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In This Issue...
Financial Crisis Averted?
The global economy has been mired in recession since last year which became more pronounced when the Lehman bankruptcy unfolded and AIG failed. People are now questioning the practicality and viability of bailed-out companies. Pessimism abounds as consumer confidence continues to decline in the face of further layoffs and an uncertain economy. Banks have restricted lending in response to escalating losses from their loan books, and businesses are busy cutting capital investments in order to avoid inventory build-up. The only saving grace in this situation is the Fed creating more avenues to provide the much needed liquidity relief in a stalled economy.
Are we out of the woods yet? Frozen credit markets continue to thaw as the treasury/fed initiatives worth almost $13.5 trillion have been injected into the system. However, financial markets’ recovery has been contentious since investors have been unable to take on more risks as some credit instruments are still difficult to trade. The current financial problem could be described as a global crisis that left many market participants unprepared to deal with systemic dislocation unrivalled by any single event in the past. Treasury fiscal initiatives and the Federal Reserve’s quantitative easing have gradually improved credit markets but until confidence returns it is futile to argue about its merits. These government programs are the only backstops the financial market has in the current environment. These financial innovations have added liquidity toward improvement of capital markets’ efficiency and have alleviated financial firms’ need to lessen their balance sheet risks. Read More