The review on the worldwide credit crisis
Speaking about the worldwide credit crisis, many people would blame the “bloody” October 15th 2008 flagging the collapse of world’s giant bank Lehman Brothers that was culminated by the HBOS, owner of the Britain’s biggest mortgage lender Halifax, having its shares being the biggest fallers in London. Most of discussions concern mainly the “honest and innocent citizens being robbed by the ugly American bankers”. But is it the right way to see it and, more important - from the perspective of the innocent ones, to handle it?
Speaking about the worldwide credit crisis, many people would blame the “bloody” October 15th 2008 flagging the collapse of world’s giant bank Lehman Brothers that was culminated by the HBOS, owner of the Britain’s biggest mortgage lender Halifax, having its shares being the biggest fallers in London. Most of discussions concern mainly the “honest and innocent citizens being robbed by the ugly American bankers”. But is it the right way to see it and, more important - from the perspective of the innocent ones, to handle it?
In this article I would like to consider the background of the crisis and damages citizens had to get used to, followed by reaction of the European leaders and developments undertaken by governments finally rounded up with my personal view on this subject.
It is more adequate to say that the credit crisis was born on October 15th 2008 by being sired much longer before, like every other healthy baby, by at least two parties. The tickling bomb has exploded indeed on that particular day and was realized by other inhabitants by observing the pictures of NYSE brokers walking down the Wall Street packed with their office belongings and screaming about their jobs “being screwed”. The employees have been worried not to get paid this month, and as they were shown later – anymore, caused by the FTSE 100 index of leading shares plunged by 5% and letting the Lehman giant getting to know the Article 11 of bankruptcy very closely. Still, this was the effect of the long term preparation in terms of bankers’ greed and people’s tendency to remain blind. The greed led to more mortgages given to more financially unstable and unperceptive families wanting to finally own “the house of their dreams”. After time, the number of inefficient payers grew as well as the market supply of the houses overtaken by investors as the result of force major mortgage deals that led to dramatic price subsets on the real estate markets. Now, not being able to afford their homes and turned down by frozen credit markets that were anyway suffering from the great ideas of credit default swaps, people just had to face the moment of truth i.e. loss. The bankers themselves lost their jobs, banks filed for bankruptcy and lawyers were busy studying the Article 11. This all had a spiral effect on wellbeing of worldwide banks and their creditors resulting by the end a pretty same outcome. And what did others? They all went to their banks and insistently tried to pick all they have saved causing a faster turn of the spiral in direction of nowhere.
It is more adequate to say that the credit crisis was born on October 15th 2008 by being sired much longer before, like every other healthy baby, by at least two parties. The tickling bomb has exploded indeed on that particular day and was realized by other inhabitants by observing the pictures of NYSE brokers walking down the Wall Street packed with their office belongings and screaming about their jobs “being screwed”. The employees have been worried not to get paid this month, and as they were shown later – anymore, caused by the FTSE 100 index of leading shares plunged by 5% and letting the Lehman giant getting to know the Article 11 of bankruptcy very closely. Still, this was the effect of the long term preparation in terms of bankers’ greed and people’s tendency to remain blind. The greed led to more mortgages given to more financially unstable and unperceptive families wanting to finally own “the house of their dreams”. After time, the number of inefficient payers grew as well as the market supply of the houses overtaken by investors as the result of force major mortgage deals that led to dramatic price subsets on the real estate markets. Now, not being able to afford their homes and turned down by frozen credit markets that were anyway suffering from the great ideas of credit default swaps, people just had to face the moment of truth i.e. loss. The bankers themselves lost their jobs, banks filed for bankruptcy and lawyers were busy studying the Article 11. This all had a spiral effect on wellbeing of worldwide banks and their creditors resulting by the end a pretty same outcome. And what did others? They all went to their banks and insistently tried to pick all they have saved causing a faster turn of the spiral in direction of nowhere.
The reaction of the world leaders was different and identical at same time. The American President, by that time Mr. G. W. Bush, reacted with $700 billion bail-out for the financial sector. While speaking about EU we speak about 27 Member States sharing limits to act collectively due to the individual responsibility on banking supervision and market regulation as it was shown by the summit in Paris. The common statement was that “no German or Estonian is going to accept Brussels spending his money to rescue a Greek bank”. Thus the idea of EU rescue fund of €300 billion proposed by the French President Mr. Sarkozy was not meant to become reality. Followed by numbers of leading companies going bankrupt, the governments stepped in by helping out i.e. buying over the objects. The one year anniversary was celebrated by the visit of the new President of the United States, Mr. B. Obama, to the Wall Street insuring the audience to face the upcoming restricting policies, more detailed supervision and bonus cuts for the bankers. The European leaders reacted in tandem unanimously by issuing policies forcing the development towards better bank transparency. Some countries seem to get out of recession using their own resources and policies while others remain suffering from increasing unemployment rates, low PPS (Purchase Power Standards) and unfortunate currency exchange rates.
To capture the review, I would like to add my opinion on this matter. I think there is always a need to take a look at the problem from different points of view. It is absurd to blame either bankers or citizens, better the human nature itself. Not only the greed is able to cause disasters such like this, but also the naivety based on the unwillingness to learn and to appreciate the reality. This crisis is not the first and not the last one. Hopefully there would be certain willingness to learn from it. I see it as a sort of a modern situation of Noah’s Ark – very unpleasant, but useful to show the people the limits of their powers and to make them realize the wrong development.
To conclude, as Mr. Richard Quest would say by the end of his so-called program (“Quest Means Business”, CNN): “No matter what you are up to, make sure it is profitable!”
To capture the review, I would like to add my opinion on this matter. I think there is always a need to take a look at the problem from different points of view. It is absurd to blame either bankers or citizens, better the human nature itself. Not only the greed is able to cause disasters such like this, but also the naivety based on the unwillingness to learn and to appreciate the reality. This crisis is not the first and not the last one. Hopefully there would be certain willingness to learn from it. I see it as a sort of a modern situation of Noah’s Ark – very unpleasant, but useful to show the people the limits of their powers and to make them realize the wrong development.
To conclude, as Mr. Richard Quest would say by the end of his so-called program (“Quest Means Business”, CNN): “No matter what you are up to, make sure it is profitable!”
Hereby you can find a video featuring The Explanation of Credit Crisis by J.Jarvis in a very modern and entertaining way. Those 11 minutes required will be surely worth spent - ENJOY!
