Wrong Basics or Wrong ………?
Present global economic scenario testing the economic models followed by the world economies, to evaluate or review the financial and economic situation. Till now the very basic models started to show signs of aging, those concepts that come into existence as modern theory. For example, One of the basic model used very commonly is Forecasting, under the impact theory the relation between cause and effect use to forecast the outcome of present course of action, and help implementing the necessary steps to follow for achieving the medium to long tern goals and help to take measure if something turn out as an obstacle.
This sounds like caution, as the very simple yet vital' method to evaluate the economy looked useless in the present crisis situation world wide. I am quite sure that this situation has not emerged out of the blue in one night or one week or even few months only, it was present from quite some time and as none wants to accept the blame, something terribly went wrong with the system. The crisis only came into limelight after US mortgage defaults. High default rates on sub prime mortgage in the United States have made more and more far-reaching consequences, not only limited to but far beyond USA.. Now the question arise, Is it the failure of the economic model or the careless attitude of the high profiles worked under Federal Government.
Before going further one must know that, US Banking system is categorized into two groups, first group of banks are general deposit taking commercial banks and other group consist of institutions dealing in securities known as Investment Banks. The aggressive strategies and the soft attitude of the regulators has made them a history, that might remembered as black days of the fall on Individual Investment Bankers.
Obviously the banks suffered major blowout, too severe to come out of it, this will mark as an end of investment banking era after the 75 years. Bankers now believe that there is no future in investment banking. Bear Sterns, Lehman and Merrill Lynch were the biggest victims of the crisis. Aggressive exposure to securities trading and huge short term loans by switching between one loan to pay the earlier one, took its toll and dried up their liquidity and the securities held by those banks came out as next to nothing in monetary value.
Now that the Federal Reserve Bank, the Central Bank of America have given its approval for turning the two remaining investment banks (Goldman Sachs & Morgan Stanley) into a deposit accepting bank.
Cautious markets falling amid uncertainty, as feared, the financial crisis cascade through global economies despite bailout efforts by the U.S. and other governments. The Bailout decision and its rejection and approval has come out as a long stretched political drama, that has maligned the US economic strength worldwide and also out the most panicked the people as they figured out their last hope the Government is standing helpless to save them from the present financial distress. Any how the the billions of dollars had been washed off as financial losses and so called' huge bailout seems not so huge in front of global financial losses.
