by
BelaynehKassaWubie | August 6, 2010 at 03:19 am
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In 2008 and 2009, the financial crises in USA was taken as precedence for the economic crises in USA and many other countries of the world. But is financial crises always precedence for economic crises? Why not economic crises as precedence for financial crises? In reality, when the economy is well the banks will be at a profitable situation but when the economy is bad, the banks will be at a loss position and even go bankrupt. Is that not?
In fact, financial crises happen without economic crises which would eventually create economic crises. This is brought about by derivative manipulators and greedy mischievous accountants in the banking industry. Otherwise it is less probable that financial crises happen when the economy is well and stable.
In my view, it is the disturbance in the general economy that brings both financial and economic crises. Currently, it is difficult to make an economy sustainable as the world has become more dynamic, complex and volatile than ever in history. Thus, nations have to develop a brilliant scenario planning strategy to better manage uncertainties that could happen.
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at 05:57 on August 6th, 2010
In reality, when the economy is well the banks will be at a profitable situation but when the economy is bad, the banks will be at a loss position and even go bankrupt. Is that not?
NO! Not true! The economy doesn't affect banks in the same manner that it affects businesses in general. It's true that at some point, the economy will affect banks. But it takes a while. How many banks have gone under recently as a result of the poor economy here in America? In general, banks profit for the first couple of years of recession. For example: Interest rates are at all time lows here in America. However banks have long-term assets in the form of loans that were made at much higher interest rates and they are collecting billions on those outstanding debts. The banks put that money in overseas assets that pay higher rates. For example, if the value of the dollar is relatively low, banks will put their money in overseas currencies that pay higher rates.
at 19:36 on August 6th, 2010
I know what you mean . You mean banks use the Swaps technique to reduce the risk of loss! Yes, but generally, financial crises cannot be a main cause for economic crises. Does it