Categoría: Finance

ACTION IN CRISIS TIMES

We will go in a «tour» through the crisis times we are experiencing. But without a clear picture where is the exit or how to overcome them. Then will give a list of aseptic actions, techniques, to overcome the economic crisis times. Some might be more like than others. Some weak and incapable governments, even may no consider some.

Finally, we will touch the human side, psychological and emotional, where lay the human values and virtues. We believe that times of economic crisis have been financially created. But its length and depth is due to the mistrust virus between the agents, along with the virus of human pessimism and psychological fatigue. That are firmly entrenched in the crisis times we are experiencing, preventing their overcoming and an enhanced and experienced leave. The simple penicillin of liquidity and low value of money is not enough to reach successfully inside the human soul.

Reasons, Origins and Economic Mechanisms of the Crisis.

The crisis times have not appeared without reason. Do the times of crisis comes from a structural fault of the modern capitalism? That would appear periodically, never equally and with more or less force and extension in each economic cycle. No. The failure of the system is produced by the untidy, selfish and covetous, or careless and fail to fulfill conducts of many businessmen and authorities of the societies. The culprits of the actual times of crisis are an important number of bankers of many nations, together with the authorities of these. Their professionalism is doubtful, imperfect and ineffective. They are improvident, stupid and eager and blind of money and power persons. In a sinister and criminal amalgam, generated by a «born within itself chaos».

The authorities are responsible of not having established a legal frame of alertness and regulation of the financial structure, increasingly sophisticated and complex in the development countries. Which is adapted to such so evident, important and vital activity for the modern economies, as is the reasonable guarantee of the banking deposits and the generation of the banking enough credit for the national Economy.

Do this suppose a turn to the ideas of the socialist economy? Do we need a Big financial state Brother?, another official heavy, costly, slow, slightly productive public bureaucratic mechanism. Neither. The mission of the public powers is to establish a frame or financial practical, legal and modern method or way of action. And the sufficient means for its control and the correction of the alterations produced by the inevitable diversions (like a driver or a ship pilot), in a constant, relatively simple and agile way. Then it is necessary to allow operate the economic agents, that are all of us, acting as consumers, businessmen, borrowers, employees, institutions, etc., in the different partial markets: of credit, transport, supplies, stocks, etc. Why has it to be the State?, because it is the institution that is supposed must control and rule the general common activities, in the name of the people, over persons and private entities.

The banking management is vital for any modern economy. Would someone like that his money, deposited in a financial institution, is given to an insolvent person? That is given to somebody without patrimony or payrolls and that difficulty could return what receives. This guarantee of custody, so wished and sought by the depositors, is given by the authorized banks. Not the stalls or the financial swindlers. Does someone need money for a new investment or to expand his business? This money, received and brought together from many small anonymous depositors, the banks lend it. So as that the activity that he proposes could manage to be economically viable in a reasonable term. Does someone need money for a consumption lending or for a mortgage? The bank gives it to him, provide his future reasonable income allows him to make attend to the successive payments of the lending and its interests, up to its final liquidation. This intermediary banking basic function gives «payment means» to the economic agents who need them, to allow the economic «transactions» of a society, facilitating and stimulating its functioning, growth and prosperity.

The fundamental reason of the appearance of the «difficult to collect» mortgages in the USA was the break of the normal and constant relation between the lender and the borrower. Sure that Clinton first said that every American has the right to own a house. But he forgot to talk about paying it. To be able to grow more, some banks «securitized» part of their lending. First it was with the best lending, at least by all its appearances. They turned in bonds or medium-term debt, the lending that they were giving. And they sold these bonds to other banks or financial institutions, with excess of liquidity and looking for investing. And, therefore, ready to pay a bit more. On having seen the easy thing that was the process, where all they were earning and were getting more means of payment or investment, all were congratulated of their intelligence and financial skill. The process increased and, especially, it spread, even overseas. To it helped, how not, the juggling of the financial engineering. And it degenerated, on having got lost the alertness and control over the borrower. On whose punctual payments up to the liquidation of the lending, were residing the viability and the honesty of the «securitized» and sold transaction. And these pollutant powders, brought the actual economic quagmires, that damage to all us. Where nobody knows well the real value of what he bought or keeps in his financial assets.

Some economic measures to solve the crisis.

A problem is to contain the inflation, which now turns out to be distant, diffuse and improbable. That is to say, that the general prices level does not raise. This one includes the costs of the energies, now depreciated. But also those of the food and the fees of the public services, much more bulls. And in addition are almost impossible to substitute for other goods or private services. And to avoid that the ambitions get out of hand and turn in excessive and unjust. This is like a more or less severe diet. But that promises health and economic renewed energy.

It is also necessary to stimulate the Economy and to avoid its more or less sudden braking. Its total detention would lead to the opposite: to the deflation. But the excess of liquidity at very low prices that are applying the central banks of many countries, seems that removes the danger from the latter.

This multiple, double action in its purposes, forms a complementary, not antagonistic couple of opposites. They are like the nervous vegetative system: with the sympathetic and parasympathetic. Or both reins of a car of horses.

We give some possible measures. We believe that if the public sees a harmonic group of actions, stimulated by the Federal State, he will accept all of them. Though someone makes concrete harm temporarily to a sector of the population.

The public expenditure should be controlled everything possible. For example, cutting away the government employees or limiting the new appointments and limiting the new public works to the structures directly related with the production of goods, all the communications or the education. A corollary of the previous thing would be to seek or to have a surplus in the total State income. This might be used to amortize national or external national debt, for example. Or to reduce the taxes to the companies placed in the first row of employment creation and generation of wealth. And favoring, according to the cases, the most creative, modern sectors or that that use more manpower for production or output unit.

The widespread raises of salaries and pensions should be contained. The quid is to never allow an equivocal spiral of successive raises of prices and wages. Here have to give social example the highest wages (executive, high public charges, civil pilots, capital revenues).

It is necessary to give an adapted training to the youngest unemployed people, proceeding from sectors in crisis, in order that they could be occupied in other labors. The collection of the unemployment subsidies would be tied to receiving this training, at least with interest and, desirably, with progress.

The State must foment the «general» research and development. And to favor that the companies realize the «specific» research and development in their different productive sectors.

It is necessary that the State approaches seriously the problem of the complex commercial intermediaries and the logistics of many products of great consumption. Which increase in price unduly and almost inevitably (because there are the diverse «steps») the costs of those to the final consumers.

The personal qualities and virtues as decisive mental and stamina force to solve the times of crisis and to work out strengthened.

The real, deep and effective action in times of crisis comes from the persons, that, in addition, are the authentic economic agents.
After the liquidity and price of the money measures already taken profusely, why does not economic system work according to its capacity? In 2001 and 2002 even the conditions of money flow to the banks and its cost were slightly worse.

Because is restricted the action of the economic agents.
Partly financially, because the money is not given so easily and thoughtlessly. It is turning rapidly the banks’ “bad” custom of wanting to charge in time all kinds of lending and to give them with a certain security.
The system still needs and must produce more purges for the elimination of other incompetent, corrupt or spendthrift agents.

And, also, is necessary to restore the confidence of the economic agents between them. If I ask for a lending and get tangled up a time. Putting me under an obligation with a top labor, financial and psychic effort. It will be because I see reasonable opportunities of work or of investment. And because I have the natural ambition of prospering and growing.
This confidence is a mental parameter, that does not measure up in coins and that is not exchanged or transmutes with the ambition. Its real engine will be the illusion and the enthusiasm. Without illusion and enthusiasm nobody can neither be tackled nor realize successful enterprises. The enthusiasm is a force of the spirit, which conquers the moral and ideological entropy, generated almost inevitably in the societies (it is the set of the decay and the spiritual softness), and illuminated by a «reasonable illusion».

Of the world economic crisis it is necessary to work out strengthened in our values and virtues. These are the human «goodness and qualities» of reference, estimated and valued permanently by the societies and the human groups. The human virtues are very stable in the time. The values are the human «qualities and goodness», estimated temporary and/or locally by the societies or human groups. And, principally, by virtue of their idiosyncrasy, living conditions and pressures received from the exterior. The cultural and social values are in the habit of being evolving with the contingencies, movements and fortunes lived by the humans societies.

The virtues are contributed principally by the most elaborated religions, and by Cicero’s speeches and Plato’s Dialogs, within our extensive Western culture. We can mention principal and evident, without seeking to be exhaustive, absorbed in the human soul:
Appreciation of the family, the clan, the tribe, the friendship and the good and curious strangers who come to our environment. It is the vital environment that sustains us and is supported by all of us, our social humus.

Need of punishment of the conducts that are sufficiently separated of the social rules: to avoid the untidy revenge, to dissuade the possible perpetrators, to satisfy the done damages and offences and to reform the mistaken conducts

Appreciation of the respect and the worship to the Divinity, as recognition of the Necessary Being who creates us, supports us and, in some cases, helps us. This makes concrete according with the education, the culture and the social environment lived.

Valuation of the different duties to fulfill, as necessary, vital and social counterpart of the several rights to receive. Valuation of the sobriety, the effort, the saving, the commitment, the study or the training and the work as necessary factors and parameters for the progressive attainment of the personal and collective human aims.

Our values and virtues recognized, recaptured and reaffirmed, are which really will give us the force and the illusion to overcome these times of crisis.
And let’s not forget the essential function of command, management, impulse and example of the social leaders of all kinds. That are present in the homes, the schools, the churches, the political parties, the unions, the work centers, the associations in general, etc. These are the cores of the collective activity of the society. In the times of crisis the leaders must act much more from the example.
The values and the virtues cannot be seen as something artificial and remote, without real connection with a lived and known practical code. They have to be perceived and accepted by the citizens through alive examples that could be follow. Not with codes impositions and cold regulations, dictated from the moral and intellectual apex of the society.
 

 

THE TOXIC ASSETS.

Which is the role of the toxic assets in the appearance and the development of the actual global economic crisis? How does it turn into a toxic assets, a consumption lending or a mortgage loan? We do not like the term «toxic assets», because they are neither pathogenic, nor are a poison. We can call them harmed, depreciated or devaluated financial assets.

The Theoretic Basic Financial Cycle.

The banks receive multiple deposits and give the received cash to their different borrowers: institutions, companies and individuals. A part of these lending comes back again to the bank, as new deposits. Since nobody keeps the money in house or in the company or in the official public office, except for the immediate minor quantity payments or in the cases of social real or menacing catastrophe.

It is always supposed that the banks monitor and control the successive partial payments of their borrowers, for the given amount and its interests, at their maturities. But the financial «engineers» arise, Bill Clinton in 1998 realizes an important deregulation of the financial practices and Greenspan acted as an irresponsible qualified madcap. In effect, in April, 2000 he unnecessarily raises to 6 % the legal basic rate. But the recession was coming up and the telecommunications and computer companies crisis, on its way. And then he has to lower it, probably too much, to stimulate the economy. And the FED facilitates the transfers of liquidity to the USA banks. This way, there is liquidity at low prices in the system for a long time.

The Disturbing and Uncontrolled New Financial Ways.

Many banks, probably too many, begin to “securitize” their loans. Turning them into medium-term bonds. And they sell these assets titles to other banks and to investment or pensions funds. Both in their country and overseas. That seek to earn more with them, that investing in the Treasury and good rated companies bonds at their countries.
All that complicates with the rapid «on line» world round communications, with the international transactions, with the ignorance of the real scope of the overseas generated financial titles and with the differences of interest rates between nations and groups of nations. Mix it perniciously and malevolently with external strange factors to the financial system: the «passions» or untidy appetites or exaggerate desires. Which are difficult to know and to control for the men. The greed, the fear and the egoism then arise and get out of control. Disturbing, contaminating and degenerating the financial system. But coming up from the persons and not from its complete and limited functioning financial frame.

And we have a big problem, in the shape of a born within itself chaos. Where nobody knows well the quality of what assets he has. For this, he would have to unravel a complicated hank of transfers and exchanges of assets, of refined creation. Destined partly to conceal faults and spurious and embarrassing origins of the assets. And this happens basically because the usual relation between lender and borrower broke. The former, defending its business, if he has to remain with the lending, as assets in his balance, already will give it to whom reasonably could pay all the debt. And will worry about following the payments up to its final liquidation. And as the disturbed situation is complicating and tensing, the possible bad debts, those at the limit of their financial capacity, will easily turn into real bankrupts. And the whirlwind continues feeding, spreading and harming all of us.

AN IRRATIONAL MARKET?!

Unlike a healthy market, how does behave an irrational market? The prices of the raw materials (commodities), specially the crude oil, and of the companies shares, are they formed now in an irrational market? It is curious to indicate, that the most abrupt falls, that the differences most accused between prices and real values are forming in the more speculative, less mature, less juridical sure, more financier or socially weak markets. Do we have an irrational market like these ones?

Introduction to the volatile situation in the world irrational market.

From the beginning of October, we are assisting at an abrupt fall of the value of the assets of equity securities in all the stock markets of the world: from New York up to Tokyo, passing through Europe and the so called emergent markets. These last seemed to be relatively immune to these devaluation, initiated at the beginning of 2008, but already they have joined late and intensely the first concerned. The nearness menacing of the world financial crisis, has concerned with unusual strength the collapse of their stock exchanges and the flight of the foreign investors.

The free market, its characteristics and properties and its functioning.

The market in general is the effective meeting of the economic agents, that are all the citizens, as institutions, employees, consumers, companies, pensioners, etc., to realize the economic transactions. The market as philosophy, as economic institution, as idea, concentrates and materializes in the numerous specializing active markets: Of employment, of credit, of supplies and shops, of services, of common stocks and bonds, of long and short distances transport, etc. On every market the agents divide in buyers, borrowers, bidders, employees, etc. and in sellers, lenders, sellers, businessmen, etc.
The money is the accepted payment mean that allows us to subdivide the «value» or cost of the goods and services, in a suitable and manageable number of units and sub units. So that, referred to it, the prices, measured in multiple and sub multiple of the monetary unit, are more precise and acceptable, that the value relations that allow to establish the barters. This is one of the principal functions of the money. And, because of it, happen the claims for its increase (liquidity) in these moments of economic and financial crisis. Really the money is there, neither has gone away, nor has faded away. If the money could vanish or rot, as the smoke or the seeds, it might not be money. What happens is that it does not circulate as it had to, it does not facilitate the transactions; it is stopped, good guarded or hoarded, waiting more benign and clear economic times. For example, neither the iron nor the diamonds, with specific extreme values, can be used as money. The iron oxidizes and its unitary value is so low, that its transport and exhibition would be a problem. The diamonds have a value that is not proportional to its weight, but to the square or something more of it. This way, a big one costs about the double of all its assembled pieces.
The Traditional Economy presupposes that the performers agents are absolutely informed about their selection of goods possibilities, that they buy and sell rationally, that they are not emotionally affected, etc. This happens like the physicochemical law of the ideal gases, which establishes that the molecules that form them, lack a valuable volume or weight and that they do not interact in their seemingly behavior. This was the way that had the Economy approaching in its origins to the Science, translating its expositions, assuming the simplified formulae established in the first moments of the scientific empirical investigations. The economic agents act on the markets by approximation, by successive rough estimates. Seeking to realize, in general, more an acceptable transaction, that to achieve continuous «opportunities» or to manage «to gain the last dollar». If a transaction supposes an advantage suited for both parts, generally it is accepted.

Which are the operational factors that act in the creation and the correct functioning of the markets?

Let’s see a sufficient, but not exhaustive list, of them. With it, we will have another idea of the market. The one that its qualities or needs gives.

The proximity and accessibility of the agents to them.
The economic profit, the usefulness or the efficiency that offers the good or service and its remuneration.
The existence of an effective, less complex as possible logistics (this can increase unnecessarily and inevitably the intermediaries prices), that delivers in time, place, quantity and class or kind the products or services demanded (to do the forecast) and bought. To have the sufficient, suitable and well located storage and manipulation means. To possess the tracking, control and management, computerized or not means, that are sufficiently modern and adapted to the volume and the diversity of the articles and services.
The existence of the sufficient varieties in class and quantities, to allow the transactions in a fluid and constant way. As corollary, the need of enough transactions, according to the offer and the payment means.
The absence of monopolies or oligopolies of offer or demand.
The existence of civil and trade codes sufficiently developed, with their laws and complementary regulations. Which give juridical safety to the transactions. As corollary, the existence of a state and regional effective and collaborator bureaucracy, which, at least, neither squeezes excessively the citizens, nor is indolent.
The existence of a road and railway infrastructure and a net of wire and wireless communications, both sufficient and sure. As corollary, that exists social peace in the country.

The irrational market: the exogenous disturbances in the functioning of the market.

We have not mentioned yet the strange factors to the market. Those that nest, grow and even can rush off in the rational, sensitive and emotional human soul.

In spite of the Traditional Economy, the economic agents are persons, hold to the feelings and yet to the passions or untidy appetites and very vehement desires. And the feelings are the engine that generates the humanized energy, for good or evil. A pure idea can inform the soul, but alone it is cold and does not stimulate or get running it.
When the market disturbs by external factors, which are emotional in this case, that pervert its natural function, specified in «facilitating and attending the transactions», its simple and basic rules are altered. If in the markets, and therefore in the transactions, act agents altered by the greed, the fear and the selfishness, its functioning alters and more yet degenerates. The economic agents are in the habit of anticipating the future that they glimpse, the enjoyment of an object or entity and the menacing misfortune. But the upset ones magnify them, up to the point that they concern or get hold of their spirits. So, the enjoyment turns in too big and the possible threat turns an almost sure catastrophe.
It will buy and sell to speculate, or high over the real present and still future needs, or to hoard, or to alter the prices, removing them from the real value of the things, which is created in a healthy and sufficient market. It is then when we can speak with property, as the good old people did, about the «stock exchange game». Because they buy and sell shares rashly, in the edge of the razor, without a net below. And it is not investing and even taking calculated risks, as in any enterprising and creative investment.
We have left off the healthy market, which already does not exist, on having broken its rules and characteristics. And we enter, without almost realizing, on an irrational, false market, probably still free, but harmful. This one is a pseudo market, a junk open shop, the free meeting of vile people in the thoroughfare, concealing intentions, to buy and sell with deception between them. It is a commercial amorphous, undifferentiated magma, with maelstrom and whirlpool rules, which attract all and everything, in a «chaos born within itself«. And one of the worst thing, always with unpredictable results, consequences and duration. This is what happens in Hydrodynamics, with the laminate flow, turns into whirlwind on having increased enough its speed, within the liquid and gaseous fluids. And what happens in Mechanics, when we raise revolutions, over its design technical characteristics, of a car engine. And in a few dozens of km we can melt it.

THE WORLD BANKING CRISIS

Have we in march a Banking Crisis of unknown scale? This banking crisis, is it a fault of the theories of the so called new conservatives or «neocons»?. Does the banking world crisis obey to a structural deficiency of the capitalism?, that would appear periodically, never in the same manner, and with more or less force and extension in each economic cycle.

Or are the culprits of the world banking crisis rather an important number of bankers of many developed nations, together with the authorities of these? The first ones, more than bankers, are «trashy window bank employees». And they are lacking of foresight, stupid and eager of money and power, in a sinister and criminal amalgam generated in a «chaos born within itself». The authorities are responsible of not having established a legal frame of alertness and regulation of the financial structure, increasingly sophisticated and complex. Which is adapted to such so evident, important and vital activity for the modern economies, as is the reasonable guarantee of the banking deposits and the generation of the banking enough credit. The fool is that who ignores what he must know.

Do this suppose a return to the ideas of the socialist economy? Do we need a Great financial state Brother?, another heavy, costly, slow, slightly productive, official mechanism. Nooo. The mission of the Public Powers is to establish a frame or financial practical, legal and modern method or way of action. With the sufficient means for its control and the correction of the alterations produced by the inevitable diversions (like a driver or a ship pilot), in a constant, relatively simple and agile way. Then, it is necessary to allow operate the economic agents, that are all of us, acting as consumers, businessmen, borrowers, employees, institutions, etc., in the different partial markets: of credit, transport, supplies, stocks, etc. Why has it to be the State?, because it is the institution that is supposed must control and rule, over persons and private entities.

Why cannot be the IMF or the World Bank, born in the Breton Woods agreements and with long actuation history, the supranational organizations that execute these new labors of inspection and correction? I believe that because they lack the legal and coercive means, to impose their economic criteria to sovereign different states. The proof is the compound attitude of the European states against the world banking crisis, make concrete in specific, individualized, different actions, for each participant state. For much that, in its origin, it was called Common European Market. When the states are too heavy and cumbersome juridical, historically and socially, the unanimity is very difficult and laborious.

We will see the mechanism of the creation and of the contraction of the credit, from the mechanism of the creation and of the retreat of deposits in an economic system. The reason is that both are the core of the origin of the current financial chaos, in progressive and advanced development …

How does banking activity work? Why and for what are credits requested to the banks? Why is it very important that the banking «assets» are healthy and recoverable at their ending time? Are healthy the parameters of the current financial activity: system liquidity (European M2); relative volume of non-paid expired debts; maintenance of the bank deposits; control of the “general level of prices”; confidence and credibility of the different economic agents, etc.?

The banking receives all classes of deposits from the public: checking, savings and time limit accounts. And even it emits certificates or bonds with its guarantee, which sells to big public institutions, companies and investors. Also the banks lend to others them «cash» and even come to the Central Bank of their Systems, asking for funds for different time periods. All this money the banking «owes» to the public in general. So it the items that represent it, appear in their «liabilities». For the use of this money, the banks pay a few interests to their depositories (rather little) or to their lenders and bondholders (slightly more). The own funds of the banking would join also these «liabilities», always a small fraction of them, represented by their shares and not distributed earnings, which they owe to their owners or shareholders. We call «banking» to the set of the bank system of an economic integrated system. And, «banks» to the set of these public and private specialized agencies of that one.
A part of that money, the banks keeps it in their branches windows and strongboxes, forming their treasuries and the legal and voluntary reserves. Let’s suppose that the banks keep as «cash» one of every 5 monetary received units. The other 4 units of money they give for different periods and prices (types) to their «credit clients» or borrowers: companies, public organizations, banks and persons, both natives and foreigners. Even they do it buying bonds and IOUs of companies and their shares and increases in capital. Those all use them for their needs and investment decisions, treasury, circulating and to buy for the consumption both in short and long term. They are in the habit of being over their real possibilities of bringing together their own payment means.
We consider the houses mortgages to be directed to an investment, specially in certain countries. Since the persons who take them, believe that if they have to sell the houses, «always» they will receive more than they cost them. And their real use value, if they are made well, are kept reasonably along the life of their first owners. This would mean that Spain would have a saving rate very superior to the attributed in the official statistics. Since a part of the public would be saving, even over his possibilities, in a good of the type «value deposit». Why the difference with the statistics? For a difference of criterion, as almost always it happens. I call “value deposits” of to the goods in which it can concentrate and keep and still be used without a valuable deterioration. The houses (well constructed and located), the jewels and the ancient coins (at their real value), the money (in moderate inflation times) are goods generally used as value deposits by the persons. And it is not a car, even a high class one, which value loses value excessively after the purchase.
In addition, a part of the lent money comes back to the banks, as new deposits of their borrowers. Because nobody uses immediately all the received money, keeping only the necessary cash for the minor immediate payments. Neither it is hidden at home or in the company, except during social catastrophic periods. This is going to generate more reserves and new available cash for lend or invest by the banking.
In the General Economics books is demonstrated that with that initial mentioned reserve of 1 monetary unit of each 5 received, the set of the banks can manage to give on credit up to 5 monetary units. More that creating bank money, what they real and more properly make is to multiply the possible credit to the society, whom they serve and from whom they benefit, with their activity as financial intermediaries. Our reader will have felt that, likewise, when the banking has to attend to payments and sell assets for it, the set of these then contract in the proportion 5 to 1. And as an intrinsic quality of the money is that it cannot vanish, so we call this essential process, as credit creation and not of bank money.
Those lends in general are, together with his modest own money reserves, the «assets» of a bank. The part of its balance that it can immediately use, demand, realize or sell other one in the secondary or interbank markets. It is very important that these assets are sure, chargeable in their proper moment, good. Since if an anomalous punctual retreat of money by its depositories happens or presents a good investment of or lending opportunity, the bank has to recover the cash, liquidating a part of these «assets» or paying with healthy assets.
How are now the performing parameters of the bank activity? The immense majority of the credit in general granted by the banks is good and recoverable. The real number of bankrupts of declared bad debts is low and controllable. The public in general (companies. Institutions and persons) keeps his deposits in the banking and attends to the payments, staggered in the time, of his lends in general or of his liabilities (payment of services, to suppliers, obligations). The liquidity of the system, the European M2 or his American equivalent, is high and even lightly inflationary. And it is more than sufficient to allow to realize all the economic necessary transactions, which is one of the principal functions of the money. Nobody has money «per se», but to use it in a more or less near future or, at least, with the hope or intention of doing so.
Another thing is that it is retained, kept under bed, buried or shut in the branches strongboxes. Why? For fear and distrust, which are the demons of the anticredit. In effect, the latter point or parameter, that which noisy and essentially faults, consists in the fact that the confidence, the guarantee, the solvency and the respectability among the agents of the system tends intensively to 0.
And the prolongation of the banking crisis, characterized by the deterioration and the disturbance of its essential activities, will turn progressively the potential bad debts in real, will restrict the creation of bank deposits and will extend in “shocking waves” the damages to the whole economic system.
There are no good thinking listened heads. The social leaders that risk, do not apply half measures, compromise themselves and always mistake something, are cornered, ignored or they can not arise or act. Because they are not politically correct, full of calm and good nature, expert in communication and manipulation of emotions, and using anesthesic words of the action, the revulsive and the concerted effort. The national societies face now an incredible, unthinkable problem a few months ago. And they are deprived in these moments of a social guiding and governing ideology and, in general, of useful, helpful and reliable leaders.

The Interest rates and the Liquidity. Another vision of the intimate Reasons of the Crisis.

It is said that with the descent of finantial rates, money is injected into the financial system, wrinkled by the confidence lack in the institutional or final borrower. And all resolved. But not. With the rates descent the business are facilitated. The private ones, the managerial ones and the public ones. On having stooped the bar of the financial costs, I can get tangled up better, can better attend to the payments of a mortgage at variable rate, or risk in another investment with minor marginal yield (the additional yield that the new investment will give me). The rate is a «relative measure» of the official value of the accepted means of payment.
The liquidity is the European M2 or his USA equivalentl: the money (about 8 % GDP) and the cuasi money: the deposits and easily realizable titles of debt (without term deposits). If there are no means of payment, though they are cheap (interest rate), I can neither spend nor invest. Where there is no flour, everything is gloomy, says the popular Spanish wisdom.
But already we have liquidity (the M3 (that includes the M2) is growing (to about 11-12 % in the last months) and the rates are very low. The compound action of October 8 of the principal central world banks, has left them in 1,5% in USA and 3,75% in the Euro monetary zone. Then, what does happen to us? Well, we do not have confidence in the possible investment. Or we are afraid that we will have difficulties to pay the loan. And the fear spreads as oil. The people handle numbers, but it cannot easily handle feelings or intuitions. Because they are not easy to measure. And one lacks moral courage and education to walk along these seemingly unknown ways.
The rates are like the engine and the liquidity, the fuel. Why does not run the car? Because it does not have driver: the will of the experienced driver who guides it. Apart that a productive investment does not produce at once. A nuclear power station takes 15 years, since begin the planning and decision works. Four legislatures. And they cannot risk, without a regulatory insured frame. There are 25 million houses constructed in Spain. Are needed many more? And, many people have been bought at excessive prices, thinking that its price always would grow. I calculate in 450 thousand the normal replacement (for around 50 years of house life). We have been constructing 650-700 thousand during the last three or four years.

Some corollaries or consequences of enormous importance.

The absolute liquidity does not exist, because there is no money in reserves to simultaneously attend to all the depositors. Not neither in any bank, nor in any country. For definition of what is the using of money. This happened to the British Northern Rock, which had long tails in the windows. In Spain there are around of 2,2 trillions of Euros in bank deposits.
It is necessary to re-establish the confidence in the bank system of every country. Then there will be credibility and monetary money and enough credit surplus. This is more difficult in these moments, that a few months ago. Because the public is started realizing that his money is not have in the basement of his bank branch. In fact the real arrears is minimal yet. Another thing is that the borrowers are all potential bad debts, especially if the economies deteriorate. And the banks with these captive and depreciated assets can not do anything.