http://www.filipinoexpress.com/21/45_op-ed.html#tolentino
Economic Storm to Hit NYC THE approach of an economic disturbance sounds like a far off thunder. It's a faint rumble in the distant horizon. But as it nears, the noise becomes sharper. The subprime crises is like that. When the big industry players began sounding off, we felt isolated. We heard noises about the impending problems but we felt distant and unaffected. We heard indications of problems from big name companies like Bear Stearns, Citigroup, Merrill Lynch. But felt they could not touch us. They were remote and impersonal. The early hits struck the large monolith hedge funds, the large credit wholesellers. The next reactions came from the fund creditors which gradually felt their slack tightening as the credit squeeze began to affect their money sources. Throw a pebble into a still pond and concentric waves begin to disturb the calm surface. The same law of physics create an ever widening credit disturbances. Now the ripple effect is starting to make itself felt to the ultimate end players, the small lenders. Until recently, the small investors who hold bonds backed by risky home loans continued to receive their monthly interest payments. But not for long. The pinch is starting to be felt. Last week, collateralized debt obligations (cdo), made up of bonds backed by thousands of subprime home loans, are starting to shut off cash payments to investors in lower-rated bonds as creditrating agencies downgrade the securities they own, according to analysts and industry executives. It is feared this development will bring the hurt to individual lenders. And it will have a big impact in shaking confidence in the wider economy. Its ramifications will go over to the equity market eventually and adversely affect the overall economy. The stock market has already started to exhibit some volatility. Lending institutions are in the process of revalidating collateralized debt obligations. The overriding fear now is that these financial institutions may be forced to write mortgage investments beyond the billions they have earlier written off. The figures being cited are staggering. The latest shock that hit the financial market is the report that Merrill Lynch will about $2.5 billion more to the $5 billlion worth of writedowns it had earlier announceed. A few other institutions have already written down $3 to $5 billion each. As of last week, New York City officials and economists reported that some large investment groups, the so-called economic engines, have begun to sputtter. It is now feared this will begin to affect all growth projections not only for the New York region but eventually for the whole country. One big bank after another has already started to announced shrinking profits, job cuts or both. This economic slowdown in the US has a wideranging implications on the economies of other countries in the world, including Asia and the Philippines
