The cause of the global financial market crisis was a major US housing boom which came to an eventual end with financial institutions incurring significant losses on mortgages and mortgage related assets. The global credit boom was characterised by a broad underpricing of risk, excessive leverage of financial institutions and increasing reliance on complex and opaque financial instruments which proved to be fragile under stress. Essentially, there was a failure to regulate and supervise the quality of new mortgages being issued in the USA. Various originators and distributors of mortgage debt used creative approaches to fool large institutional investors by obscuring the significant risks involved while over-emphasising the high returns. The lending proved to be loss making or entailing high risk of loss. A significant part of US mortgages issued in recent years was “toxic” and was sold around the world with ramifications for banking behaviour everywhere. Hardly any bank is willing to lend to another bank anymore, especially when it involves the exchange of securities, which has been a pillar of inter-bank lending. An important questions that begs an answer is what explains such wholesale manipulation in financial activities?
On the nature of financial busts
More importantly, the unwinding of the boom and associated losses have led to a deleveraging of risk and an associated credit squeeze for households and businesses. The contraction in the volume of credit is the principal cause of the global economic slowdown. The reason for the shift in the volume of credit, from growth to contraction, is linked to credit booms being unsustainable. In the credit boom, asset values rise, increaing the equity of firms and households. In turn, with expanding wealth firms and households increase their borrowing and leverage increases in the financial system. At a given point, the volume of debt turns out to be excessive and unsustainable due to overinvestment and declining profits. At this point, asset prices, notably housing prices, begin to retreat. This puts financial insitutions under great strain and a process of deleveraging takes place as they become risk averse and credit growth turns negative. At the present juncture, the magnitude of the problems has resulted in bankruptcies of major banks around the world and credit supply drying up. In mid September, when the US investment bank Lehman Brothers collapsed, the inter-bank market seized up. Governments have subsequently stepped in and recapitalised banks with public funds, effectively nationalising them.
The financial crisis and global economic slowdown has led to increased reaction of policy authorities to supplement the evaporation of private credit lines with public funds. There has also been global policy coordination to meet the liquidity needs of increasingly globalised financial markets. The question now is if the actions will be sufficient to deal with the crisis. At a G-20 meeting in the USA this weekend, the leaders of major powers disucss the problems at a more fundamental level . For US President Bush, the crisis is one of limited failures of an otherwise good system. He states that there is nothing fundamentally wrong with the free-market system and that what is needed are changes to the regulatory and oversight systems. Other leaders, like Nicholas Sarkozy of France and Paul Rudd of Australia, think more fundamental changes to markets are warranted including increased government intervention in the market place. This debate will likely intensify at the grass-roots level in coming months and year as the slump deepens and becomes more difficult for ordinary citizens.
The use of astrology in making predictions
Astrology can help when based on authentic birth charts of countries, effective methods of interpretation and prediction and the proper assessment of the astrologer. Accurate predictions on the basis of the authentic charts of the USA and UK in this regard have been documented. That said, the extent of the dramatic events of the financial crisis has come as a surprise to most observers. The change in conditions has been so significant as to draw comparisons with major such crises of the past.