Thursday, July 24, 2008

The top reasons for home loan fiasco

The bank for all the central banks and the oldest financial institution called BIS – Bank for International Settlements is also the most respected bank. In its annual report, the bank details the global financial crisis which warrants a closer look.

The major culprit claimed to be the reason behind the home loan fiasco is unrestrained credit growth and asset price inflation. The current steep fall in the global share market and downturn in most of the rapidly growing economy is unprecedented in the post war period. With the inflation rising steadily, one may wonder whether it is the tip of the ice berg and what the future may hold for all of us.

The main reasons cited for the poor credit crisis are formulation of loans of increasingly poor quality by the banks and selling it to greedy but gullible people who will in turn leverage on short term funding to increase the profits.

The principle reason assigned for the fiasco is the long period of easy money and laxity in the supervision in its implementation. The after shocks of the home loan fiasco still continue to echo among the financial markets and no country is an exception. The entire global economy is at crossroads.

While rich countries are facing the deflationary pressures owing to the collapse of the housing and financial sector, the opposite is true in the case of growing / developing economies like India and China where resurgence of inflation is a cause of concern. Nevertheless, global slowdown in the economy due to high inflation causes uncertainties, which are mammoth in nature.

The flow of funds out of the US has started and it is now looking for safer sanctuaries. Emerging markets like India may not be opportunistic in inviting the flowing find because India is not in the list of preferred investment destinations.

But don’t loose heart with all these negative points. There is a thing to cheer about. What is it? The crude had started falling down notwithstanding its continuous scorching pace of upward climb. Hope it would come down below the magic barrier of $100 a barrel. It will definitely sound good for one and all in the days to come…

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