Which is the role of the toxic assets in the appearance and the development of the actual global economic crisis? How does it turn into a toxic assets, a consumption lending or a mortgage loan? We do not like the term «toxic assets», because they are neither pathogenic, nor are a poison. We can call them harmed, depreciated or devaluated financial assets.
The Theoretic Basic Financial Cycle.
The banks receive multiple deposits and give the received cash to their different borrowers: institutions, companies and individuals. A part of these lending comes back again to the bank, as new deposits. Since nobody keeps the money in house or in the company or in the official public office, except for the immediate minor quantity payments or in the cases of social real or menacing catastrophe.
It is always supposed that the banks monitor and control the successive partial payments of their borrowers, for the given amount and its interests, at their maturities. But the financial «engineers» arise, Bill Clinton in 1998 realizes an important deregulation of the financial practices and Greenspan acted as an irresponsible qualified madcap. In effect, in April, 2000 he unnecessarily raises to 6 % the legal basic rate. But the recession was coming up and the telecommunications and computer companies crisis, on its way. And then he has to lower it, probably too much, to stimulate the economy. And the FED facilitates the transfers of liquidity to the USA banks. This way, there is liquidity at low prices in the system for a long time.
The Disturbing and Uncontrolled New Financial Ways.
Many banks, probably too many, begin to “securitize” their loans. Turning them into medium-term bonds. And they sell these assets titles to other banks and to investment or pensions funds. Both in their country and overseas. That seek to earn more with them, that investing in the Treasury and good rated companies bonds at their countries.
All that complicates with the rapid «on line» world round communications, with the international transactions, with the ignorance of the real scope of the overseas generated financial titles and with the differences of interest rates between nations and groups of nations. Mix it perniciously and malevolently with external strange factors to the financial system: the «passions» or untidy appetites or exaggerate desires. Which are difficult to know and to control for the men. The greed, the fear and the egoism then arise and get out of control. Disturbing, contaminating and degenerating the financial system. But coming up from the persons and not from its complete and limited functioning financial frame.
And we have a big problem, in the shape of a born within itself chaos. Where nobody knows well the quality of what assets he has. For this, he would have to unravel a complicated hank of transfers and exchanges of assets, of refined creation. Destined partly to conceal faults and spurious and embarrassing origins of the assets. And this happens basically because the usual relation between lender and borrower broke. The former, defending its business, if he has to remain with the lending, as assets in his balance, already will give it to whom reasonably could pay all the debt. And will worry about following the payments up to its final liquidation. And as the disturbed situation is complicating and tensing, the possible bad debts, those at the limit of their financial capacity, will easily turn into real bankrupts. And the whirlwind continues feeding, spreading and harming all of us.