The global financial crisis that beer for a while, really started to show his power in the middle of 2007 and 2008. Around the world stock markets have fallen, the big financial institutions have collapsed or been bought, and governments, even in the richest nations have had to come up with rescue packages to bail out their financial systems. On the one hand, many people are worried that those responsible for the economic problems are being rescued, but on the other hand, a global financial crisis affects the livelihood of almost everyone in an interconnected world are increasingly interdependent. The problem could have been avoided, if ideologues supporting the economy in the current models were not so vocal, influential and inconsiderate of others views and concerns.
The global financial system is affected
A collapse of the U.S. subprime market and investment risks of the housing boom in other industrialized economies have had a domino effect throughout the world. Also, other deficiencies in the global financial system emerged. Some of the products and financial instruments have become so complex and twisted that as things start to unravel, trust in the entire system began to fail.
Although there are many technical explanations of how the crisis in subprime mortgages, the overall British comedians John Bird and John Fortune, describing the mindset of the investment banking community in this satirical interview to explain in a way that sometimes only comedians can.
Securitization and the crisis in subprime --
The crisis in subprime mortgages was largely due to financial instruments such as securitization, banks pool their loans into various marketable assets, so that the burden beyond subprime loans to others. (For banks, may be one million borrowing money they earn, but is bound for decades. So it was values. Buyer receives periodic payments of all mortgage loans, the banker out of the burden of risk. Securitization was seen as perhaps the greatest financial innovation of the 20 . century.)
Since the BBC's economic editor and former presenter Evan Davies said in a documentary called The discovery of the city with Evan Davis: Banks and how to break them, the rating agencies were paid to rate these products (potential conflict of interest) and always have good grades, encourage people to to take action.
From Wall Street, soon others followed. With profits rising, all you want, but it was outside his area of expertise. For example,
* Banks borrow more money to lend, which could create more than securitization. Some banks did not need to depositors until then, if he can borrow from other banks and to sell those loans as collateral, would bad loan problem of who bought the securities.
* Some investment banks such as Lehman Brothers came to mortgages, buying them to securitize, and then sell them.
* Some banks borrow more to have an excuse to securitize those loans.
* WHO thinning loans banks turned to the poor, high risk, the riskier loans. Rising house prices led lenders to believe that it was too risky, bad loans meant to regain possession of a high property value. High risk and "self-certification" loans (sometimes called "liar loans") became popular, especially in America
* Some banks may also start to buy securities of others.
* Secured debt obligations, or CDOs, (the more complex forms of securitization) diversify risk, but they were very complicated, and often hidden bad loans. While things were good, nobody wanted bad news.
The problem was so big banks, including capital reserves dried up, so had to rely on governments to save. New capital was injected into the banks in fact makes it possible to lose more money without going over. There still was not enough, and was not restored confidence.
The creation of multiple risk, trying to manage risk
The securitization was an attempt to risk management. There have been several attempts to reduce risk or protection against problems. While these are legitimate things to do, that the tools that allowed this to happen helped make the current problems, too.
In essence, what happened was that banks had hedge funds and others become overconfident because they all thought they had discovered how to take risks and make money more effectively. As originally made more money to take more risks, which reinforced his own view that they had planned. They believed that it had spread to all its risks effectively, and yet when there actually went wrong, everything went wrong.
Monitored in documentaries, Davis
Derivatives, financial futures, credit default swaps and related instruments emerged from the crisis in the 1970s. Oil crisis, double digit inflation in the U.S. , and a 50% decline in U.S.
The financial industry flourished as people began to look at ways to insure themselves against the disadvantages of investing in something. Learn how to price this insurance, economists came up with options, a derivative that gives the right to buy something in the future at a price agreed now. Economic and mathematical geniuses thought they had come with a formula for how to price an option Black-Scholes.
This was a success when the options could have a price, it was easier to trade. A whole new market in the risk of giving birth. Combined with the growth of telecommunications and IT, derivatives market has exploded, to buying and selling of risk in the open market as possible in ways never before seen.
As people quickly became a success, derivatives used to reduce your risk, but to take more risks to earn more money. Greed started to kick in enterprises began to enter areas that were not necessarily a part of its underlying business.
Actually takes people more games - to speculate. Or game.
Hedge funds, credit default swaps, instruments can be legitimate when it comes to telling if someone wants to standard or not, but the problem arose when the market was more speculative in nature.
Some institutions pay for the risk in the margin, so I do not have actual values that are fully in advance, allowing people to make large gains (and large losses), with limited capital. Nick Leeson (the famous collapse of Barings Bank) is explained in the same documentation, any losses caused most of the games, and the assumption of risk, hoping to regain earlier losses, as well as gambling. Derivatives caused the destruction of this bank.
Hedge funds have been much criticized for betting on things going wrong. In the latest crisis, they were criticized for short banks reduce their prices. Some countries temporarily banned short banks. In some ways, hedge funds have been signaling an underlying weakness in the banks are encouraging loans inaccessible to humans. Moreover, the more he continued with the more profit they could.
The market for credit default swaps market (a derivative of insurance when a company as standard), for example, was huge, the worldwide economic impact of $ 50 billion by summer 2008. It was also poorly regulated. From the world's largest insurance and financial services company AIG had only credit default swap of around 400 billion dollars at the time. A lot of exposure with little regulation. In addition, AIG many credit default swaps were mortgages, which of course went downhill, as AIG.
Trade in these swaps, created a network of dependencies between them on a chain as strong as its weakest link. Some problems could be because the risk or actual significant loss spread quickly. Therefore, the final rescue plan (currently about $ 150 billion) of AIG by the U.S.
Derivatives do not cause this global meltdown, but have accelerated when subprime mortgages collapsed because of investments between them. Derivatives revolutionized the financial markets and is expected to be here to stay, because there is a demand for insurance and risk reduction. The challenge now, Davis
It would be very difficult to do. Despite the advantages of a market system that everyone has recognized for many years, is far from perfect. Among other things, say experts, economists and psychologists that markets suffer from a few human frailty, as confirmation bias (always looking for facts that support your point of view, rather than just facts) superiority and bias (the belief that one is better than another or better than average, and can make good decisions all the time). Trying to reign in these facets of human nature seems to be a difficult task, and in the meantime, costs are rising.
The financial crisis and the rich countries
Many blame Wall Street greed is causing the problem, partly because it is in the U.S., the most influential banks, institutions and ideologues that pushed for a policy that has caused problems.
The crisis was so serious that after the failure and the purchase of larger institutions, the Bush administration offered a rescue plan for 700 billion U.S.
This bailout package was controversial because it was unpopular with the public, seen as a rescue plan for the guilty, while the common person would pay for their folly. The U.S. House of Representatives rejected the original package, as a result, sending shockwaves around the world.
The financial crisis and the Third World
For the third world, rising food prices and the consequences of financial instability and insecurity in the industrialized nations that have a cumulative effect. High fuel costs, prices of commodities with rising fears of global recession worrying many analysts in developing countries.
Synthesis UN Conference on Trade and Development, Third World Network notes effects of the crisis may have on our world, especially in developing countries who depend on imported raw materials or export
Coping with Recession
Most economic regions are facing a recession, or is it. This includes the U.S., euro area, and many others.
In those days government attempts to stimulate the economy. The standard covers macroeconomic policies
* Increased lending
* Reducing interest rates,
* Reduction of taxes and
* Go public works, such as infrastructure.
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