International, Random

Current World Economy Crisis

4 Comments

by G Mustafa Soomro, MBBS (Sindh) MRCPsych(UK), MSc( Oxford), MSc (Surrey), UK

The writer can be reached at: gmustafasoomro@gmsoomro.plus.com

Greenspan thought that the self interest of the corporations and individuals working in them would guard against any disastrous failures within the system (that they would mostly take proportionate risks). But he recently admitted that he was wrong and that in a de-regulated system the greed of corporations and individuals could become limitless (particularly when they are dealing with other people’s money).

Thus the greed lead to: 1) excessive risk taking, which is rewarded in the system by bonuses, 2) and also the blind faith that house prices could go up only, 3) also the loans were sold several times over (in the form of securities / derivatives – which not many understood how they were packaged) such that the buyers down the line did not even know what the risks were, 4) when the loans proved to be bad because of over-supply of housing units and falling house prices in the USA , they started to bring the system down like house of cards, 5) thus the governments had to absorb those loans though bailing out and capitalization (part-nationalizati on) due to the importance of the institutions involved, 6) even this has not lead to adequate thawing of the frozen credit (leading to businesses struggling for short term loans), 7) thus the recession / depression is about to dawn

The situation that has developed is such that it is globally disastrous (because of interconnectedness of financial transactions and economic relations the world over). Thus widely sold and bought securities / derivatives proved to be ‘the financial weapon of mass destruction’.

Call the behavior of financial institutions:

reckless
fraudulent
characterized by systemic failure
characterized by arrogance and short sightedness

Perhaps it is all of the above.

It calls for some appropriate regulation at least of the financial system if not the economic system as a whole (because free market competition has proved to be the powerful motor of development over the last century – although some protectionism has also existed side by side).

Except curbing too much greed and moderating the risk taking, I am not sure what else the Islamic System would add to the System (which really would be an appropriately regulated system by another name).

4 thoughts on “Current World Economy Crisis”

  1. reckless
    fraudulent
    characterized by systemic failure
    characterized by arrogance and short sightedness

    These are true things actually more money more problem.

    I think accountants have a very funny job, they constantly adjust books. Accuracy, probability and assumptions of their calculations are very ineffective to fluctuating moods of consumers.

    Moreover most of the time some managers or top leaders of companies are corrupt and they ask accountants to adjust books.hahahaha!

    For Pravin Khetan :
    Early warning systems are useless if people are doing funny funny things when it comes to money. Just imagine a lady spending too much on girl stuffs. She then realize her debt is growing (which is the early warning system i suppose) but she still keeps on spending. Now, even if her salary is so high she can’t pay the credit card bills anymore. Her net worth turns negative and kabooom poor lady went bankrupt. Nobody can save her anymore. Even if somebody saves her it will just save her temporarily. Very Ironic and similar to economic downturn. Actually the solution is very simple don’t spend more than what you earn and concentrate on what you can save rather than spending too much time reviewing your loss and wanting to perfectly achieve the target.

    Money is like exorcism or drugs that leads to real trouble when you’re high with it.
    Why don’t we just live a simple life.
    How about a reset button in the entire planets economic system?

    Reply

  2. i wanna to know what the u.s government have done and some method when this curren world financial crisis.

    Reply

  4. What ever you said looks very much true, however why not government develop an early warning system ?

    Its public money, again thrown back in to the same system. IMF and all 3rd world countries need to do some thing, bailout is not the only solution.

    thanks for such a clear representation of your thoughts.

    Reply

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