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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 »

In Mexico, is being implemented an economic recovery that need the help of all Mexicans. The Mexican Stock Exchange sets in brief points the importance of investment companies:

* More attractive options for savers national encouraging domestic savings.
* Supplement domestic savings with external savings to give opportunity to foreign investors buy shares of investment companies.
* Channel resources of investors to buy shares and debt whether public or private.
* Increase the number of participants strengthening the market.
* Promote the democratization of the capital diversifying the shareholding among some investors so that is not unique.

According to the Law of Societies Investment currently there are three types:

1.- Investment Company in Debt instruments: has low-risk investment with attractive investment returns and liquidity. Emissions obtained are taken up that mature, it has reinvested automatically and the valuation of its assets.

2.- Investment Companies in Equities: were the first to exist in the country and were mainly used to invest their assets in equities and debt instruments. You can invest both individuals and moral people.

3.- Society of Capital Investment (SINCAS): invest their resources temporarily in companies with financial viability and significant capacity of productive development that is normally derived from the return on capital.