I don’t believe that the subprime issue can be solved with phenomenologically-based
symptomatic therapy. This is because this issue is a typical structural
problem.
The subprime issue is a sort of collapse of the currency system, and financial
unrest is only the result thereof. The cause of this issue lies in the credit
system. Without fixing the cause, the issue cannot be completely cured.
The keywords for the subprime issue are housing loans, securitization and
credit systems. Originally, bills developed from securities. When a bill is
created, the bill produces monetary value as well as a debt/receivable of the
same value. Since bills are a sort of security, they circulate on the market
and become operative backed by receivables. Securities originally have the
concept of debt, i.e., borrowing at the base. Thus, securities function as
receivables based on confidence in the debt. While there is confidence in the debt,
bills act as a currency. But once confidence in the debt is lost, the credit
system collapses from its very foundation.
The subprime issue is a collapse of the credit system based on a form of debt
called housing loans. To fix this, it is necessary to rebuild the credit system
itself.
In the structure of the subprime issue, confidence in debt in the form of
housing loans was lost at first. Another important factor is the circulation of
malicious securities. It is true that bad money drives out good. The ground subsided
and the pillars collapsed.
Accordingly, first of all, it is necessary to strengthen the foundation.
The keyword for this is credit. This means restoring confidence in debt.
Restoring confidence in debt means restoring confidence in housing loans.
To do that, it is necessary to reorganize the housing market which is a substructure
for housing loans. However, even if the housing problem is solved, it will not necessarily
result in restoring confidence in debt.
Rather, it may make more sense to put priority on restoring confidence in
credit. To do that, I believe it is necessary to guarantee the repayment of
debt itself through purchase or assumption of debt. Anyway, the cause of the
subprime issue is not the housing market conditions but the problem of the credit
of debt, which is the foundation of the credit system.
Another approach is to separate malicious securities, i.e., to separate
bad money from good money. Since securities are originally a product of mathematical
formulas, it would be possible to draw up criteria for such judgment using
mathematical formulas.
As for finance, it is necessary to minimize the spread of financial
unrest. It is dangerous when financial unrest extends to affect other credit
systems. To stop unrest from spreading, I believe that emergency procedures are
unavoidable.
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