Why a chocolate bar turned sour and umm, not so crunchy anymore...

We all know that around one and a half years ago, there was a large amount of defaults of mortgages in America which led to a thing called credit crunch, and these mortgages were mostly subprime. But for many of us, it is not clear what caused this and why it has led to such devastation in the financial markets.

A few years ago, when every country's market were all going very well, everyone was making their money, when there was nothing to worry about, and then all of a sudden, an eruption of foreclosures brought a lot of banks and lenders to their knees and eventually bankruptcy. But why? I remember one of my ex-colleagues saying "Oh, the reason the subprime mortgages turned so bad was because all the banks did not want to have them on their balance sheets and so they had to pass it around to other banks and financial institutes, hence the spread of the disaster." I thought to myself, and why is it that you think the banks took it onto their own balance sheet in the first place? Just for the sake of taking more risk and look like a hero?

When the times are good, you seem to take the pedal off and lose your concentration and allow yourself to take more risks. These banks and institutes obviously thought that it was fine to bear these extra risks as they would yield higher returns. But here comes another question, if everything was going so great, why did these borrowers had no other choice but to default their mortgages (remember these are subprime, it means that these borrowers have a bad credit history)? These mortgages all had a term, and that is, at a specific date, the interest rate will reset to a higher point. These borrowers obviously could not handle these repayments and had to default the mortgages. Banks had no alternatives but to write-off these so called "assets" from the balance sheet and moreover, their reputation and trust for each other deteriorated and this stopped them lending to each other and hence the credit crunch.

You might ask, even though the banks had to write off these mortgages, how did it spread from the banking sector to the whole of the financial market? We don't call these people pros for nothing, they somehow, using some very complicated financial manipulation, repackaged these mortgages, link them into some other type of investments, and made them into attractive looking investing vehicles for other investors like the hedge funds, pension funds to buy. So from the bank sector, the virus spread to the normally safe hedge funds and pension funds and this caused major chaos and shock into literally everyone in the markets and as the level of lending decreases, growth also slows, add that together with inflation, we come to a situation called stagflation.

When white chocolate collides with dark chocolate

How can I say this blog is about politics without writing about America's hottest topic ? It's the lovely Ms. Hillary Clinton and the charming Mr. Barack Obama. Now, we all know that Mr. Obama has finally clinched the Democratic Party's nomination, so I am not going to talk about what happened before. What I am going to talk about is what comes next for him.

Recently, a lot of people have discussed the possibility that Mr. Obama will pick Ms. Clinton as his running mate, and this will help him gather some of her votes, especially white-collar voters. But what he lacks mainly and is often attacked by critics for, is the lack of experience at the age of forty six. In November, he will be up against a man who is seventy one years old, who not only have served in the Vietnam War, but during that time, he has been shot, captured and tortured. Just by talking about this, Mr. John McCain will be streets ahead if the election was decided on experience.

What we have to remember is, American is tired of both the Bush administration and the Republicans, although Mr. McCain is trying very hard to distance himself from President Bush, he is a Republican no matter what. On the other hand, Mr. Obama has this ability to convince voters that he will be able to carry out reform to both the economy and foreign policies for America. One of his main point in his campaign would be to cease free-trade agreements with other countries, and as we all know, this will do a lot more harm than good(if any).

Now, about the possible alliance with Ms. Clinton. Although he could bring some of Ms. Clinton's voters to his side, it might not be a wise idea to do so. One of the main reasons for this is because, with Ms. Clinton as his running mate, and a possible future vice-president, they do not have this aura of authority, and certainly not enough for a commander-in-chief(America's president is the commander-in-chief). Both of them have literally no experience in the fields, or put it this way, not even anywhere close to the fields. I remember reading one of Ms. Clinton's speeches saying "I remember landing under sniper fire (in Bosnia, 1996)" and "running with our heads down to our vehicles." I found it extremely amusing when I read from a newspaper reporting that the site she was in was actually safely secured by the military. If Mr. Obama really wants to compensate his weakness in these areas, he would have to choose a person that has experience in the military, and has much more experience in politics(Like Mr. Jim Webb, Virginia's junior senator, a former secretary of the navy).

What we have to remember though, is that Mr. Obama is going off the charts with his fund-raising for his campaign, so he surely has no problems there. On the other hand, Mr. McCain is a little bit behind in the financial aspect, and also, some people criticize him for his age, but he would counter and say that he has a lot of experience. Plus, Ronald Reagan was elected when he was at the age of 70.

My personal choice would be Mr. McCain, mostly because of his economic views and of course his experience, and plus, I don't really agree with Mr. Obama's way of changing the policies in America, put it frankly, I just think it's the wrong way to go.