29-10-2008:Column 161 Comments on the economic downturn

Here is my comment from The Netherlands in Europe.

First of all the financial crisis was no surprise to me, since I have heard about the problems already some 7 years back.

You should have shut up Alan Greenspan the Oracle in those days, since he admitted now that he was only “partially” wrong in not applying sufficient supervision rules on the financial sector.

I have never seen such hypocrisy in my life, believe he has made more mistakes by leaving the interest rate too low for too long, this girated all home-owners into cheap mortgages, where an upturn in the interest rates could be foreseen.

I remember how Greenspan criticized former European Central Bank president Duisenberg for not lowering the interest rate more than he did.

We have stayed here at 3,0 % in those days, meaning the lowest mortgage should bring 4,5% in interest and we went up only to 4,5 % later resulting in an interest rate of 6% for mortgages. Still for home owners a change of 33%!

In your situation the change was more drastic from 1% to 5% for prime rate results in mortgages from 2,5 % to 6,5 % almost tripling the burdon for home owners.

A child can see the math I presume and a disaster in the making.

When last year the full measure of the disaster materialized Greenspan kept commenting not only on his successor but also that this disaster would influence the economy and would find its way in the direction of Europe, as if it was a special treat you should not miss out on.

We could hardly have suspected how right he was since he knew what frauduleus practices where used in banks and hedge funds in the USA and much to my surprise particularly also in Belgium (Fortis).

Some of the latter ones have fallen smack on their face the last one yesterday for short selling Volkswagen which rate mushroomed due to option execution by Porsche even though management of Porsche has stated their execution would be performed in an orderly way the short sellers had to go to the exchange and they started to buy Volkswagen where they knew beforehand they had only a free float of shares of 5%. For the short sellers a disaster followed as it did in Crude Oil.

Speculating in an upward movement is easier than in a downward one.

I remember a comment that oil options did not represent real oil(?).

Wait till you find out and they did, result is bottoming out of the oilprices!

Did you know that at some days during the upward speculation more oil was traded on one day than the total production of one year and only because their was no sufficient security asked. A serious oversight on the side of the legislation boys!

Now we are talking about deleveraging of the total market place, which is a painful and time consuming process.

Probably yes, if everybody keeps on selling being short in coverage of their speculation and consequently of cash.

Did you realize that some companies have more cash than their shares are valid in the market place and even concerning these companies the general public is stampeding to sell!


In our evening news an anchorman said we should not be so negative about the economy and subsequently raved on in news items one even more negative than the other.

Taking the financial crisis to the streets, is done by the journalists and anchormen who do not have a clue just as the forecasters and investment banks downgrading shares.

How in this world are they supposed to know, this situation is as generally understood one of a kind.

How can you make a technical analysis of shares if all the underlying elements are all of a sudden rootless?

I am in the executive search business and we know we are shot of all specialists to-day but due to the aging of the population even more so to-morrow, they simply are not there.

So to lay off people is no issue since that is only a temporary solution and wil put you in deep shit to-morrow.

However in the Netherlands we see the announcements of lay-offs only at the USA rooted companies.

Shortsighted as ever since believe me, if Wallstreet goes up the roots of the financial coverage problem is taken and we shall see a quick recovery!

So stop about pondering this situation from a negative point of view because you influence the general population and to-day there are a lot of people who are afraid of landing in a paper box and you should not add to this feelings by speculating too much!

I leave it at this, but I could write a full paperback about it and no doubt some points I have tried to make could be worked out in a lot more detail.

Have a nice day.
Hans van der Sar, CEO of IBS

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