Global coordination the key, economist says
Güncelleme Tarihi:
by Ekrem Ekici
OluÅŸturulma Tarihi: Nisan 03, 2009 00:00
ISTANBUL - An expert of applied econometrics, behavioral finance, asset management and capital markets, Gülnur Muradoğlu, a finance professor at the London-based City University, says Turkey’s current crisis is a result of the global liquidity crunch, rather than being a structural financial deficit. The world should act in coordination against the crisis, she says
The effect financial crisis on Turkey’s economy should be considered as a "secondary wave" of the turmoil, according to one financial expert, who noted that balance sheets of Turkish banks had nothing to do with toxic assets, which constitute the very source of the crisis.
Speaking to Hürriyet Daily News & Economic Review, Gülnur Muradoğlu said Turkey represented countries that were recipients of the crisis, meaning that they did not cause the crisis, but were affected nevertheless.
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Albeit Turkey does not have high mortgage ratios and it does not have a fragile banking sector that contains toxic assets, Turkey has been hit by the international shock and is seeing the effects on its economy, MuradoÄŸlu said.
"The crisis in Turkey is a result of the global liquidity bottleneck," said Muradoğlu. "This squeeze will negatively affect the amount of foreign direct investments, while it already has caused a decline in portfolio investments. But when the crisis arrived in Turkey’s shores, its strength was less," she told the Daily News.
"Mortgage loans are uncommon in Turkey. So there is no mortgage crisis here. Balance sheets of Turkish banks do not include so much of these complicated toxic instruments. Therefore we cannot say there is a structural crisis in Turkey," said MuradoÄŸlu.
Nature of the crisis
Speaking on the global crisis, MuradoÄŸlu preferred to use an analogy. "The crisis is displaying the character of a beachcomber," she said. "Depending on the tightness of global relations, it spread from the U.S. to others. So, first, Britain faced the first and sharpest shock. Then came Continental Europe and developing countries.
"This crisis is the biggest one the world has seen since 1929," she said. "The U.S. government had targeted that all people, including those in the low income group, be able to buy houses. Thus, the low and unfixed income groups were provided with mortgages.
"Later on, these low quality loans were integrated with higher quality loans in slices and they were securitized. That is to say, the bank that provided the new loan turned this into another security and sold it on the market. The derivative instruments were built on this kind of securities," she explained.
"Some part of these derivative instruments included unlimited obligations concerning price changes. The balance sheet structures remained incapable to display the risks in these complicated instruments. As property prices dropped, people convolutedly tried to solve their assets to offset losses. This caused an even larger decline in prices," MuradoÄŸlu told the Daily News.
Triggering reasons
Counting the reasons to the global crisis, MuradoÄŸlu said: "First of all, there were no regulations in place for derivatives. The current regulations were made in 1930s in order not to allow the Great Depression to happen again."
Noting that these complicated instruments are quite new and have been frequently in use since 1990s, MuradoÄŸlu said the second reason was the "dullness" of accountancy systems. "They were not able to display these complicated instruments and their risks.
"Thirdly, financial markets were much more globalized in the last two decades. Albeit the source of the problem was in the U.S., the cash bottleneck that it created spread to the world."
"Last but not least, there is a behavioral reason. The common assumption was that property prices and the stock markets could only rise. A contagious optimism was dominant" she added.
"To end the crisis, major economies need to work together in a coordinated fashion to identify global stimulation initiatives. Turkey is one of those economies and therefore is essential to negotiations," she said. "Foreign direct investment is one positive way that we can combat this recession."
Speaking to Hürriyet Daily News & Economic Review, Gülnur Muradoğlu said Turkey represented countries that were recipients of the crisis, meaning that they did not cause the crisis, but were affected nevertheless.
 Â
Albeit Turkey does not have high mortgage ratios and it does not have a fragile banking sector that contains toxic assets, Turkey has been hit by the international shock and is seeing the effects on its economy, MuradoÄŸlu said.
"The crisis in Turkey is a result of the global liquidity bottleneck," said Muradoğlu. "This squeeze will negatively affect the amount of foreign direct investments, while it already has caused a decline in portfolio investments. But when the crisis arrived in Turkey’s shores, its strength was less," she told the Daily News.
"Mortgage loans are uncommon in Turkey. So there is no mortgage crisis here. Balance sheets of Turkish banks do not include so much of these complicated toxic instruments. Therefore we cannot say there is a structural crisis in Turkey," said MuradoÄŸlu.
Nature of the crisis
Speaking on the global crisis, MuradoÄŸlu preferred to use an analogy. "The crisis is displaying the character of a beachcomber," she said. "Depending on the tightness of global relations, it spread from the U.S. to others. So, first, Britain faced the first and sharpest shock. Then came Continental Europe and developing countries.
"This crisis is the biggest one the world has seen since 1929," she said. "The U.S. government had targeted that all people, including those in the low income group, be able to buy houses. Thus, the low and unfixed income groups were provided with mortgages.
"Later on, these low quality loans were integrated with higher quality loans in slices and they were securitized. That is to say, the bank that provided the new loan turned this into another security and sold it on the market. The derivative instruments were built on this kind of securities," she explained.
"Some part of these derivative instruments included unlimited obligations concerning price changes. The balance sheet structures remained incapable to display the risks in these complicated instruments. As property prices dropped, people convolutedly tried to solve their assets to offset losses. This caused an even larger decline in prices," MuradoÄŸlu told the Daily News.
Triggering reasons
Counting the reasons to the global crisis, MuradoÄŸlu said: "First of all, there were no regulations in place for derivatives. The current regulations were made in 1930s in order not to allow the Great Depression to happen again."
Noting that these complicated instruments are quite new and have been frequently in use since 1990s, MuradoÄŸlu said the second reason was the "dullness" of accountancy systems. "They were not able to display these complicated instruments and their risks.
"Thirdly, financial markets were much more globalized in the last two decades. Albeit the source of the problem was in the U.S., the cash bottleneck that it created spread to the world."
"Last but not least, there is a behavioral reason. The common assumption was that property prices and the stock markets could only rise. A contagious optimism was dominant" she added.
"To end the crisis, major economies need to work together in a coordinated fashion to identify global stimulation initiatives. Turkey is one of those economies and therefore is essential to negotiations," she said. "Foreign direct investment is one positive way that we can combat this recession."