The financial resulting from sub prime lending will not only affect the US, but also the rest of the world. Europe is already feeling it, as it experiences economic slowdown and fears of banks failing. Regulators and Central Banks have already started taking precautions… for example, the FSA of London and the Irish regulators have put a halt on the short selling of shares of financial institutions and banks, albeit temporarily.
Central Banks internationally are also taking precautions. For example, the Central Bank of Jordan is increasing the minimum capital requirements of banks and have passed a regulation whereby no more than 20% of banks’ capital can be used for real estate lending.
The following is a brief list of effects which the financial crisis is expected to, and/or is having, on the Middle East:
1) More attention is being placed on liquidity (for example, the Central Bank of UAE is giving banks access to short-term loans (albeit expensive!) to ease the tension caused by this crisis… available fund is over $13.6 billion)… See http://www.business24-7.ae/articles/2008/9/pages/uaecentralbankgivesbanksaccesstoemergencyfunds.aspx
2) Central banks are taking measures to regulate the high levels of credit growth in the region, especially across the Gulf (the UAE experienced a 49% growth for the first half of 2008). Some initiatives include imposing minimum liquidity levels, minimum capital to be used for specific types of loans (such as real estate, etc…
3) The value of investment funds containing stocks affected by the crisis (especially those of failed institutions, and financial institutions in general) have lost value; therefore, many investors (especially private banking clients and insurance companies, have experienced losses at various levels.
4) Due to tightened regulations, it is possible that individuals might find it harder (or more costly) to obtain loans, especially from their local banks… and might end up going to international banks who, because they might not be as active in these types of loans, might have not reached their limits imposed, and are able to grant them.
5) It is believed that because the US is the largest consumer of oil, the current financial crisis and economic conditions (i.e. recession, depression) has led to the recent declines (albeite slight), in the price of oil.
6) Middle Eastern sovereign wealth funds are investing in US Banks, which in turn may lead to their benefit if / when they recover.
7) Dollar-pegged currencies are devaluing along with the dollar, which affects the economy of many countries in the Middle East.
8 ) Many Middle Easterners who work in these companies in the US have lost their jobs and are moving back in masses to the region, making available more skilled workforce in certain countries (specifically in Dubai, UAE). Since availability of this type of experience has generally been scarce, the large influx of these individuals could very possibly cause a decrease in the salaries they are paid.
9) Foreign investments in Arab countries (and many Asian) could increase, as opportunity and growth are expected in these regions… at the same time, investments in real estate and US stocks and financial institutions might increase as Middle Eastern wealthy individuals cease this opportunity to buy low.
10) Many stock markets plunged in the midst of fears and, in my opinion, lack of proper understanding of what is happening in the world.
Again, just like the problem started, I have a sinking feeling that the Worlds’ greed in trying to capitalize from such a crisis instead of taking the Lessons Learned and taking proper measures, will lead into similar events in other parts of the world… Its like they say, history repeats itself. Unfortunately, no one realizes that: “If we always do what we always did, we’ll always get what we always got.”
I would appreciate any comments and ideas on how it will affect the Middle East… please feel free.
Some interesting articles:
http://www.ameinfo.com/152041.html
http://www.dailystar.com.lb/article.asp?edition_id=1&categ_id=3&article_id=96182
Great follow-up ..esp after your initial post on the fall of WaMu aka Washington Mutual Bank in the US.
You highlighted on many good points:
Major point: This is not only a US Economical issue is a GLOBAL issue.
Many countries are pegged to the US Dollar, which in turn is bad for their economies.
I think my favorite was the last quote: “If we always do what we always did, we’ll always get what we always got.”
History repeats itself and there are many investors out there repeating the same mistake now… this is the point I was aiming to make in your initial blog. Investors need to analyze the current situation, analyze that liquidity etc… before seizing what they see “now” as an opportunity.
I think now is a good era for a lot of International Bank… I think Jordan etc are implementing good safeguards (i.e. capping the percentage of loans that can be real estate related etc..). Such steps are important. If this crisis does teach people the importance of liquidity — they will never get it.
It is important that WE remember this is a learning lesson for organizations/business and for PERSONAL finances. Individuals must take a look at their liquidity on a personal level. Ask yourself the basic question: If tomorrow I need to come up with “X” amount of funds, can I? If so how?
Good write-up!
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By: Siraddi on September 27, 2008
at 10:35 am
Thank you for the follow-up as I try slowly but surely to understand what is happening. Have you heard about the investor corruption cases in Jordan? http://ammanpress.com/2008/09/07/jordan-matrix-owner-charged-with-fraud-5/ Others companies were found later as well and people lost their savings…
VisionofJordan, I would like to hear your views on education and what needs to be done to improve it in Jordan. Obviously this is a big topic, so maybe we can hear about it in segments for example, one on mentorship, another on critical thinking, another on the effect that the education system in Jordan is having on the job market and so on…
By: newsblog2you on September 28, 2008
at 12:36 pm