Financial Crisis? How bad are things? The Nero awards ...

Nadjib (my partner) recently found a great article in the Guardian, touching on several aspects of the current financial crisis (aka "the credit crunch"):

http://www.guardian.co.uk/business/2008/oct/12/executivesalaries-creditcrunch

How bad are things? I recently heard a very freightening story regarding Credit Default Swaps. In brief a huge market for insuring against corporate bonds defaulting, in fact the CDS market ($50 trillion) has become much bigger than the actual corporate bond market ($5 trillion). Worse still these products, originally insurance tools have become highly leveraged, speculative products. If this market was to partially collapse (one big financial institution collapsing bring down another?) would it leave a financial black hole? Or have I mis-understood?

Returning to the article, it appears there are reputable academics calling for "promoting transparency in the financial system" and worrying about "opaque off-balance sheet structures hidden in secretive tax havens have helped to bring capitalism to its knees":

"Opaque off-balance sheet structures hidden in secretive tax havens have helped to bring capitalism to its knees, but no one can say they weren't warned. Three characters - Professor Prem Sikka, accountant Richard Murphy and former Jersey economic adviser, John Christensen, created from nothing an international network of academics, investigators and campaigners dedicated to promoting transparency in the financial system. Their organisation, Tax Justice Network has been adopted by charities, some sympathetic governments (Norway) and extends to heavyweight officials in the Obama camp who have promised to squash tax havens if elected. Unlike Gordon Brown."

Another re-occuring theme in the press at the moment, is how the UK has wasted it's fantastic natural resources (inherited wealth and north sea oil & gas), whilst partly true, blaming the poor and unemployed is bit too right-wing for me:

"Norway has emerged from the international financial crisis relatively unscathed. Virtually every country cut interest rates last week, but not Norway and billionaires are now stuffing their fortunes into Norwegian banks. Unlike the UK, it did not fritter its oil and gas revenues keeping citizens on the dole. Instead it ploughed receipts into what is now a £380bn sovereign wealth fund poised to snap up assets at knock-down, post-crash prices."

Personally I would prefer to blame a divided society, tabaloid culture and continual dumbing down ... are the upper and middle classes as much at fault here as the poor? Anyway one thing is for sure, our pension funds which were looking "worrying under-funded" now look a lot worse!

Lastly to the Nero awards:

"What do you do when billions are wiped off shares? Pull! Invesco Perpetual, one of the UK's biggest fund managers, took brokers clay pigeon shooting near Chichester, Sussex. Norwich Union held a major company conference earlier this month in Venice. Barclays flew 320 rich clients to Lake Como, Italy last week on an all-expenses three-day jaunt costing more than £500,000. AIG spent $440,000 on a lavish corporate retreat at one of California's top beachside resorts days after accepting an $85bn emergency loan from the US to stave off bankruptcy. Words are inadequate."

NB: "Nero's rule is often associated with tyranny and extravagance. He is known for a number of executions, including those of his mother and adoptive brother, as the emperor who "fiddled while Rome burned", and as an early persecutor of Christians." (wikipedia)