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Last update - 00:00 18/03/2008
ANALYSIS: U.S. economy in crisis as it pays price for greed
By Nehemia Shtrasler
Tags: united states, israel 

The stock market usually runs on 90 percent economics and 10 percent psychology. On Monday the proportions were reversed.

Fear rules, the future looks threatening and uncertain, and the biggest fear is the collapse of the U.S. financial system.

Because if a large veteran investment house such as Bear Stearns can go bankrupt after 85 years and with 14,000 employees, who can guarantee that this is the end of the crisis? What about Lehman Brothers? What about the banks themselves?
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Fear has struck everyone. Investors said Monday that they did not want to be left with nothing, and therefore wanted to sell now. In the last hour and a half of trading Monday in Tel Aviv, mutual and provident fund managers were swamped with a wave of sell orders. They were left with no choice but to sell everything, anything they could get their hands on - even high-quality investments, since at least someone will be willing to buy the best goods, even in a falling market.

And that is how even the most solid companies, Bank Hapoalim and Bank Leumi fell sharply Monday, along with Africa Israel and The Israel Corporation. And Teva and Israel Chemicals. That is the definition of a crash - everything falls without any distinction between good and bad, including government bonds.

So is it a panic?

When we say panic, we mean an abnormal situation, one where you make mistakes when you are in a state of fear. Anyone who calls it a panic means that markets have fallen far enough, and now is the time to change direction.

But the stock market dropped in the last six months for a number of good reasons.

There are serious problems around the world that affect us too. The U.S. mortgage and hedge fund crisis is not over yet. The recession in America will hurt us here in Israel, since we are big exporters to the U.S.

Real estate prices are dropping, and oil and commodity prices are skyrocketing. Exporters to the U.S. are hurting from the weak dollar, and a credit crisis is now choking economic activity. The Israeli economy is no longer expected to grow by 5% this year, but only by 3.5%. So maybe this is not really a panic, but just an intelligent and accurate appraisal of reality.

Some people never wanted to face up to reality, and they built theories that there were two major economic centers in the world: the U.S. and China. The theory postulated that if the U.S. slows down, China will pick up the slack. But that is not what happened. Everything still depends on America. Those 300 million people still produce a third of the world's economy.

It seems that this is the way the world works: a crash every few years. We suffered one in 1977, another in 1983, then one in 1994 followed by another in 2000 - and now in 2008.

And there was always one real reason for the crashes: Greed.

From 2001 through July 2007, the American economy acted like it was crazy. They bought like crazy, and took on enormous debts - citizens as well as the government.

During those happy years, credit was cheap. Banks handed out expensive mortgages to poor borrowers. The entire American economy was like a giant pyramid scheme.

Huge demand led to two large bubbles: in real estate and stocks. Sooner or later they had to explode. And that is the difficult process we are witnessing now. Inflated prices are falling, risky investments are being wiped out, excess profits are disappearing, and the overly adventurous banks are being replaced.

That is why it is not a panic, but a hard and vicious process where all of us are paying the price. Because when the U.S. economy catches a cold, the entire world falls sick.


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      1.   It Seems Kind Of Silly Doesn`t It 04:00  |  Yosemite 18/03/08
      2.   Disagree 04:29  |  Ron 18/03/08
      3.   GREED and DEREGULATION don`t mix well 04:29  |  Arik Silverman 18/03/08
      4.   #1 The entire oil crisis is a fraud 04:39  |  Gili 18/03/08
      5.   Yosemite and oil 04:54  |  Madrid 18/03/08
      6.   nonnsense-response to Yosemite 05:03  |  Maurice 18/03/08
      7.   The operant principle in the US 05:17  |  Mark Lincoln 18/03/08
      8.   Yosemite, I can answer your question. 05:39  |  Johnny Weintraub 18/03/08
      9.   Re: To It Seems Kind of Silly Doesn`t It 05:42  |  Salviati 18/03/08
      10.   STOCK MARKET 05:47  |  Bruce 18/03/08
      11.   Madrid 05:56  |  Yosemite 18/03/08
      12.   Johnny Weintraub 06:03  |  Yosemite 18/03/08
      13.   The Most Dangerous Thing I Ever Said 06:16  |  Yosemite 18/03/08
      14.   yosemite 06:37  |  billy jack 18/03/08
      15.   TO MARK LINCOLN 06:58  |  JOJO (USA) 18/03/08
      16.   #7 - Mark Lincoln 07:36  |  JES 18/03/08
      17.   question 07:39  |  Neal 18/03/08
      18.   Say it isn`t so 08:28  |  Yep! 18/03/08
      19.   Maybe peace will come because war has become too expensive? 08:54  |  Andreas 18/03/08
      20.   Analysis? 09:20  |  Shmuel 18/03/08
      21.   The dollar is about to fall off a cliff 09:34  |  Clickfool 18/03/08
      22.   Hard facts on oil ... 10:41  |  spyguy 18/03/08
      23.   Spyguy 12:26  |  Yosemite 18/03/08
      24.   To Johnny Weintraub 13:05  |  Mathematics 18/03/08
      25.   #1 Yosemite Sam what`s holding US back, BUSH 13:12  |  petra 18/03/08
      26.   # 5 MADRID YOU HAVE ALL THE ANSWERS? 13:14  |  petra 18/03/08
      27.   # 6 poop 13:18  |  petra 18/03/08
      28.   # 8 bush is the reason why oil is so high. 13:22  |  petra 18/03/08
      29.   Wrong and outdated assumption Nehemia Shtrasler 14:01  |  Mark B. 18/03/08
      30.   The crisis is real- other factors 14:46  |  Shalom Freedman 18/03/08
      31.   Analysis of the US Economy 20:22  |  Wendy 23/02/09
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