There is a blowing wind in the financial sector and it is very chilly.With the next round of US Subprime mortgages about to come to the fore, the losses within the financial industry are mounting and they are not chump change.These losses are mounting in increasing value to the tune of billions of dollars of losses.Strangely, the same corporate heads that led the way in hedging these bundled mortgages are the ones being held accountable; and rightly so.The problem here is that these people are not bad managers, they simply got caught in a series of bad management decisions that were fuelled by a herd mentality on Wall Street.Of course they and their subordinates made billions in commissions and stock options during the free for all that led to the current crisis.The question that needs to be answered is this; Did they know what they were hedging?
It is difficult to believe that these people did not know and so it can only be put down to greed; both corporate and personal.Will they suffer for losing their jobs?If they are driven to continue working in their current capacities; certainly they will find it difficult to become reemployed.It can't be easy being fired from a Fortune 100 or 500 company helm and expect that a new position will open up any time soon.However, it is also reasonable to expect many will just quietly retire.
This leads to the next question.The understudies who will eventually take the helm of these gigantic corporations; did they learn from their mentor’s mistakes?If so, what did they learn?Did they get a reinforced lesson in ethics or did they learn to better cover their tracks?We in the general public could hope that it was the former.
It is worth noting that the shareholders in these companies are by and large, other companies.Individual investors have very little influence over the boards either singly or collectively in most cases.Armed with that knowledge (Power over many is in the hands of the few.) one cannot ignore the enormous impact that business has over the domestic economy and in this case, the world economy since these bundles were sold worldwide.It is difficult to believe that European investors were aware of the securities they were buying until it was too late.
This activity is particularly important to those affected within the financial industries of course but in the end it also affects the consumer.Everyone will be trying to make up for losses.There is no question of that and those losses will be recovered as quickly as possible.This means increased prices across the board from the food you eat to the socks on your feet.Increases in prices without corresponding increases in GDP as well as other indicators are the root causes of inflation.One only needs to look at the energy sector to witness this effect and it will get worse.The banks have already begun to increase margins on lending and tightened their credit extensions making it more difficult to borrow.
It all adds up to a slowing economy as the consumer is forced to pull back on the extras and luxuries.This withdrawal of money from the system combined with increased costs fuel the inflation that has already begun with the energy sector.It can be stopped but will governments world wide take the drastic action of price controls?In the opinion of this writer, not as long as business is in the driver’s seat.It leads one to wonder, who is actually running our countries?