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The subprime mortgage crisis

The subprime mortgage crisis Good day! I was hopeful when I read the title that perhaps someone had finally looked at our own vulnerabilities to the on-going financial meltdown in Wall Street. I was particularly interested in the analysis behind the conclusion that RP wouldn't follow in the footsteps of the US subprime mortgage crisis. I was sadly disappointed on both counts. I found the piece wanting in more dimension, perspective, and analysis, all of which could have been helped by a more exhaustive research effort. First of all, the analysis of the current subprime mortgage crisis was sorely lacking in depth and even accuracy. This whole mess started from the fact that the risk intrinsic to subprime mortgages was passed on, through the process of securitization, to unsuspecting pension funds, investment houses, etc. via the process of securitization. It is this process of securitization, once hailed as an ingenius financial innovation, that allowed risk to be taken on and then later passed on to other parties by banks. Because housing prices were booming, the returns on such securities were higher than others, and this led to a vicious cycle of excess credit and riskier loans. Once asset prices dropped, loan repayment rates dropped too, security prices dropped, and again, another vicious cycle started. These points were hardly emphasized at all in the article. What happened to NMHFC was similar in nature , but come November, they're adding securitization to the mix. This now means that we have the EXACT same recipe for disaster as did the US housing market! Oh but wait... the securities will be guaranteed by the government. While this indeed supports the article's conclusion that RP won't have the same subprime mortgage crisis , this in fact will make the situation even worse! With a government guarantee, what you have are private sector loans that, if defaulted on, will be assumed by the government, making it then public debt. And what happens when public debt becomes too big and too unsustainable? Investor confidence fails, a credit crunch ensues, and as in the case of East Asia in 1997, a currency and financial crisis begins. All this is made possible by the process of securitization. That housing prices have gone upf, as assertedf by NMHFC, is not a guarantee against such crises... in fact, a booming housing market is a necessary condition for it. I understand that the government wants to allay fears and calm people down during such troubled times. A severe loss of confidence in the country's banking system after all, whether unfounded or not, is self-fulfilling. But the media should do more than just repeat what the government says. Newsbreak has always been known for its good reporting, and I hope that tradition of good and responsible reporting continues. I hope this small effort of mine helps even a bit. An economist tin.m.alikpalagmail.com