Until the economy is growing this house of cards will be supported, but at the first problems the domino effect is unleashed and drags all with itself.On June 26, 2014, Auxilium Pharmaceuticals, Inc. “Buy now and do not pay anything until 2010”has become the usual lifestyle. Today families, in particular those of the western world, no longer save. Once upon a time in order to buy durable goods (a car, a washing machine, etc) first one saved money, making sacrifices, then one bought. Years have passed creating the illusion that it is not necessary to tie consumption to one’s income. We cannot only accuse the banks in delineating these causes. The crisis has spread because of speculators without scruples, but also because of a consumer culture that has been “drugged” by consumerism. This means that the economy begins to slowdown and enter into a phase of recession where unemployment increases and commerce decreases, in a few words, this is the crisis that many economists have said will be (or perhaps already is) the most serious after the recession of the Thirties. And with them there is a crisis in all institutions and organizations, but also among private citizens who had stock belonging to the institutions that fail. Houses are sold at auction and this contributes to an ulterior diminishing of the cost, there is a crisis among the financial institutions that have made this market a warhorse. Many families do not succeed in paying and declare bankruptcy. This sets in motion a vicious circle, the bubble has burst. In the United States the fall of the price of houses has already reached a median interest rate of 10% annually. When, instead, prices fall, the value of the loan exceeds the value of the house and therefore families who cannot pay their mortgage lose everything. If the prices of the houses have increased and I become aware that I will not be able to repay the loan, I sell the house, extinguish the loan and have something left over! All of this works until the prices continue to grow. All of this is fine for those who are involved in a mortgage. The facility of having a loan has increased the request for houses and therefore, the prices, because of the increased demand, have augmented. And if to this we add that the risky stocks are in demand in the market, we quickly understand how the quality of the clients has somewhat deteriorated. Now if the bank that credits the reliability of a client to concede a mutual fund should not collect that mutual fund, it has a lesser incentive to choose reliable clients. These stock portfolios called derived are, in turn, re-sold and obviously those more at risk and of greater return attract speculators who have no scruples. Investors compile a portfolio of diversified stocks (commitments for payment) even on the basis of quality: those most secure render less, those most uncertain and risky render more because they incorporate a greater risk. The bank that had sold the commitment to pay thus has more money to loan and so it goes, a game which one is distanced more and more form the real economy. The same bank, then, could sell that commitment of payment to investors, who, in practice, bought the financial flow (the rate of the mutual funds) that the citizens had to pay back. A bank could allocate mutual funds to a citizen and receive in exchange a commitment for payment accompanied by a mortgage (something of value that was seized in case one could not pay the loan). For approximately ten years the American credit market has seen innovations introduced. For what regard the banks, once upon a time they made loans and gave out mutual funds. The most evident causes are financial and political in nature, but among the remote causes we cannot help but cite those of an ethical nature.īanks are not the only ones responsible at the basis there is also a culture that is drugged by consumerism. It therefore interests the real economy and has had its origins in the financial world. Alessandra Smerilli: This is an economic crisis and is not only financial. Infonline: Can you explain to us in synthesis the nature of the financial crisis that has hit a good part of western economies? We asked her to help us to better understand the significance of the financial crisis that the world is living. Alessandra Smerilli, a Daughter of Mary Help of Christians, teaches Political Economics at the Pontifical Faculty of the Science of Education Auxilium, and Economics at the Catholic University of Rome.
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