Prepare for The Crash! Learn from Wall Street 1929, Russia 1990 & Argentina 2000

10 of the World’s Most Dramatic Financial Crises, and Their Lessons
SEPTEMBER 24, 2008
Financial crises are consistent in one way, and one way only: They’re far more sexy when your neighbors are wearing them. When you suffer your own, runaway inflation becomes infuriating rather than exotic, and bogus bank scams go from intriguing to fist-clenching.
It’s all fine and well until it hits you squarely across the jaw. Which is what the people who run (or, more aptly, misguide) the United States have just done to the general population. For all the progress we’re making, a purple elephant might as well be running the show.
Which leads to a deeper question. Namely, does anyone run the show during a financial crisis? Is there any way to skip out of one as quickly as it enveloped you? Check out these ten nasty crises, and see for yourself:

10. Swedish Financial Crisis (1990-1994)
Cause: In 1985, Sweden deregulated its credit market, leading to a commercial property speculation bubble. Between 1990-94, the bubble burst, leaving 90% of the banking sector with massive losses, including all of Sweden’s largest banks.

9. United States Savings and Loan Crisis (1986-1989)
Cost: $160.1 billion ($124.6 billion taxpayer money) and 747 United States savings and loan associations.
Causes: Policy expert Bert Ely says old, incompetent policies were behind the mess.
Among them:
-The government picked S&L’s, traditionally funded by short-term deposits, to finance long-term, fixed-rate mortgages. Whenever short-term interest rates went up, S&Ls lost money on their long-term mortgages, leading to negative mortgage interest rate spreads.
Moral of the story: When the government puts impossible restrictions on a bank’s ability to make money, the bank finds a workaround to keep its bottom line working. When the Fed makes a change that blows the lid off the bank’s workaround, the whole system collapses.

8. Northern Rock Bailout (Great Britain, 2007)
Causes: Financial services expert Martin Upton says that when vast numbers of mortgage holders with bad credit in the United States defaulted on their loans, financial institutions around the world became cautious about lending one another money. After all, nobody was sure how much money their exposure to the US subprime crisis would lose them.
As a result, liquidity around the world went down, while interest rates went up. Unlike the United States, the Bank of England did not flood the markets with billions of dollars to get liquidity back up. Banks were, for the most part, on their own.
Enter Northern Rock. Northern Rock’s lucrative mortgage business (comprising about 40% of company assets), was located in a company in the (tax-sheltered) Channel Islands called Granite.
Granite was a charitable trust set up to benefit a Down’s Syndrome charity. However, Granite never donated any of its £45 billion of assets to the charity. Instead, it acted as a securitization vehicle, selling “asset-backed securities” to investors and replacing maturing mortgages with new ones.
Bank shares to fell 72%.
Action: An internal report released in March 2008 cited inadequate government supervision during the Northern Rock crisis, but blamed the bank’s collapse on its senior management.
Moral of the story: Repackaging debt as assets in a fake nonprofit only works when the economy is going smoothly. Don’t build your entire business out of this practice and expect to survive.

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