Everything was appeared good. until one day Lehman Brothers announced bankruptcy followed by the mighty buy-out of Morgan stanley by the BOA and the hell broke out. dont you think these kinds of periodic 'bubble bursts' are a healthy sign for the global economy? Well I, certainly do. If we analise the root cause of this turmoil, we get to know that the indiscriminate spending on the part of few individuals(read Americans) and indiscriminate lending on the part of few investment banks(read American again) has led to this disaster which is now threatening the entire world economy.
Lets look at how this all started. Indiscriminate credit-lending even to those with shabby credit scores started this crisis. Fall in the greenbacks value and corresponding fall in the US property market fueled it. people couls no longer afford paying back of the credit they had obtained and hence started defaulting. This put immense pressure on the banks and pushed them into the credit crunch. they could not sustain and eventually had to default or had to sell their stakes. it started with CITI, followed by Bear sterns and reached upto LB and MS.
Lets llok at the solutions.
One such solution mooted by the US governent is he mammoth US $700 Bn bail-out package. can this save the banks? yes it can. but the question is can this restore the investor confidence??? well no it can do so in immediate future. It can rather provide much needed relief to the traped investors that their investment stands a chance to returned back in principal not if the returns on it.
But this turmoil, as I belive, would rationalise those individual at mistake of over-spending their limits and also those who tend to learn from others mistakes that they canot sustain their irraltional behaviour forever. They, eventually, will have to come to task by selling whatever they have and to pay the credit even if it means they are rendered homeless. This, on the other part, will also serve as a very serious warning to banks that gravely miscalculated credit-lending can lend them nowhere but have themselves blown up.
That the 158 year old institution which can stand 2 world wars and disastrous recession cannot withstand the credit crunch says all abt the massive scale of the problem. The solution, if any, should also needs to be of the same proportion. Hope this gets sorted out at the earliest and does not thretens the on-slaught of global recession.
