Tag Archives: finance

What does the financial crisis mean for the future?

A joker puts the value of a share on the $1Billion headquarters of failed bank Bear StearnsWith the sale of Bear Stearns for £2 a share on Sunday (it was worth £170 a share in April last year), the Credit Crunch claimed a high-profile casualty. But in the long run, what does a possible US and global recession bode, after things clear up? Some people think this may be the worst we get, others think there’s a fair few other banks and businesses looking shaky. However it continues, there’s no doubt that the markets are going to change following the collapse of a lot of mortage-based finance.

The crisis has been caused by an decrease in the enforcement on banking legislation. Without sufficient checks, financial companies offered loans to people who couldn’t afford it, then traded the loans like shares across the world economy. As lenders failed to pay up and defaulted, the companies who traded the paper behind the loans began to make losses and a lack of trust led to less liquidity, or money available for lending between firms. Bear Stearns was one of the companies most at risk, like Northern Rock here in the UK.

Many economists and analysts are starting to look at the repercussions of the credit crunch. Some say that the reduced interest rates by the Federal Reserve and Bank Of England will lead to inflation problems, especially with commodities like wheat, gold and oil recently at all-time highs. Others compare the crisis to other recessions around the world. Although Japan in the eighties and the Great Depression are scary comparisons to make, some say that Sweden in the early nineties is the best one to make, and a good example of how the Fed can get out of this situation: more regulation to clear that bad debt quickly.

But if we’re looking at ways to stimulate the economy, surely we should be looking at moving the focus away from the financial markets and ‘bubbles’? During the dotcom and housing bubbles, wages have stagnated and many have succumbed to borrowing large amounts to keep consuming. A possible solution: invest in new infrastructure for alternative energies, mass public transport and energy-efficient products. Jobs will be created to keep the economy afloat and the financial world could settle to a fairer and more balanced system.

[photo via Calculated Risk]

Anatomy of a bank run, offline and online

You may or may not have heard about the ‘bank run’ of panicking customers withdrawing their savings from beleaguered UK lending institution Northern Rock over the last few days. While the phenomenon of snowballing panic causing the initial problem to worsen is an old one, it has moved to populate the online world in parallel with the offline – so many customers are trying to access Northern Rock’s website at once that their servers can’t cope and return 404-page-not-found errors, adding to the impression of an institution in trouble. [Image from Getty, copied from BBC article]

As a side note, the Financial Times is predicting that this is the start of a rough period for finance on both sides of the pond – welcome to Crunch Week.

[tags]finance, banking, economics, internet[/tags]