The basis of the crisis which recently have shaken the economic markets were speculations on the mortgage loans in the USA. Firstly, American banks have started to provide mortgage credits at a much more favourable terms than in the past increasing the sums and requiring less security. Secondly, have begun to issue debentures (getting free cash to invest) using the mortgage as a pledge - assuming that these loans will be repaid. At one point, occurred that the number of so-called ‘bad credits’, so these which owners have problems with regular payment of the debt or aren’t paying them at all, have begun increasing. Dramatic decrease of prices of flats and houses have influenced it. People in difficult financial situation have started trying to get rid of their houses to give back the money to the banks, but by the violent loss of their value the money given to the owners have covered only a portion of the debts. Therefore, not only the collapsed market for mortgage loans, but banks and investment funds were in trouble because they have invested big money in bonds, which the loans were secured by mortgages. Since most operations in the financial markets now is the transfer of capital (and not for example invests in new jobs and technologies) the effects of this crisis started to feel all the existing players in the markets - from pension funds after the insurance companies.
When the crisis have begun the government of the United States have started to implement its programme of awarding financial aid, especially to investment banks. The most commonly it lies on giving loans from the state budget to companies which have lost liquidity. Reasoning for such procedure is a general concern about the state of the economy (frequently next banks collapse) and to protect the jobs. Another way is to control blocks of shares redeemed at risk companies, which maintain their liquidity but also leads to the situation when state takes control over them, that is the lead to their nationalization. It is what happened with American International Group (AIG) - leader in the insurance and pension funds as well as a significant player in the financial market, where the U.S. government bought a package of 80% of the shares gaining managerial control over staffing and the creation of policies the company. This situation reminds some solutions which were applied in the middle of the 80-year, when the U.S. defense industry was in trouble and the U.S. government's intervention saved among others Northrop-Grumman.
See also:
US to tackle financial crisis - BBC
and
Financial crises: Lessons from history
Have you noticed a Financial Crisis in your private life?
ReplyDeleteDo you thing the Polish government do something to weaken the influence of the Crisis on our country?
To be honest all this crisis and stuff is one big mumble for me. I am such an ignorant :P What really interest me is what to do in order to secure yourself from feeling the crisis. Unfortunatelly I've already scented it when I bought the apartment in the worst time I could imagine. Well, too bad, that's the price for being an ignorant, I guess. I just really hope that all the small companies will be able to live through the bad time. It will be very hard to rebuild the economics without them.
ReplyDeleteI haven't noticed a Financial Crisis in my private life but cause of it is simple - I haven't had any big investments. I rent a room which price is constant. My incomes are constant also... Moreover I haven't noticed big price vacillation. Mayby I am unobservant but I think I'm just a regural student :)
ReplyDeleteProbably I will discover it as soon as I will be looking for prospective work. Employers will cut costs and competition on work market will be tremendous.
I haven’t noticed financial crisis too. I’m also totally uninterested in economics. I don’t watch TV and I don’t read any newspapers, I live in a informative vacuum. Maybe that’s way I’m so happy. I haven’t got also any investments. I also don’t propose to buy a flat on a credit, because I haven’t got enough money and I don’t work. I only feel for people, who end their education and apply for a job, because now it’s difficult to find good and well-paid job, especially when you are a lawyer or economist.
ReplyDeleteThe finacial crisis is somethong we have to deal with. But we have to remeber that it is the natural way of capitalism. But it will pass.
ReplyDeleteHow can we survive it? I say: buy gold, hide your pearl neckless in flour box and dollars into counterpane! :-)
PS. I'm really worry about AIG - they are sponsor of Man. United
I remember moment when in every news, newspapers and tv people were shouting about crisis. “what will be? What will be?” I think that crisis is, but this matter is definitely too much publicized. All world went mad!!! This all matter doesn’t concern directly me, because I don’t’ buy flat, house and I also don’t seek a job. However I know that nowadays it’s not good moment on finishing studies and looking for job. I suppose that in short time situation will be changed, better but currently young people are afraid of their future..
ReplyDeleteAnd last example, I listened that many of small firms, shops went bankrupt and in bigger firm, company like banks many of worker are dismissed. Maybe, our neighbors lost work, maybe out mother will lose tomorrow. We don’t know..
I haven't noticed the Financial Crisis in my private life besides of hearing about it in the news all the time. However, I understand that it exists and affects many people: companies which went bankrupt, working people who were fired or those who have problems finding job. I doubt that Polish government can do much to weaken its influence - we just to have get by through this period and wait for better times.
ReplyDeleteFinancial crisis is still getting deeper all over the world, but paradoxically because of its economic backwardness Poland is quite well coping with it. It is why massive unemployment isn't ocurring in our country - nevertheless economic development speed has decreased. I don't think that today's financial crisis could be as far-reaching in consequences like after World War First, when over the half of society didn't have any job at all. The general truth is that after years of recession, another years of prosperity, but I don't agree that the best atitude is to just sit and wait for the better times. Even if the circumstances are hard people mustn't stop their economic activity, otherwise recession would never end.
ReplyDeleteIn my opinion financial crisis is what we make of it. Buying things we don't need. Building liabilites and not building assets that make us gain the financial freedom. We all need to step up to the plate and fix our own finances and re-think our lives better. It starts with one person. We all share the burden of each other's mistakes. So the only way to fix it, it's not by the Government, it's by people forming a joint venture and helping each other out. The crisis will be fixed in no time.
ReplyDeleteUnfortunately, I know almost nothing about the financial crisis because I do not have time to watch news. However, I have heard something about this problem from my friends and family and I have to say that I suppose financial crisis looks like some kind of provocation or false idea. Maybe I don’t believe in this problem because I don’t notice financial crisis in my budget? :)
ReplyDeleteI haven’t noticed financial crisis and I almost know nothing about it. I don't want to buy a flat that's why I don't need a credit. About the crisis I can say only that many people lost their jobs because of the employers who don't have the money and bank doesn't want to give them credit. And for me is enough because I hate economics.
ReplyDeletePersonally, I haven't noticed financial crisis but I understand that everybody who is interested in economy and politics know much more than me. Normal people do not know a lot apart from inforation in TV or newspapers. In the other hand, a lot of firms denounced bankruptcy (ex. Chevrolet) and normal people lost a job... Level of redundancy is higher and it can't adumbrate anythig good...
ReplyDeleteIn my opinion financial crisis is caused by moral crisis. Why I think that? Pepole who are greedy and who haven't any inhibition caused taht all economy is in dangerous. They took a bad decisions, which was cinditioned by their avidity.
ReplyDeleteAlthough I have not seen finansial crisis in Warsaw, especially in supermarket.
Financial crisis is situations in which some financial institutions or assets suddenly lose a large part of their value. I'm not interested in economics and I don't know very much about it. The only effects of the financial crisis I know is unemployment and decrease of sales in shops. Personally I haven't noticed it becouse I'm a student.
ReplyDelete