Whoever thought that we are coming out of the slump of sub-prime crisis after the Citibank & Bear Stearns turmoils was mistaken. He would have been under a swirl of shocks in the past few weeks. It was Fannie Mae & Freddie Mac first & followed by Lehman Brothers, Merrill Lynch & AIG on a row this week.
There's a heated debate on why should the US Fed government bailout these firms for their follies at the cost of tax payers' money.
It seems to me that the sub-prime crisis has turned out to be a night-marish situation to the entire Capitalist society. The government is bailing out these firms so that they survive to disburse more loans to the people, people who are already neck deep with loan defaults.
But it seems this is the only easy & visible path that the Fed officials can see as of now. US is the richest country, its GDP is $13.8 trillion, Japan, the 2nd richest is a paltry $4.3 trillion. Developing economies such as China, India & Brazil are extremely dependent on the US for selling its goods. So if there's none buying in the US, these countries take a big hit. Although there are burgeoning domestic markets, they are in no comparison to the US market & they need more time to grow to the size of the US. So retaining the US market liquidity is crucial in maintaining global economic stability.
Its believed that the market goes into this scary, bearish mode every 5 years. Last time it happened during the Internet companies fallout & 9/11 crisis. That slump wiped out a good portion of the enthusiastic Internet startups in the Silicon Valley. The picture has never been the same for those who survived. They never again saw the kind of appreciations they saw in the last 1990's.
The situation today is somewhat more difficult. The companies involved are the biggest names in the financial world, the amounts involved are way beyond a common man's imagination. The blood-bath seems to be not over yet. How will the future be for those who survive this?
Have we hit the bottom? Or are we still to see it? Are we getting back to revival?
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