A Decade Ahead in understanding the Sub-Prime Crisis
Wharton Partners in its seminal research report in 1998 predicted and described the process of how a Global Debt Crisis was approaching due to Globalization and the state of Debt Capital Markets. We described the process by which this would occur when no financial research group understood this future happening.
A Cover story on this analysis was printed in the Pakistan and Gulf economist “Why Global Economic Liberalization spells trouble for borrowers” in spring 1998.
- Globalization results in asset return reduction especially for the more protected segment in the Global economy.
- Debt markets break down if a credit crunch happens and debtor cannot refinance debt which is exacerbated by the asset return shrinkage due to Globalization.
- In case of refinance of debt breaking down a viscous cycle occurs, where the least credit worthy of borrowers bear a disproportionate burden.
Looking forward, we expect this crisis to spread even more in the industrial and other sector unless drastic actions are done to correct fundamental issues in the Global Financial System. Some key aspects we believe have still not been identified by leaders in Global Finance.
Founded by a group of Wharton Alumni, Wharton partners had key insight about the sub-prime crisis. One of the primary founders Mr. Niazi was a Wharton Alumni and an ex colleague of Fisher Black at Goldman Sachs Fixed Income Research department. Mr. Niazi founded Wharton Partners as a emerging markets firm. He was studying the Pakistani economy which was one of the economies to be liberalized fastest during the late 80 and early 90s. In addition most segments of borrowers in Pakistan faced limited debt refinance options. This created a severe crisis which Mr. Niazi was able to analyze using tools from Fixed Income Debt finance. Not only did Wharton Partners identify and predict the nature and future of the crisis in Pakistan, but also uniquely understood the impact of Globalization on the borrowers with the least ability to refinance debt. This let Wharton Partners to conclude a looming borrowing and banking crisis if radical changes were not made to the Global Financial system.
By being the only observers with key Fixed Income Finance tools along with insight into the local business, Wharton Partners was able to understand and predict this crises a decade before the Wall Street firms felt the effect, let alone understood this problem.
Wharton Partners has developed key strategies for Governments, Investors, Financial Institutions and the Real Industrial and Business Sectors to deal with this crisis.
Another key aspect of the research was the identification of the Principal refinance assumption underlying economic and financial theory and models.