Home > Current Affairs > The American Financial Crisis — Dejà vu??

The American Financial Crisis — Dejà vu??

No sooner did signs of the crisis dawn upon the “market makers”, the blame game started… and with more signs of an economic depression, the game only got messier. However, being a market outsider, if you ask me… who is really at fault, I would say that it is neither the Investment Banks nor the Financial Lending Institutions nor the Federal Government nor the average American nor the global citizen. WTH??? Who would it be then? The Aliens?

Nopes, it is a vicious circle and all players in the market are to blame… collectively. So, what we see today as the crisis is a result of the greed and gambling of the investors (through I-Banks), lending institutions, borrowers (the average American) and not the least, the US Federal Government. The lending institutions created the environment… the investors took the bait with some help from the I-Banks… the average American saw his long-term dreams getting fulfilled… and the government decided to keep quiet and not even look their way.

This is precisely what in theory was defined as “neo-lieralism”… a concept which eliminates government regulation and oversight under the pretext of a free market economy with minimum federal intervention. Not that, this phenomenon took roots under the present US regime… it has been followed since the Nixon days but then Bush took it too far.

This economic crisis began in the real estate sector and spread its tentacles to the financial sector which was being its god-father. However, the cycle is not gonna stop there. In my judgment, these problems are gonna percolate into the actual economy… which will then break the insulation for every global citizen. And if u ask me, will the famous seven-o-o bailout
stem the tide? NO… not at all. I think it is just trying to push the waste under the carpet.

So, for us as a common middle-class man… what happens to our lives?

1. CAREER
Somewhere or the other, the uncertainty in our careers is gonna go up… either by our industry of work directly facing the ire of the crisis or pushing up job seekers in our sectors which are still insulated or worse still pushing the salaries down.

2. PERSONAL INVESTMENT
This is surely gonna be a big mess… after all, even a LN Mittal with his hawk advisers couldn’t avoid 16Bn USD getting wiped off his balance sheet. It is high time you evaluate your investment… and best, if you can divert it into a low-risk, low-return bank deposit. However, one question worth asking the US Feds is… who will pay us for the loss we have incurred by investing in the stock markets for no fault of ours? I know what answer you will get… IGNORANCE / at best SILENCE.

3. FAMILY LIFE
The biggest lesson for us is to not rely on “fake” liquidity and always plan our lives based on the “real” liquidity we possess. This reminds me of my dad’s advice when I joined IIM… and many banks realizing our future earning potential ran to us offering credit cards and loans… he said one thing – “Never fall into the trap of credit cards. It is not free money which you can use without any accountability. So better pay with what you have in your hand”. I did heed his advice albeit having a couple of credit cards years later… but just to manage online transactions. Nevertheless, I would give the same advice to all… avoid credit cards as much as you can and also try to plan your asset acquisitions (house, car, etc.) based on what you can afford… and not based on speculation.

As for the US economy, it is in a very dangerous situation… with no disclosure, no oversight, no transparency. The suspicion levels are so high that even a bailout approval couldn’t keep the markets from falling. Because, behind the big facade of the financial sector is the real American economy which has been the lifeline for the financial sector and that itself is now reeling in pain.

Other interesting reads on this subject:

Paulson’s Reasons for Delaying Day of Reckoning: Jonathan Weil (Source: Bloomberg.com)

Diamond and Kashyap on the Recent Financial Upheavals (Source: New York Times)

America’s financial meltdown: lessons and prospects (Source: openDemocracy)

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  1. Muazzam
    October 9, 2008 at 12:21 pm

    i think the real worry is wud we look back at the current crisis & say Dejà vu once more cats are let out of the bag…

    If this is just the tip of the ice berg a global meltdown could imply we all end up in deep waters possibly without life jackets… Sounds like an American Titanic – the unsinkable economy sinking with the most elite names on board… Wonder if this one would make it to the silver screen with DiCaprio & Winslet atop the statue of liberty…

  2. October 9, 2008 at 12:22 pm

    @ Muazzam,

    An amazing sum-up of the crisis… wonder who’s gonna put in his money for making this movie 🙂

  3. Muazzam
    October 10, 2008 at 2:36 pm

    @ Moid…

    Perhaps the insurance companies can look towards the entertainment industry now that the mortgage industry doesn’t seem to charming… 🙂

  1. October 6, 2008 at 7:52 am

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