from Largo Winch,vol XVII : Francq & Van Hamme, Mer Noire, 2010.


New York, November 2008.

To all associates of Goup W.

Since the second semester of 2008, the world economy has been heavily burdened by the financial crisis. Let us review briefly the unfolding of this unravelling whose origin can be found in the United States.

Between 200 and 2003, the price of home ownership in the U.S. nearly doubled. Meanwhile, and in parallel, the prime rate set by Federal Reserve went from 6,25% to 1% in order to stimulate a national economy gone into recession. As a result :still hooked on consummerism, US citizens multiplied low interest-rate loans, for the most part against their homes. And credit brokers, engaged in a fierce competition among themselves, became less and less vigilant about the solvability of borrowers. Thus were created subprimes, mortgage loans that did not meet the usual criteria of solvability.

But between 2004 and 2006, given an interior economy stimulated by new buying, the prime rate of the Federal Reserve goes back up, stepwise, to 5,25%. Thus making too easily approved loans more expensive. This is the story of the snake biting its own tail. Incapable of meeting their obligations, numerous debt-ridden borrowers at variable rates now have to face up to selling off their homes or experiencing foreclosure. Andthe American real estate boom goes flat with catastrophic results.

All this could have remained a problem confined to the United States if credit brokershad not had the clever idea of transforming these loans-due to bonds. What can be thought of as the share-holding of credit. Without being overseen by the SEC (Securities Echange Commission, the Stock Market ‘police’ in the U.S.) since these were private securities. These bonds, in principle guaranteed by the lending institutions, were bought in large number by business banks and investors world wide. One should keep in mind that in 2006, there was a great deal of liquidity available on the financial market. The exponential growth of China and India, the mad money from constantly more expensive petroleum, had created an enormous financial mass lookingfor supposedly profitable investment opportunities.

It is on February 7, 2007 that a communiqué from HSBC, the financial Asiatic-British giant very present in the U.S., first casts doubt on the viability of creating bonds from subprimes. But without immediate panic.

Most of the major banks had created investment funds out of their subprime titles which they had bought in great quantities : hedge funds (an ironic name if one appreciates black humour). They are starting to worry. But it is too late, The subprime Titanic is sinking from all quarters.

In order to keep a positive balance-sheet for their shareholders, bankers then decideto hang on to their liquidity (deposits from clients) to compensate for losses on their hedge funds. Thus they no longer make loans. Not to other banks, not to business, notto individuals. In July 2007, the crisis spreads to the entire financial planet. Credit is frozen, money is rare, business starts to slow down. But the problem remains masked.The average man, even those who govern, do not suspect the seriousness of thecoming catastrophe.

In 2008 the bomb goes off. and fragments. First a few small American banks go under. No problem, it is the law of the land among cowboys. Then others. Elsewhere. Less small. In China, first. Then in Japan, in Europe, in India, everywhere, unleashing a veritable Stock Market panic. Economic actors sell off their assets, worsening the crisis in confidence. In the summer of 2008, the total debt load of individuals in the U.S. incapable of meeting their loans reaches 233 billion dollars ( two-thirds of gross interior product for a country the size of Belgium). an amount that has more then doubled since. And on september 15, an anouncement is made of the bankrupcy of Lehman Brothers, one the better known and oldest Wall Street financial institutions. Boom! What follows is well-known.

By the end of 2008, the (announced) losses experienced by the banks of the world amount to one thousand billion dollars. A number one will soon discover to be a great under-evaluation. While the money ‘evaporated’ on the Stock Market by individuals and institutions clocks in, at the same date, at twenty-six thousand billion dollars (26(10^12 )$). Those who live on investment income, small and large, loose up to 60% of their holdings. And individuals, incapable of staying on top of their debts, end up in financial counselling and mediation.

What started out as a financial crisis has become an economic one. Thus necessarily social, as a result of massive firings world-wide ( one foresees 25 million new unemployed in 2009). It is a downward spiral : less buying power, thus less consumer buying, thus lower production, thus fewer personnel. Deflation is not far off. And governments, not without reticence, spend to avoid Recession turning into depression. With the results we now know.

Group W.,in various fashion, is not exempt from torment. But thanks to measures I have put in place, we will try to limit the damage. By bringing solidarity into play. As you no doubt know, my aim, when I accepted the heritage of Nerio Winch, was not to become more rich but to well preserve the jobs and quality of life of the five hundred thousand employees of the Group. And I will try to do all I can to sustain this objective.

Let us reach out to each other and we will succeed.

LW