A new crisis for the 21st century

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  • Publié le : 10 octobre 2010
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The world is set against a large crisis which began with a financial crisis to touch many activities and economical sectors. This crisis is compared to the 1929’s crisis which was the largest one of the 20th century and leads to a seriousinternational recession. The big issue today is to find how to make people trust the system again in order to revive the financial activities which will certainly leads to the recovery. But to make people trust the system again, the leaders and traders themselves should trust this unpredictable system.
Actually most of the problems are easier to solve if we can understand their beginnings andits effects. Then, we are going to try to understand this crisis by analyzing the origins of the crisis wondering how these subprimes arrived in the market share and how they infected all the banks around the world. In another hand, we will notice the effect of this crisis financially and economically before a debate on the measures taken by the governments.

9/11. Unfortunately the mostfamous Tuesday of this new century, well known because of its bloodshed and the destruction of a world economical symbol: the twin towers of the World Trade Center. Weirdly, even if we can’t see the link obviously, this event is the origin of the current crisis. In fact, after the attack, the US economy was suffering and, in order to revive it, Alan Greenspan the old charismatic chairman of theFederal Reserve decreased the interest rate to 1 %. This measure allowed people to by houses but this “gift” was a trap. Indeed the rate was fixed for a while but there was no warranty on the rate and it could change. This is what the Federal Reserve did with increasing it from 1% to 5.25% between 2004 and 2006. Thus, the borrowers were trapped and could not pay back the loans.
This is atthat time when the banks stepped in. They had the opportunity to by these loans but many borrowers were insolvent and did not pay back the banks. Here are the first steps of the American banks crisis. To manage this problem, banks tried to sell it on market share but these products were so dangerous and did not fin buyers. That is why they were hidden on mix-products shares which were sold all aroundthe world infecting many international banks and most of the market share. The Global Crisis has just begun.

Because of this infection, many countries are touched by this crisis which makes it stronger, more scaring and thus more influent on traders’ decisions. In fact, they can’t predict the market’s evolution as usual what freezes the financial world because of their latency. Thelonely banks which are not stricken by this crisis or at least not dangerously stricken are the ones which have chosen a safer system with keeping an important rate of liquidity and buying a very low rate of risky shares. Their theory is to make small but safe benefits. For instance, ING DIRECT is a bank which has chosen this system and it actually not suffering with this crisis. The big deal with thefinancial sector of the crisis is to remove the infected subprimes to revive the confidence on the system.

After reaching the financial world, this crisis starts touching the economy. In fact, everyone and everything is afraid and there is no more confidence on capitalism. Thus, people take their money back from banks and banks have no more liquidity. Also, the consumption decrease whatleads to firing policies and social crisis. Moreover, these firing policies cause an additional decrease of the consumption like a vicious circle and this is the beginning of recession, just like in 1929. Actually, many European countries like France, United Kingdom and also the United States of America are in recession for the last quarter of this year. We can also note the bankruptcy of Iceland...