Francisco Lopez Lubian

The effects of the global economic crisis clearly demonstrate that everybody needs a better basic understanding of how financial markets work and how sustainable economic value can be created. Including entire countries.

Consider the case of Iceland. For reasons well known, Iceland's banking system has collapsed amid the global credit crunch. The country's currency, the krona, has lost half its value since January. Banking transactions to and from the island nation in the middle of the North Atlantic have seized up, leaving its population of 320,000 virtually stranded.

Last month, Icelandic Prime Minister Geir Haarde told his Nordic partners in Helsinki that his country needs some $6 billion to recover from the crisis. The help is coming from the International Monetary Fund (€1.66 billion) and four Nordic countries (€1.98 billion).

It´s time to go back to basic concepts, like:

• differentiate value from price
• differentiate speculation from investment
• put your money where you understand how the business work
• put your money where you understand how the financial instrument can create value
• do not be ludicrous by trying to get lucre being a ludopat
• there are not magic formulas to get rich.
• in a second thought, there are magic formulas: since they are precisely magic, follow them if, and only if, you believe in magic.

Old fashion approach? Ask icelandic people.

Posted on 20 Noviembre 2008

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