Sunday, October 12, 2008
A Credit Crisis of Massive Size
Stock markets world over are falling since the beginning of this year. The fall is unprecedented in its scale and geographical spread. It started with sub prime lending crisis and spiraled to much of the banking and financial sector.
The first big kill of this crisis was Bear Stearns which was taken over by JP Morgan Chase in March. The crisis deepened in September when Lehman Brothers failed to raise capital and filed for bankruptcy. In same week Merrill Lynch was bought out by Bank of America. American International Group (AIG) was bailed out by Federal Government. One week before this the federal government took over Fannie Mae and Freddie Mac which were quasi-government lending agencies.
Following failure of Lehman Brothers, Merrill Lynch etc Credit crisis deepened and spread to other countries. In Europe Belgium bailed out Fortis bank. On sidelines Icelandic bank become bankrupt. Everyday there is news of failure of one or another bank and such news are no longer headline news.
I doubt anybody understands the full scale of this credit crisis. USA govt proposes a massive $700 billion dollar bailout package to lift the market sentiment and next day opposite happens and all indexes fall sharply. Two days later governments world over cut interest rates in a synchronised move to increase the liquidity and again markets fell.
This crisis is no longer a crisis of financial sector and it is already affecting real economy. People are loosing jobs, Production and manufacturing activities are going down, Consumer spending and confidence is very low. There is a real fear of recession in world economy like the USA recession of 1930s. All this has forces governments and central banks to take unprecedented moved to infuse capital in markets and thereby stabilize the situation but nothing seems to be working as of now.
Australia & New Zealand governments have issued guarantees for all deposits with banking institutions for the next three years to bolster confidence in the banking system. I believe more countries will follow suit. All these efforts should improve the situation or at least stabilize it but it will take a while(2-3 months).
The recession outlook and falling demand has resulted in falling oil prices which is more of a correction in my opinion because prices rose too sharply. There are many lessons from this crisis for everybody, for bankers, CEOs, governments and general pubic. There is still lot more to this crisis so watch the game and on alert and save your money(if you still have it).
For couragious people there is opportunity to invest and for others to shift to safer avenues.
The first big kill of this crisis was Bear Stearns which was taken over by JP Morgan Chase in March. The crisis deepened in September when Lehman Brothers failed to raise capital and filed for bankruptcy. In same week Merrill Lynch was bought out by Bank of America. American International Group (AIG) was bailed out by Federal Government. One week before this the federal government took over Fannie Mae and Freddie Mac which were quasi-government lending agencies.
Following failure of Lehman Brothers, Merrill Lynch etc Credit crisis deepened and spread to other countries. In Europe Belgium bailed out Fortis bank. On sidelines Icelandic bank become bankrupt. Everyday there is news of failure of one or another bank and such news are no longer headline news.
I doubt anybody understands the full scale of this credit crisis. USA govt proposes a massive $700 billion dollar bailout package to lift the market sentiment and next day opposite happens and all indexes fall sharply. Two days later governments world over cut interest rates in a synchronised move to increase the liquidity and again markets fell.
This crisis is no longer a crisis of financial sector and it is already affecting real economy. People are loosing jobs, Production and manufacturing activities are going down, Consumer spending and confidence is very low. There is a real fear of recession in world economy like the USA recession of 1930s. All this has forces governments and central banks to take unprecedented moved to infuse capital in markets and thereby stabilize the situation but nothing seems to be working as of now.
Australia & New Zealand governments have issued guarantees for all deposits with banking institutions for the next three years to bolster confidence in the banking system. I believe more countries will follow suit. All these efforts should improve the situation or at least stabilize it but it will take a while(2-3 months).
The recession outlook and falling demand has resulted in falling oil prices which is more of a correction in my opinion because prices rose too sharply. There are many lessons from this crisis for everybody, for bankers, CEOs, governments and general pubic. There is still lot more to this crisis so watch the game and on alert and save your money(if you still have it).
For couragious people there is opportunity to invest and for others to shift to safer avenues.
Labels: Bank, crisis, Finance, Market, Stocks
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