The World From Berlin 'If Joe Average Can't Pay his Mortgage, We're all Screwed'

Volatility in the global financial markets rocked by troubles in the American subprime mortgage sector has sent the markets on a wild roller-coaster ride, heading mostly -- and steeply -- down. German commentators say we should buckle our seatbelts but not panic.


A stockbroker in Frankfurt nervously watched his monitor on Thursday. By midday, the German stock index (DAX) had lost over two percent.
DPA

A stockbroker in Frankfurt nervously watched his monitor on Thursday. By midday, the German stock index (DAX) had lost over two percent.

The calming hand offered by central reserve banks, including the Fed, and their repeated cash injections did little this week to stop the rumors, the smell of panic and steep sell-offs across the globe. A day after the Dow Jones Industrial Average dove over 340 points before resurfacing for almost unchanged close, German papers responded to the perceived chaos. Some say they saw it coming; some say not to worry; some prefer to point fingers, and not always at the same thing.

The leftist Berliner Zeitung writes:

"The current mini-crash is a painful sign of what the companies constructed of air and the extremely convoluted financial constructions are capable of. Whether this gambling pays off will all depend on more down-to-earth economics: If Joe Average in the USA can't pay his mortgage, we're all screwed."

Conservative Frankfurter Allgemeine Zeitung writes:

"Now stockholders will have to face the fact that they invested their money in risky papers. Spoiled by an untroubled bull market that has lasted over four years, investors blinded themselves from the possibility of a bear market. There's no other way of explaining investors' panicky reactions."

"In many places, a correction was almost sought after, and certainly expected. And now it's here. But there's no reason for panic. Investors who are skittish now and can no longer sleep soundly should sell their shares and bring their profits into safe harbor. But those who have enough faith in the still robust global economy ... will be pleased about cheaper investment opportunities. In the short turm, watching the daily stock prices may be a painful exercise, but in the longer term an investment in shares will likely pay off."

The Financial Times Deutschland writes:

"How this debacle turns out is still an open question. But, at least according to the popular reading, the guilty party is known without a doubt: ex-guru Alan Greenspan. According to this theory, the former chairman of the US Federal Reserve's use of low interest rates and reassuring rescue missions led banks and homebuilders to be irresponsibly loosey-goosey with their money since 2001 and caused the financial world -- just like the economy -- to now fall into the abyss, while the gamblers have come out of the mess scot-free."

"Well, that sounds good, but on closer examination it's specious. Greenspan & Co. were never really deceptive to the point that they would prop up by force a frail economy (even if the low interest rates did help accelerate the run of the US real estate market). The alternative probably would have been a complete disaster. But that doesn't mean that America needs to be rash and bring back low interest rates."

The business daily Handelsblatt writes:

"When the US treasury secretary no longer wants to play the bull, danger is imminent. But it can also be a good thing, if 2007 turns out to be a bad year for the market. The American stock indices and the European Euro Stoxx 50 are already back to the level they were at at the beginning of the year, and the DAX has at least a 10 percent cushion. But in times of doubt that can disappear fast, so what should the investor do?"

"Despite the most recent market drop, many stockholders can still sleep completely soundly. Since 2003, the market has practically never gone down, sometimes even reaching double-digit increases. After such a long bull market, one bad year shouldn't come as a shock. Even two bad years wouldn't be a catastrophe."

Conservative Die Welt writes:

"A drop in interest rates by the central bank at this time would mainly have the following effect: The laws of the market would be invalidated and, as a result, investors with speculative inclinations would protect their trading from the worst consequences. And this would only plant the seed for new exaggerations. As long as there is no clear sign that the crisis in the financial system has touched the tangible aspects of the economy, the monetary watchdogs should refrain from using any of their valuable magic powder."

The center-left Süddeutsche Zeitung writes:

"The crisis in the international markets hits Europe's most important financial center right in the gut. There, where money seemed to flow almost inexhaustibly over the last few years, it's major hangover time now. London's bankers and brokers will tell you that the Americans and their real estate market are to blame for the financial debacle. But that's just a little lie used in the business. The financial metropolis is not only victim of the market casino -- it's also a perpetrator.

After the US, London has more hedge funds, pension funds and private equity firms than any other country. An extremely liberal Exchange Supervisory Authority, but also extremely generous taxation laws, have provided for unprecedented growth in the financial industry over the past few years. But the gold rush on the Thames is over and the age of easy money has past."

Josh Ward, 15:00 CET

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