Opinion | Editorials
Where you put your money counts now
To the layman the present financial crisis is little understood. The effects depend on where the money is kept. If savings are in stock markets, then there may be reason to be concerned.
- Gulf News
- Published: 23:42 September 19, 2008
To the layman the present financial crisis is little understood. The effects depend on where the money is kept. If savings are in stock markets, then there may be reason to be concerned.
What started as a roller-coaster ride in the US subprime market quickly developed into uncertainty among lenders and borrowers alike - mortgage companies and banks particularly. The situation worsened once banks lost faith in inter-bank lending and it became difficult for banks to borrow to tide over the crisis. With inter-banking being global, any shortfalls soon raise alarm among speculators and amplify the situation.
Trust in stock markets and banks declined dramatically among investors, whether professional or personal. It was not helped by delays from the US government, which gave no clear signal on whether they would rescue major lending institutions like Fannie Mae and Freddie Mac.
There would have been some initial reluctance on the part of the Republican government, which upholds the principles of a free market economy and no government interference. But when it was realised the bankruptcy of these two mortgage companies would affect the entire US economy, measures were quickly taken to shore them up and give reassurance.
What has not helped is the uncertainty of US government policy. Some companies were allowed to go under - and more are expected to follow - while others have had money pumped into them to stay afloat. In the world of finance it is continued uncertainties of this nature that serve to exacerbate the situation.
Intervention by global central banks has not assuaged fears but merely added fuel to the fire. Even so-called financial experts do not know the way out of the current mess but expect worse is to come.
Pity the poor layperson.
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