Edward M. Gomez, a former U.S. diplomat and staff reporter at TIME, has lived and worked in the U.S. and overseas, and speaks several languages. He has written for The New York Times, the Japan Times and the International Herald Tribune
http://sfgate.com/cgi-bin/blogs/sfgate/indexn?blogid=15
In the global-finance equivalent of the butterfly that flaps its wings in Central America, creating a microscopic current of wind that may someday be felt as far away as, say, China, the collapse of the sub-prime mortgage market in the U.S. is now being felt far beyond the American neighborhoods in which lenders had made deceivingly cheap loans to low-income residents, putting many blacks and Hispanics on a disastrous track to the American Dream of home ownership.
In the U.K., for example, customers have been lining up for days at branches of Northern Rock; they have been trying to withdraw all of their savings from accounts at the bank, which has been rumored to be on the brink of failure. The government of Prime Minister Gordon Brown (Labour Party) has assured Northern Rock customers that the Bank of England will intervene, if necessary, to help back up the bank and ensure that those withdrawing their savings will receive all of their money, a proposal that has sounded a crisis alarm signal in Britain's financial sector.
On Sunday, the Observer reported: "Thousands of anxious customers queued outside Northern Rock branches...yesterday, ignoring calls for calm from the Chancellor [of the Exchequer], Alistair Darling, and the bank's management, and sparking fears of a full-blown run on the bank." The newspaper cites a couple that camped out overnight in front of one branch of the bank, "desperate" to be able to withdraw the funds they had earned from the sale of a house and stashed away in their Northern Rock account. "That money is our lifeline, as we are living in rented accommodation at present," one member of the pair remarked.
A separate Observer article noted that economists in London have "warned that a decade-long borrowing binge [has] left the U.K. economy dangerously exposed to the fallout from the credit crunch." The head of one financial-consulting firm said: "The U.K. has a double vulnerability. We are vulnerable because of our hugely over-extended consumer sector and because of our large financial-services sector. This is a financial-market event, but the longer it goes on, the greater the risk that it becomes a real economy event - and I think we are at a tipping point."
A third, news-analysis piece in the Observer describes what is unfolding as the U.K. finally becoming "caught in the financial crisis that started in small-town America with reckless lending to people who could not afford mortgage repayments...." Describing how the situation has come to this, the paper noted: "ome of the brightest minds in U.S. banking had spent the past decade devising ingenious, albeit opaque, ways of making eye-watering profits, founded on the unshakable belief that they had discovered a new, fool-proof way to manage the risks associated with lending money....[T]he American underclass would be turned into an asset by offering [its members] mortgages...they had traditionally been denied. Of course, they would have to pay more for their home loans than normal because they were such risky debtors. But the rocket scientists believed they had insured themselves against the risks by selling the loans on to other institutions in complex financial bundles of debt." However, because such debt "had been bundled with other debts and then parceled out to other financial institutions, the entire global banking system has been infected by problems in America's sub-prime market. As a result, banks have suddenly got nervous about lending more money to each other, afraid they might not get it back."
The Financial Times reports that the Northern Rock crisis is turning political; it's bad news for Gordon Brown. "Stability was Labour's trump card in the three general elections fought and won by [former Prime Minister] Tony Blair. As [Britain's former] chancellor through that decade, Brown could claim much of the credit. This week's scenes of anxious voters emptying their bank accounts, redolent of Latin America 20-odd years ago, threatened to sweep it all away."
This what many average Britons who are not high-finance experts might be thinking right now, the FT suggests: "How is it, voters might reasonably ask of the politicians, that an upheaval that began with some dodgy loans in the American mortgage market could bring one British bank to its knees and threaten the future of several others? Why, if London claims to be the world-s preeminent financial center, did the regulatory system not work? Most people will not be much interested in complex explanations about the implications of the integration of global financial markets or about the balance of regulatory responsibilities in Britain between the government, the Bank of England and the Financial Services Authority. The buck has to stop somewhere; that may well be Downing Street."
A spokesman on financial issues for the Labour Party's rivals, the Liberal Democrats, has said publicly that Brown must "take personal responsibility" for failing to reign in British banks' "debt promotion, unfair charges and irresponsible lending" and has called the "near collapse" of Northern Rock "a product of greed and reckless gambling by overpaid executives, lax, indulgent banking regulation and a complacent government." (Herald, Scotland)
A Financial Times reporter notes: "All of a sudden, the political mood, which a week or so ago was said to be tempting...Brown to call an early general election, is altogether darker. Only the other day, I heard one senior minister predict that if the prime minister went early he would romp to victory. Now, nothing seems quite so solid. Politics, as they say, has got interesting again."
http://sfgate.com/cgi-bin/blogs/sfgate/indexn?blogid=15
In the global-finance equivalent of the butterfly that flaps its wings in Central America, creating a microscopic current of wind that may someday be felt as far away as, say, China, the collapse of the sub-prime mortgage market in the U.S. is now being felt far beyond the American neighborhoods in which lenders had made deceivingly cheap loans to low-income residents, putting many blacks and Hispanics on a disastrous track to the American Dream of home ownership.
In the U.K., for example, customers have been lining up for days at branches of Northern Rock; they have been trying to withdraw all of their savings from accounts at the bank, which has been rumored to be on the brink of failure. The government of Prime Minister Gordon Brown (Labour Party) has assured Northern Rock customers that the Bank of England will intervene, if necessary, to help back up the bank and ensure that those withdrawing their savings will receive all of their money, a proposal that has sounded a crisis alarm signal in Britain's financial sector.
On Sunday, the Observer reported: "Thousands of anxious customers queued outside Northern Rock branches...yesterday, ignoring calls for calm from the Chancellor [of the Exchequer], Alistair Darling, and the bank's management, and sparking fears of a full-blown run on the bank." The newspaper cites a couple that camped out overnight in front of one branch of the bank, "desperate" to be able to withdraw the funds they had earned from the sale of a house and stashed away in their Northern Rock account. "That money is our lifeline, as we are living in rented accommodation at present," one member of the pair remarked.
A separate Observer article noted that economists in London have "warned that a decade-long borrowing binge [has] left the U.K. economy dangerously exposed to the fallout from the credit crunch." The head of one financial-consulting firm said: "The U.K. has a double vulnerability. We are vulnerable because of our hugely over-extended consumer sector and because of our large financial-services sector. This is a financial-market event, but the longer it goes on, the greater the risk that it becomes a real economy event - and I think we are at a tipping point."
A third, news-analysis piece in the Observer describes what is unfolding as the U.K. finally becoming "caught in the financial crisis that started in small-town America with reckless lending to people who could not afford mortgage repayments...." Describing how the situation has come to this, the paper noted: "ome of the brightest minds in U.S. banking had spent the past decade devising ingenious, albeit opaque, ways of making eye-watering profits, founded on the unshakable belief that they had discovered a new, fool-proof way to manage the risks associated with lending money....[T]he American underclass would be turned into an asset by offering [its members] mortgages...they had traditionally been denied. Of course, they would have to pay more for their home loans than normal because they were such risky debtors. But the rocket scientists believed they had insured themselves against the risks by selling the loans on to other institutions in complex financial bundles of debt." However, because such debt "had been bundled with other debts and then parceled out to other financial institutions, the entire global banking system has been infected by problems in America's sub-prime market. As a result, banks have suddenly got nervous about lending more money to each other, afraid they might not get it back."
The Financial Times reports that the Northern Rock crisis is turning political; it's bad news for Gordon Brown. "Stability was Labour's trump card in the three general elections fought and won by [former Prime Minister] Tony Blair. As [Britain's former] chancellor through that decade, Brown could claim much of the credit. This week's scenes of anxious voters emptying their bank accounts, redolent of Latin America 20-odd years ago, threatened to sweep it all away."
This what many average Britons who are not high-finance experts might be thinking right now, the FT suggests: "How is it, voters might reasonably ask of the politicians, that an upheaval that began with some dodgy loans in the American mortgage market could bring one British bank to its knees and threaten the future of several others? Why, if London claims to be the world-s preeminent financial center, did the regulatory system not work? Most people will not be much interested in complex explanations about the implications of the integration of global financial markets or about the balance of regulatory responsibilities in Britain between the government, the Bank of England and the Financial Services Authority. The buck has to stop somewhere; that may well be Downing Street."
A spokesman on financial issues for the Labour Party's rivals, the Liberal Democrats, has said publicly that Brown must "take personal responsibility" for failing to reign in British banks' "debt promotion, unfair charges and irresponsible lending" and has called the "near collapse" of Northern Rock "a product of greed and reckless gambling by overpaid executives, lax, indulgent banking regulation and a complacent government." (Herald, Scotland)
A Financial Times reporter notes: "All of a sudden, the political mood, which a week or so ago was said to be tempting...Brown to call an early general election, is altogether darker. Only the other day, I heard one senior minister predict that if the prime minister went early he would romp to victory. Now, nothing seems quite so solid. Politics, as they say, has got interesting again."
