Saturday, September 20, 2008 Batuhan: In the eye of the storm By Allan S.B. Batuhan Foreign Exchange
THESE days it’s hurricane season in the United States. First came Gustav, then Hanna and, of course, the big one—so far—Ike.
For many days, it was newscasters and weather forecasters who were hogging the limelight, broadcasting from the eye of the storm, so to speak, to give their televiewers a ringside view of the action. With each one trying to outdo the other in terms of the most action-packed coverage, a Texan friend of mine remarked that it was almost as if they were collectively praying for Armageddon to come.
Armageddon almost did come this hurricane season, but not in the form that we thought it would. Instead of Gustav, Hannah and Ike, the ones we got were Fannie, Freddie, Lehman, Merrill and AIG. And rather than weathermen giving us the blow by blow, we ended up watching the talking heads of business television reporting in breathlessly spellbinding fashion, as these institution were going through their troubles.
This week was, without exaggeration, possibly the most volatile few days in modern financial markets history that we may ever get to see in our lifetime.
Quite simply, the values and consequences involved were just too staggering to contemplate, and it seems no one was able to really tell just how bad things were, or could get to be.
Even today, the debris the financial storm left behind is still being analyzed.
Many local financial institutions, it seems, were exposed to securities issued by the organizations involved, and they in turn have become the subjects of much speculation, with people questioning whether this has left them strong enough to continue with business as usual.
Now whilst we know how weather hurricanes are formed—and the science of meteorology is a well-established one indeed—it seems that a lot of us are very confused as to the origins of the current financial maelstrom. But to the extent that it will affect all of us in one way or another, we ought to have some idea of its genesis and evolution.
We are not alone in our confusion.
It seems that even the people who are vying for the top office in the world are not so sure either. For all their posturing on foreign affairs and their attacks on each other’s capability to lead the free world, their take on what’s happening in the financial markets today is collectively quite limited.
McCain blames the greed and corruption going on in Wall Street, while Obama thinks that more regulation is the way to go in order to prevent a future catastrophe.
Their confusion, and by extension the confusion among their advisers (as I am sure they have a lot of those working to analyze what’s going on and generating ideas about how to solve it), is not totally unexpected. But this is not a reflection of their lack of business and economic acumen. This really is quite a perplexing episode that has got the world’s best minds in a twist.
The global financial market has become quite a complex place indeed. The advent of modern information technology has allowed for the introduction of complicated and sophisticated financial instruments that were not previously available. As a result not many of us now quite understand how the market works, although it affects our lives in ways more profound that we could ever imagine.
