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Neither the genetic nor the health system is so critical to health and social factors that surround us.” One of the conclusions of Benach, professor at the University Pompeu Fabra in Barcelona. And he is right, because the reality is that our life we ​​build our own, but largely others. Those who see us, we recognize and differentiate. And it is they who through relationships that we give direction to our lives

The current financial crisis has a number of changes not only as far as economy is concerned, but also in social interactions – work and personal concept of the worker and his environment. An environment perceived as hostile and threatening, with genesis of higher rates of mental disorders and psychosomatic illnesses. The current economic and working conditions or the risk of losing their jobs, lead to a chronic stressful situation for the worker, increasing the likelihood of cardiovascular disorders and character disorders anxiogenic actions. In response, the impossibility of causing absence from work due to the precariousness of the professional status and employment adjustment policies. This will lead to a decline in the quality and motivation of workers during working hours, increasing the risk of psychosocial problems within the workplace. Read the rest of this entry »

The financial crisis is opened from the so-called sub prime mortgages or sub prime mortgages. The mechanism was explained here in two articles in July. In the first, July 18, a funny and serious explanation of the U.S. mortgage crisis , we present the translation of the work of Telegraph England. Subsequently, on July 21, returned to present a translation of the Telegraph but now in a show of slides, which greatly improved their reading. This thanks to the excellent service Slide share.

The crisis continued and deepened to the point that we know today. It is no longer just about sub prime mortgage crisis and its impact on the real estate business, but its impact on the overall financial system and insurance in the U.S.. That is, we talk about the bankruptcy of the fourth largest bank in the world, Lehman Brothers, and talked about the problems of AIG. The situation exploded a week ago and the Bush administration is calling on Congress to approve funds of $ 700.000 million, to address the problem. Funds in the amount of seven times the GDP of our country.

And to better understand what is happening is good to ask those who seem to know more about it. Professor Gregory Mankiw gives us a clue. The column found in Free ergonomics by Steven Levitt in The New York Times of yesterday, 23 September. But Levitt has no answer, but rather have questions:

As an economist, I am supposed to Have Something intelligent to say about the current Financial Crisis. To be honest, However, I have not got the foggiest idea What this all means. So I did what i always do When Something related to banking arises: I knocked on the doors of my colleagues Doug Diamond and Anil Kashyap, And for the answers Asked Them.

As an economist, it is assumed that I have some brilliant idea about the current financial crisis. But to be honest, I have no idea what it means. So I did what I always do on these issues. I knocked on the door to my colleagues Cougar Diamond and Anil Kashyap, and asked them the answers.

Now that economic issues are heard only on the stock market crash, the crisis in U.S. subprime and financiers crisis is hitting us, I would leave you a item that I had saved some time to read. It’s a clear describre why the financial crisis that is occurring.

The article is an explanation of the IESE professor Leopoldo Abadía now Sonnenfeld Group on the financial crisis plaguing the markets since Uncover the subprime mortgage crisis in USA. This explanation can read from the blog of Nacho Grail , Founding Partner of Atrapalo .

I recommend reading this very good explanation if you want to make clear some ideas of what is happening and where it comes from this crisis.

Update: You can find the full article in pdf format on the website of the author as updates will follow by the author, Leopoldo Abadía, in his own web .

I am also waiting for the report to appear in English. As I have said will not take long to appear. As put a link displayed in this blog.

Every effect has a cause, and such is the case of the current financial crisis, for which they seek to blame without knowing that there are many causes of this problem.

This financial complication became a vicious circle , rather, in an amount of responsibility that starts with the authorities and financial regulators.

Here include Alan Greenspan, former Fed chairman, Wim Duisenberg, former president of the European Central Bank, Jean-Claude Trichet, now president since November 2003.

Thus the Federal Reserve took the initiative and from 2002 to 2004 kept interest rates below 2%, a trend that followed the ECB to June 2003 to December 2005 put it at 2 percent.

Banks
This in turn led to financial institutions began to grant loans that were acquired by the citizens (of all social levels) that due to economic confidence and low rates of interest that were handled were acquired without any fear.

Many of these could be called unaffordable mortgages or subprime, they were assigned to users who most likely could become delinquent customers. Read the rest of this entry »

The deepening crisis financial international recession and its impact on the economy in real industrialized countries and is impacting negatively: in countries like ours are reducing prices of commodities affecting the external sector of our economies and, therefore, the capital start out creating pressure to increase the rate of change .

The beginnings of crisis
Some economists, such as OSCAR UGARTECHE and PEDRO PABLO KUCZYNKI, warned at the time of the likely and disastrous consequences of the mortgage crisis in the entire system and financial credits U.S. (The trade 23/01/2008).

The problem began: as the demand was increasing housing prices rose. The growing demand driven by the ease of obtaining credit in the financial system which, we now know, led to a relaxation – in extreme cases, the requirements and conditions for obtaining them.

Everything was a whirlwind of rising prices, interest rates low and the demand for housing and credit both by those seeking to buy home builders as well as seeking cash to build more and continue selling. The spiral of capitalist wealth creation at its finest.

At the same time the banks and other institutions engaged in mortgage lending mortgages sold these debts to banks in investment for, with the cash thus obtained more loans.

Anatomy of a disaster:
As the demand for housing loans continued to grow robustly, banks, realizing how easy it was to sell these debts encargándoselas even third party ( bank ‘s investment ), began to relax the conditions for granting credit .

Remember that banks are intermediaries liquidity: that means that they receive funds by paying a rate of interest so give credit charge a much higher rate.

That is, most loans made ​​to higher rates, more profits and, of course, older bonds (prices of the end of the year) for the officials responsible.

This logic leads to, at some point, we do provide mortgage loans to people who could not prove income without collateral and without fee initial.

“With home prices and rising demand, to anyone worried that they could not pay. Finally, there was no problem in paying off the house in question), said an executive of real estate in Mass. who declined to be identified .

As described in the century continued to rise, the investment banks “packaged” these mortgages (an asset in terms of flow of capital ) with other assets that they sold through the markets of securities to banks, hedge funds and funds pension worldwide.

According to the logic of the investment bank gone, you could average the risk of bad mortgages with other less risky assets. “It was like selling 7 buzzards packaged and say they were the same as a condor,” said a leading economist at the INSTITUTO PERUVIAN ECONOMY (IPE).

But here there were other players: insurers. These assured to those who bought these instruments against the possibility (then still very remote) of the payment of obligations by either party.

And it got worse. The same mechanism was used to repeatedly mortgaging the same property. For example, if one obtained a loan of U.S. $ 110,000 was because that was the value of the asset. But with prices rising as furniture foam, a year after obtaining the said loan the value of housing had increased by 40% ie, now its value was U.S. $ 154,000. The owner could get a mortgage extra for the remaining value, or U.S. $ 44,000 + terrible thing was that it happened several times, a department because it was paid initially U.S. $ 150,000 could be mortgaging 2 to 3 years up to U.S. $ 500,000 . That money became extra consumption and extra debts were packaged and sold.

If it is added to the credits are granted at a variable rate – that is, the rate could vary according to economic conditions at the discretion of the granting institution, only to need a nudge to fall off the cliff. After a few years debauchery, it’s time to pay the bill

The push.
When people who have had credit without collateral and without adequate credit rating began to stop paying, the alarm should turn on time. But he did not had a lot of money in play . As more and more people left to pay, insurance (including the nationalized AIG) were faced with debts but the perception of risk on these papers was increased to the point where prices fell almost to powder. So, not to sell more mortgages, the banks stopped lending causing the drop in demand for housing and, hence, prices.

I have the impression that most people feel confused by the crisis that has unfolded in recent weeks. In view of the financial effort by central banks must see that this is a very serious crisis. And under the effect it has on their pockets the rise in interest rates, may perceive that will do them more harm than what the authorities want to recognize.

In any case, even though everyone talks about the crisis, there are very few clear ideas that allow citizens to plain vanilla knowing exactly what is happening.

Typically, mainstream economists and most political leaders want us to believe that the economic measures they take are always the most appropriate and that respond to “scientific” and “technical” indisputable that we must not call into question. But when things go wrong, like now, when all data is out of position when the economies almost blown up, shut up as if nothing happened.

His silence is for us to believe that what is happening is normal, nothing happens and that all relief should follow, therefore, just as he was. Avoid raising as a “political” problem (which is what it really is) to the citizens do not rule on its causes, and solutions responsabiolidades.

In my opinion, this summer’s crisis is serious, much deeper than they are recognizing the economic authorities and, above all, nothing more than a foretaste of worse situations that lie ahead. I tend to believe that what is happening now is just a warning.

Should therefore fully understand what happened and what can be happening in the coming months. And to try to help understand I will outline some basic explanatory ideas in the most simple and intuitive as possible, without prejudice to expand on them in more detail later works.

To facilitate reading omit facts and figures and references, in any event are not yet definitive for rigorously know what is happening.

The main issues I think you need to know to understand the current crisis stops are as follows.

1. It’s a mortgage crisis.

The immediate origin of the crisis lies in the U.S. mortgage market.

As is known, the heat of the huge expansion in the property sector generated a massive range of mortgages, of which nearly one-fifth were granted to families who had incomes hardly fair to pay when interest rates were very low.

The departures were increases in the rates and were more expensive mortgages began to be unpaid.
This immediately affects the banks that had granted these mortgages but given what we normally do with titles, the crisis spread.

What happens is that banks sell these mortgages granted in turn, the mortgage securities in financial markets. This is how the banks convert the debt into an impressive family business because not only will they receive the money you borrowed plus interest but also make profits trading the credits.

The downside is that, as happened this summer when defaults start to occur because climbing interest or because the family income decreases, you generate a domino effect that is causing the crisis from spreading.

2. But the crisis is not only mortgage: it is a financial crisis.

When you sign a mortgage creates a financial instrument. A “passive” or duty for which they owe the money and an “active” or right to which it provides. which is the bank. And what can and often do the bank, as just noted, is to trade that asset. For example, insure or sell.

The paradox is then logically there is more risk that the title will carry a less safe and less attractive in principle, but that he be paid more and be more profitable.

That is why the title “Trash” (technically called “sub prime”), ie, those with enough risk because they have given to low income families, are the ones most profitable and therefore the most appealing for investors who, in principle, preferably seek profitability, which are those more powerful and therefore can take more risk. Read the rest of this entry »