Whether the global credit crunch will actually help or hurt the search for solutions to climate change is becoming a debatable issue.
Currently, the issue of climate change appears to be on the back burner as governments are focused on the financial problems that have shaken the global economy. It could be several months before politicians return to focusing their attention on long term problems like global warming.
The green economy shows signs of rebounding faster than others shaken by the global financial turmoil. There are several indicators pointing to the fact.
It’s official, according to the New York Times, the bailout proposition has been rejected by the House of Representatives. The Dow Jones just plunged more than 400 points and America is standing up for itself as the bastion of free market economics!
According to the New York Times, “supporters of the bailout proposal had argued that it was necessary to avoid a collapse of the economic system, a calamity that would drag down not just Wall Street investment houses but possibly the savings and portfolios of millions of Americans. Opponents said the bill was cobbled together in too much haste and might amount to throwing good money from taxpayers after bad investments from Wall Street gamblers.”
As the government begins to unleash a highly criticized bailout plan for Wall Street’s toxic mortgage backed assets, it is worth taking a step back to understand how the problem actually arose.
Investing In Real Estate
It all started with real estate investing which involves the purchase, ownership and sale of real estate for profit. Real estate is an asset form with limited liquidity relative to other investments, it is also capital intensive (although capital may be gained through mortgage leverage) and is highly cash flow dependent. The primary cause of investment failure for real estate is that the investor goes into negative cash flow for a period of time that is not sustainable, often forcing them to resell the property at a loss or go into insolvency.
In view of the current Wall Street crisis, America’s credibility as a bastion of free markets has come under the radar. The Fed’s recent bailout of AIG, Fannie and Freddie are perceived by many as a free market detour.
The government’s latest bailout news involves a plan to make the biggest intervention in the financial markets since the 1930s. Central to this plan would be a mechanism to bad assets off the balance sheets of financial companies or instead perhaps to create a federal insurance for investors in the money market funds. Additionally, the Securities and Exchange Commission is getting ready to propose a temporary ban on short selling financial stocks.
In view of the current financial crisis, it is hard to grasp the fact that overnight investment banks once regarded the kings of Wall Street, are teetering on the edge of stability. The bankruptcy of Lehman Brothers has threatened the survival of Morgan Stanley in spite of the fact that it has just declared great earnings. All eyes are on Morgan and Goldman Sachs, the two big I-banks left standing. Will they go next? What will this mean for corporate social responsibility in the investment banking sector?