21 January 2008

Can we trust the Banks?

Today has seen a massive collapse of share prices on all European stock markets, after a similar plunge was recorded over night on the stock markets of Japan, Hong Kong and India. Tokyo's Nikkei index closed down 3.86%, reaching its lowest level for more than two years, while Hong Kong's Hang Sang fell by 5.5%. Many investors around the world sold shares in panic, because of serious concerns that the US economy is about to fall into recession. This led to spectacular losses of up to 7% in some markets.

In London the FTSE 100 index tumbled by 324 points (or 5.5%) to 5578, taking £ 84 billion off the value of its listed shares. In Paris the CAC lost 6.8% and closed at 4744, and in Frankfurt the DAX plunged a massive 7% to a final position of 6790. Most stock exchanges, including London, Paris and Frankfurt, recorded their biggest single-day losses since the attacks of September 11th, 2001. In Dublin € 3 billion were wiped off the value of Irish shares as the ISEQ index closed down 273 points (or 4%) at 6261, its lowest level in two and a half years.
Wall Street is closed for the annual Martin Luther King holiday, but analysts expect that tomorrow the US markets will suffer losses as well, especially since the ailing US economy is the main reason for today's sharp reactions.

The world-wide stock market panic is a direct reaction to George W. Bush's announcement of plans to revive the faltering US economy through large injections of extra money. There are new worries that many US consumers, facing difficulties paying their mortgages, are also beginning to default on credit cards. That increases already existing fears about the effect this will have on banks' willingness to lend.

So once again the world's economic stability and our all livelihood depends on the banks. These are the very same banks that have been gambling with our money for decades, creating large profits for themselves, while inventing ever more and higher fees for providing normal financial services to the majority of businesses and individual customers. In their never-ending greed the major financial institutions - including Citi Bank, the world's largest bank - went even further and created financial products that make no sense at all and were bound to fail.
They deliberately sold - through a network of shady agencies - mortgages to people whose income was never large enough to pay them back. The so-called "sub-prime" mortgages were then bundled by the banks and sold on to other banks and investors around the world as a separate financial product.

These dubious financial machinations created a house of cards that has meanwhile collapsed with a massive crash. The world's financial markets are subsequently in turmoil and the signals of recession are visible everywhere. All this has an even worse effect on the US economy, which has been already weakened by George W. Bush's concentration on war rather than economic and social stability. Hundreds of billions of Dollars are pumped into the Military-Industrial Complex, while many ordinary Americans are struggling to survive, often on the breadline or even below it.

For decades the USA have lived on borrowed time and even more borrowed money. Few people are aware of the fact that more than 80% of loans taken out in the USA are financed with money from abroad, often by banks and institutions in countries much poorer than the United States.

Now the financial chicken are coming home to roost, but one should not expect that the banks will bear the brunt of the crisis. They have already written off tens of billions of Dollars, even before today's massive drop of share prices, and some of the top bankers resigned in disgrace. However, there is no need to feel sorry for them, since they are not feeling sorry for us either. And they retired with large pay-offs and even larger pensions, all paid for in the end by people like you and me. And make no mistake: the banks will find ways and means to slip out of the disaster and make us - the ordinary people - pay for all their greedy follies.

This makes me wonder if we can actually trust the banks. We all need them, of course, since in the modern world of the "global village" financial transactions without banks are difficult and in many cases impossible. Thus the banks have established a hold over us, and ever more it leads to shameless exploitation of normal and poor people, for the benefit of the rich and wealthy as well as the banks themselves. While banks are not shy to take great risks with our money, gambling it away daily on the world's stock and commodity markets, they still treat ordinary people with harshness and arrogance. This will continue to be the case, as long as the customers do not stand up against the banks, apply the same standards to them that they apply to us, and make them stop losing our money in senseless US loans and reckless gambling around the globe.

Personally I have reduced my dealings with banks to the absolute unavoidable minimum. I also shop around for the best conditions and most decent service, and all for the better of everyone. Though I will not tell you what to do and how to behave, you are welcome to follow my humble example.

The Emerald Islander

4 comments:

The Wild Goose said...

I can still remember when I was a young teenager and learned about The World Economic Crisis of 1929 at school. I was deeply impressed to know how many people had lost all they had, not only what they had bought on credit but also their money at the bank. I then was convinced they had been officially robbed and took the decision never to put money in a bank (just in case the same could happen again). Life itself has not allowed me to have big amounts of money and being so I need not to worry about losing it; but I have never trusted and never will trust those who just think of their own benefit.

Your blog looks really great. You are (on top of being an excellent writer and a man of great wit) a very skilled designer.

THE EMERALD ISLANDER said...

Thank you for your comment. Yes, the infamous "Wall Street Crash" of 1929 is still in everyone's mind. But the people in charge of our money haven't learned anything from history. If we see another big financial meltdown, it will be much worse than the one in 1929.

Alexander "Sunny" Bergen said...

I never trusted the banks, and never will. When I was a student and asked for a modest loan, they told me to get lost. Now that I haw a relatively good and secure income, they offer me constantly all sort of loans and other services I neither need nor want.

On a global scale the financial firms (and particularly the merchant and investment bankers) are professional gamblers on a vast scale. Most people never realise that and think banks are there to look after our money. Oh no! They look first and foremost for quick and large profits for themselves and only use our money to do it.

THE EMERALD ISLANDER said...

I have similar experience with banks and share your view on their greedy international operations.
But the worst gambling dens one can find in the world are the stock and commodity exchanges.

It is a scandal that interest rates have more influence on our lives than the law or principles of philosophy and politics.

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