Factor 1: Ideologies
Let's backtrack a little to when and how it all started. We had it coming for a long time to be honest. Alan Greenspan, the ex-Federal Reserve Chairman has a very laissere-fare style of management. U.S-style free market capitalism. AKA, markets will correct itself. He was very revered. Low interest rate environment, easy credit for like wat? 10 years or something. Erm, obviously, people will happily spend rite? So they did. I mean, they went on a shopping spree I tell ya! And when Daddy doesn't tell u to stop, why should u right?
I'm sorry, but everything on earth is man-made. That includes the entire capital market systems and ideologies. So there are no absolutes on earth. Everything is flawed. But that's ok. Life goes on. It always has. Just be careful who you "worship".
Factor 2: Easy credit
This is a continuation of U.S.-style free market capitalism. Fact is, markets DO need to be regulated. Easy and I would even say, fraudulent credit was rampant. I mean, not earning money and still obtaining housing loans (sub-prime)? Come on! Erm, how are u going to pay your loans if u're not earning money?
Factor 3: The invention of sophisticated financial instruments; and all parties related to it
Loans (imagine, tat housing loan tat u took that you couldn't afford....haha...pun intended) all embedded into structured products - e.g. mini bonds, big bonds, what have you. And resold back to retail investors like u and I! Wow. So actually, u did swallow back some of the risks u put out there! Talk about what goes around, comes around. Just pity those honest folks who pay their mortgage on time and bought some of those tiny little dirty bonds. Damn!
Like melamine-laced milk products, these dirty loans (those who couldn't pay back the loan) were all embedded into financial products and distributed all throughout the world. Dirty loans in an OTC market couldn't even be priced becos everyone was staying away from them with a 10-foot pole. Even if they were clean. Confidence crisis here, people! It's no longer about truth, it's about perception.
When the party is going, the going parties. And everyone jumps on the bandwagon. Including rating agencies who, oops, just shortly awhile ago, rated that instrument AAA? And it crashed? The experts that u trusted are well, just human. And faltered they did! After a bailout, what do they do? Have a massive party, tat's what! Capital A in the insurance line, tat's wat it is. I wonder if they did enjoy the party.
Factor 4: Our connected world
I blame the internet and the airplanes. Since when did the world become so inter-connected? Never. Past crisis have always been contained within continents and countries. Now, the speed and interconnectivity just spreads the good and bad stuff around faster. Can't have one without the other.
Factor 5: The reliance on loans
Also, the financial world lends money to the normal world, ALOT more than in the past. When the financial world stops lending, the normal world, having been so reliant on it, just feels more vulnerable. Like damn, how come I can't borrow $100million to buy that new machinery to expand my business? I used to be able to do that pretty easily!
Factor 6: Fear
So like a half of a couple who has been cheated on, it doesn't matter if the other party swears to God that he/she does not cheat. You won't believe him/her, for now. So investors are just withdrawing their money, banks are withholding credit. Out of fear.
Factor 7: Unwinding of excesses
In a nutshell, I just think this whole crisis is a massive unwinding of excesses. I'm not evil, but I think this crisis could be a good thing. Since when did organic growth (cash business) go out of vogue, or even contraction? Let's take a step back and chill a little, shall we? Let's smell the roses for awhile. Not what an investor would like to hear, but maybe, let's just be comfortable with NOT expanding for awhile, shall we?
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