I wrote about the financial crisis a year ago on this website (it’s still posted except it’s without the actual date). At that time, everything still looked calm and hopeful (comparatively). However, the write-downs made by the banks are simply unbelievable. I should have sensed something terribly wrong had happened.
Well, it’s been a while since then. And many events have occurred. Companies with about 100 years of existence are no longer there (Bear Stearns and Lehman Brothers). More bankruptcies are expected to come (in 2009, I guess). The financial crisis is about to turn into an economic crisis (if not, already). There is actually a difference between the two though I am sorry that I can’t provide you with any figures. There can be an economic crisis without having a financial crisis. The only disturbing thing is that the probability of having an economic crisis out of a financial one is higher. This shows that growth of financial sector in the whole economy of developed industries is high. People care less on making products that they are proud of now. Instead, they care more about using the profits earned to re-invest for higher gains. This truly sounds like a sweeping statement but there are surely some undeniable facts in it.
Derivatives has definitely become the subject of this financial turmoil, with the subprime mortgage being its cover. A lot can be uncovered if you have read books like Liar’s Poker and F.I.A.S.C.O (I am proud that I have so in recent weeks). The U.S is so advanced in these financial tools that I believe the whole world has such a huge gap to fill up before they make sense of what is really going on. It’s like the U.S economy was the global economy. However, now they are paying the price of going too far over their heads. They will recover eventually for the dynamism, never-give-up and innovative culture they possess. For the moment, they would just have to put their heads down and admit their mistakes. Trust lost in their leadership has to be re-earned, and the same for the money (except that they are all in credit now, no use counting money, M1 and M2… They won’t be printing all those while promising you that environmental concern is a top priority).
So what’s going to happen next? As in every storm and tsunami, there will be times when the worst has passed. By then, it will be the time for licking the bruises and waiting for the wounds to be healed. Long or short is not for me to guess, it’s the speculators’ job (but they don’t really have to pay the price for guessing it wrong. On the contrary, they are paid big bucks for creating such a scene).
That’s all for today now. I leave you with a list of failed bank recorded by FDIC.
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