply a new check for credit-lines which was less restrictive.

Interesting enough - and this shows you how absurd financial engineering is - if you double a tune or  frequency you get a stronger signal and as a result a louder tone. I do not know, how you can conclude that two broken signals, will result in a healthy one.

Or in other words, how can a non-investment grade become investment grade by simply bundling?

So, at a certain moment in the game, when the market had momentum and money flew-in like crazy and life was great - a boring Controller of a large Lender asked about mitigating the default - risk. 

He approached the investment bank and they contacted their bodies in the insurance world and here you go, they granted the insurance coverage based on the financial model. 

Controller happy!

Investment Banker happy!

Insurance broker happy!

Who crashed the Party?

I can not answer but certainly Obama did not do a lot to criticize the Clinton Administration. Normal, one can say. However given the amount of money required to heal the pain the educated investor would expect a bit more action.

Not much happened !

I went back to university to understand the finance guys and received a degree as Financial Analyst. I had a desire to understand this industry much better and make more educated decisions.

Did it work?

Well, honestly it almost paralyzed my investment process.

While politics can provide a stimulus to encourage an industry to move into another direction - it is often enough to complex to see, what happens 15 years later. 

Was Clinton wrong?

No.

Were there signs of a problem?

Under German law you can only insure your house with one policy against fire. 

If you insure the same house twice it is considered a fraud. 

Here we had one loan - with 1000s of insurance policies. 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 


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