Even the finance gurus little understand about crisis

There is little clarity on the economic crisis of the twenty-first century. Rapid changes and difficult to focus, even to the minds of high finance. This is the case of the fruits that fall far from the tree, in fact we never understand crisis thinking to today’s problems, but we must go back to 2007 to learn the roots of the crisis. Subprime mortgages are at the origin of the Great Depression. Are granted to individuals with problems of defaults, foreclosures and bankruptcies in the history of the debtor, as well as low income. The risk comes from high interest rates.

The rate of adjustable rate mortgages reached levels above average incomes in 2007 and bursts the bubble mortgage: 15 U.S. States recorded the highest level of unpaid installments for at least 90 days and banks repossessed properties by putting them up for auction. But that’s not all. The risky real estate loans were inserted into bonds marked by the triple “A” representing the status of reliability of the title. Far from it, for this there is talk of “toxic assets”. These securities may be purchased by individuals, banks, pension funds and foreign countries. That’s how the contagion began.

The problems of global finance arise from the collapse of one of the five power-house (citadels of power) of Wall Street, Bear Stearns, the U.S. investment bank among the most exposed to subprime mortgages. The U.S. investment bank JP Morgan saved the situation by detecting the Bear, whose managers have come under FBI investigation and arrested on charges of conspiracy, fraud and lack of transparency at the expense of investors. Banks should improve communications provided to customers, so that they can choose with greater awareness of financial products more or less risky.

The public opinion equates the origin of the global financial crisis with the collapse of U.S. investment bank, Lehman Brothers, which is in charge of financial services globally. On 15.09.2008 the company announced the bankruptcy proceedings or bankruptcy driven by the accumulation of huge debts. The company will cease to exist when it’s completed the bankruptcy proceeding.

Our dock has welcomed a current case of financial globalization, which refers to the growth and expansion of financial markets. Its side effect, however, is the phenomenon of contagion, i.e. the possibility that crises have effects beyond the home market, with global repercussions through transmission channels such as trade and financial linkages. There have been anti-crisis measures aimed at encouraging investment and increase consumption. But the prospect of unemployment has inhibited them. The rest are living. 

Source: “La Gazzetta del Mezzogiorno”, an italian newspaper, November 28, 2011, p. 16.