Summary
This article details the severity of the financial crisis that the international community in general and the US and Europe in particular are going through. The present crisis is being termed by analysts as the worst ever in more than three-quarters of a century. Now the authorities are on the lookout for rescue plans to save banks. Encouraging bigger ones to take over the smaller banks and providing financial assistance to some other banks are the packages that are able to bring some consolation on the faces of weary investors. In the recent past, JPMorgan Chase overtook Bank of America, while Citigroup acquired the banking operations of Wachovia. Similar trends are available all over Europe as well, which a number of bailout packages are being experimented with. Another source of worry is the crisis of liquidity. Banks are being forced to go for short-term debts, in order to payout their debts on maturity. This is resulting in a cascading effect on the health of the bank.
A number of models are being debated to bring out the banking system out of red. The Irish government, for example, is coming out with guarantees to the banks, but this too doesn’t appear to be having the desired impact. Analysts argue that the government interventions are also not allowing the private investors to heal the system on their own. Nonetheless the efforts of Irish government of indemnifying most creditors and allowing shareholders to reap the subsequent gains, has proved to the most effective so far.
Opinion
The global economy is indeed going through a lean patch, with threats of recessions from a number of countries including the likes of US. I feel this has something to do with the greed of financial institutions in trying to put everything at stake in order to get maximum financial benefits. But the sufferer is the poor retail investor, who put his money in the system with the hope to have some benefits. But the situation might become alarming if things do not come under control in the near future.
Business Concepts
It is quite apparent from the article that the attempts to shore up liquidity do not necessarily address the capital shortfalls, and vice versa. Leaving everything in the hands of market forces, might appear to be very lucrative proposition, but in the end what matters is the longevity, which requires adequate amount of government support and intervention.