Genre crisis

Author: Alexander MaksymovPhoto: InterMedia consulting

The market again plunged and investors became convinced that the nation is on the verge of a deep and prolonged recession. The decline continued in Asia, where stocks plummeted in early trading today.

The government took steps toward an extraordinary public investment in U.S. banks and General Motors' stock fell to its lowest price since 1950 on fears it will not be able to weather the downturn. Share prices fell across every industry and for each of the 30 stocks in the Dow Jones industrial average, which was down 678.91, or 7.3 percent, at 8,579.19.

Oil prices fell four dollars in Asian trade Friday, after a "bloodbath" on world equity markets, with traders increasingly convinced a global economic slowdown will hurt energy demand, dealers said.

Brent North Sea crude sank below the 80-dollar mark for the first time in about a year.

Dealers said economic fears outweighed news that the Organisation of the Petroleum Exporting Countries (OPEC) will hold an emergency meeting next month to discuss the global crisis and its impact on energy demand.

In afternoon trade New York's main contract, light sweet crude for delivery in November, plunged 4.08 dollars to 82.51 dollars after dropping 2.36 dollars to 86.59 on Thursday at the New York Mercantile Exchange.

The above mentioned numbers say nothing to me, as well as to the majority of citizens - we just understand that things go wrong. Last year Allen Greenspan, former head of the US Federal reserve system and famous American financier George Soros warned that the world economy was close to stopping, but authorities of countries did not pay attention to their words.

Meantime, according to specialists, the financial crisis revealed the most vulnerable points of the economic system. The majority of people, especially in the US, have been living beyond their means, blowing up soap bubbles - mortgage and financial ones. Businessmen have brought the prices to the astronomical sums, which has led to the burst of these bubbles, bringing the ruin for businessmen and improvement for the economy. It is a painful process, but inevitable.

The current crisis is the subprime mortgage crisis is an ongoing economic problem that became more apparent during 2007 and 2008, and is characterized by contracted liquidity in the global credit markets and banking system. The downturn in the U.S. housing market, risky lending and borrowing practices, and excessive individual and corporate debt levels have caused multiple adverse effects on the world economy. The crisis has passed through various stages, exposing pervasive weaknesses in the global financial system and regulatory framework.

The crisis began with the bursting of the United States housing bubble and high default rates on "subprime" and adjustable rate mortgages (ARM), beginning in approximately 2005-2006. For a number of years prior to that, declining lending standards, an increase in loan incentives such as easy initial terms, and a long-term trend of rising housing prices had encouraged borrowers to assume difficult mortgages in the belief they would be able to quickly refinance at more favorable terms. However, once interest rates began to rise and housing prices started to drop moderately in 2006-2007 in many parts of the U.S., refinancing became more difficult. Defaults and foreclosure activity increased dramatically as easy initial terms expired, home prices failed to go up as anticipated, and ARM interest rates reset higher. Foreclosures accelerated in the United States in late 2006 and triggered a global financial crisis through 2007 and 2008. During 2007, nearly 1.3 million U.S. housing properties were subject to foreclosure activity, up 79% from 2006.

Major banks and other financial institutions around the world have reported losses of approximately US$435 billion as of 17 July 2008. In addition, the ability of corporations to obtain funds through the issuance of commercial paper was affected. This aspect of the crisis is consistent with a credit crunch. The liquidity concerns drove central banks around the world to intervene by bailing out defaulting financial corporations in order to encourage lending to worthy borrowers at the expense of tax payers.

The risks to the broader economy created by the financial market crisis and housing market downturn were primary factors in several decisions by the U.S. Federal Reserve to cut interest rates and the economic stimulus package passed by Congress and signed by President George W. Bush on February 13, 2008. During the week of September 14, 2008 the crisis accelerated, developing into a global financial crisis.

It is not the first financial crisis in America...

September 24 1869, also known as the Fisk-Gould Scandal, was a financial panic in the United States caused by two speculators' efforts to corner the gold market on the New York Gold Exchange. It was one of several scandals that rocked the presidency of Ulysses S. Grant. During the American Civil War, the United States government issued a large amount of money that was backed by nothing but credit. After the war ended, people commonly believed that the U.S. Government would buy back the "greenbacks" with gold. In 1869, a group of speculators, headed by James Fisk and Jay Gould, sought to profit off this by cornering the gold market. Gould and Fisk first recruited Grant's brother-in-law, a financier named Abel Corbin. They used Corbin to get close to Grant in social situations, where they would argue against government sale of gold, and Corbin would support their arguments. Corbin convinced Grant to appoint General Daniel Butterfield as assistant Treasurer of the United States. Butterfield agreed to tip the men off when the government intended to sell gold.

In the late summer of 1869, Gould began buying large amounts of gold. This caused prices to rise and stocks to plummet. After Grant realized what had happened, the federal government sold $4 million in gold. On September 20, 1869, Gould and Fisk started hoarding gold, driving the price higher. On September 24 the premium on a gold Double Eagle (representing one troy ounce of gold bullion at $20) was 30 percent higher than when Grant took office. But when the government gold hit the market, the premium plummeted within minutes. Investors scrambled to sell their holdings, and many of them, including Corbin, were ruined. Fisk and Gould escaped significant financial harm.

Subsequent Congressional investigation into the scandal was limited because Virginia Corbin and First Lady Julia Grant were not permitted to testify. However, Butterfield resigned from the U.S. Treasury.

October 29, 1929. The Great Depression was a worldwide economic downturn starting in most places in 1929 and ending at different times in the 1930s or early 1940s for different countries. It was the largest and most important economic depression in modern history, and is used in the 21st century as a benchmark on how far the world's economy can fall. The Great Depression originated in the United States; historians most often use as a starting date the stock market crash on October 29, 1929, known as Black Tuesday.

After the crash, the Dow Jones Industrial Average (DJIA) recovered early in 1930, only to reverse again, reaching a low point of the great bear market in 1932. The Dow did not return to pre-1929 levels until late 1954, and was lower at its July 8, 1932 level than it had been since the 1800s.

1955. Press office of the White House reported that then president Dwight Eisenhower had a heart attack. This report caused panic and mass sale of stock, which led to $44 million of losses for one day.

1987. Black Monday refers to Monday, October 19, 1987, when stock markets around the world crashed, shedding a huge value in a very short period. The crash began in Hong Kong, spread west through international time zones to Europe, hitting the United States after other markets had already declined by a significant margin. The Dow Jones Industrial Average (DJIA) dropped by 508 points to 1739 (22.6%). By the end of October, stock markets in Hong Kong had fallen 45.8%, Australia 41.8%, Spain 31%, the United Kingdom 26.4%, the United States 22.68%, and Canada 22.5%. New Zealand's market was hit especially hard, falling about 60% from its 1987 peak, and taking several years to recover.

The Black Monday decline was the largest one-day percentage decline in stock market history.

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Every citizen of Ukraine is now interested in how this crisis will effect our country, as we face suspension of metallurgical enterprises, bank problems and jumps of the dollar rate. The point is that the world economy will recover one day, the Ukrainian one - hardly. The reason is very simple - our economy is the result of our politics. And I cannot even image what will happen in connection with the early elections.

Some words about the dollar. Rumours say that NBU policy to support the rate of hryvnia at UAH 5/ USD 1 is connected not with the attempts to support the national currency. They say that these bucks are intended for certain buyers, who will make millions allegedly for the election campaign of one famous politician, who loves genocide and Trypillya.

Even if these rumours are not true, the whole picture will not change, as our politicians solve their personal and party problems at the expense of civilians. And there is no end to it.