Why did the financial crisis occur?

There is a very simple answer to this question; it was the greed of humans that caused the crisis.

Five years on, the comparison between the GFC, as we now call this period of time, with the infamous Crash of 1929 is inevitable. The main reason for the previous is the similarity of circumstances that preceded the events. For example, in both cases growth, especially in the US, had occurred for a series of years before the crisis. Growth in economic terms is a positive word, although in this case it needs to be seen from a different perspective, the perspective of how this growth was created and what effect did it have on the increasingly complicated, fragile and globalised  financial system.

For those who may not know, the financial system comprises of the banks, financial institutions and other organisations that involve themselves in the exchange of money usually in the hope of acquiring a larger amount. For example, banks lend people money so to not only aid them in their investment, but also so they can receive the interest on the money they have lent as well as the amount itself. So in simple terms, people and organisations lend other people money so they can become richer. Thus, the issue of greed is engraved in the system itself.

An unusual amount of greed, foolishness and complication was occurring just before the financial system collapsed in both of the previously mentioned cases. Economic growth built on expectation and not results and technological development can be identified as the main causes of the previous. During the 80's and 90's, the rate at which computers could do calculations and model them increased exponentially, so economists invented thousands of ways of exchanging money or at least something that can represent it in some way and may increase the amount you invested. Also, during the 90's, there was the so called 'dotcom boom' where anybody could issue a site on the stock exchange and for no reason any company was highly valued although it was unable to make profit.

The previous caused growth in the US, so banks were willing to lend money to anybody although in many cases they could never be able to get it back. Then, the banks would issue securities  to a larger bank where the larger bank simply was buying that loan so to receive the interest from the loan. These securities were eventually exchanged so many times and had become so complicated (due to technological development)  , it was impossible to track them. If the initial loan was not paid back, the banks themselves would not have the issue since they have sold the loan, although they were the only ones that could handle it.

The growth didn't only encourage bank loans, but it also raised house prices, so anybody that wanted to buy a house would have to borrow a large sum of money from the bank. Many people that chose to do that were financially incapable of ever paying back the loan in full. As a result, at some point they were forced to default on their loans, where in this case the bank would take their house and sell it in an auction. This caused a rapid decrease in the price of houses, so if anybody did not want default on their loan and wanted to sell their house instead, so to pay back their loan, could only sell his house for a lower price than what he borrowed his money for, so forcing him once again to default on his loan. The issue escalated quickly, although because of the system's complication, it could not be handled in the right way so it caused a 'domino effect' that eventually led to the collapse of one of the larger banks, Lehmann Brothers. When Lehmann Brothers defaulted (because they had bought so many of these securities), many other banks and institutions were forced to default as well, as the bank had borrowed money from many other banks without even knowing, as the system had become more complicated and as the bankers' greed never stopped. The domino continued until the US government decided to cover the losses of the many institutions that may soon or already were default.

The after-effect of this tragedy was even more disastrous. Europeans banks had involved themselves in many of the securities exchanges so they were inadvertently  exposed to the crisis on the other side of the Atlantic. Globalisation of the financial markets eventually led to the crisis we are currently in, the European Sovereign Debt Crisis, where our countries are in a loophole of budget deficits and negative growth while at the same time they owe money to each other because their banks collapsed (due to the GFC) and for many other reasons.

As you may have observed, the reason for all this happening right now, and in the first place, is that people want more money and they are encouraged to continue by earning this money or at least by the imagination that they have it (because this is what a security really is). Humans will always be greedy since it is part of our condition, but we can at least hope we have learnt from our mistakes (although the GFC has shown we can't even do that).

-Aris Grivokostopoulos

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Cardinals to vote again for next Pope

 

 

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It has been a month since 85-year-old Pope Benedict XVI stepped down from the Vatican. What remains inconclusive is who is to succeed him. Wednesday morning of March 13^th introduced itself to voting Catholic cardinals. Unfortunately, two uncertain rounds have meant no positive signs so far.

 The 115 electors, or cardinals, will meet four times a day until a candidate is elected. The church has enforced a stringent policy to isolate the electors until two-thirds of the majority agrees on a leader for the worlds 1.2 billion Catholics.

As is tradition in the Vatican, the Latin words “"Habemus Papam" will be announced and white smoke will flare out from the chimney of the roof upon the proclamation of a new pope. Black smoke indicates a pope has yet to be chosen.

The voting takes place under silent conditions. If three days pass without any signs, then voting may be paused for prayer and mass. Often, the voting rounds will resume after one day.

What has been reported so far is mounting suspense from the crowds that occupy St. Peter’s Square to watch out for any faint signs of white smoke.

Vatican spokesman Federico Lombardi remarked on the delay as being ‘perfectly normal’. It should be remembered that only one pope, Pope Pius XII, has been elected after just three rounds in the past six centuries.

"One should not interpret this as being division or divisiveness amongst the cardinals, take into consideration the size of the group and the normal process”, the Vatican spokesman said.

Some motives behind the Pope’s abdication include the viral sex abuse scandal which has been linked to a corrupt Vatican Bank.

Fr Lombardi has also defended his fellow cardinals from being excluded from the vote, who have recently emerged as allegedly playing cover-up roles in the sex abuse case by priests.

To add to the mounting suspense experienced by the outside world, there could soon be proof of indecision within the church. The outside world will be forced to remain on their  toes until the votes reveal a new pope.

Coincidentally, there have been three likely candidates to take over from Benedict XVI so far. These include: Angelo Scola of Italy, Brazilian Odilo Scherer and Marc Ouellet of Canada.

What still remains the focus for many interpreting the outcome of these voting rounds is the pope’s abdication. Perhaps this may be followed by an equally curious outcome, with an outsider emerging as a compromise candidate. 

 

 

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Demonstrations in Turkey

 

The Turkish capital Ankara has served as a hub for demonstrators, who have forced a significant police presence to action. Tear gas and water cannons were used as a series of hostile measures were taken against anti-government protesters.

It was reported that around 5,000 people assembled in Kizilay Square to clash with police forces in Istanbul. These larger scale protests stem from one that was fiercely suppressed by police in a local Istanbul park. Although there has been talk of early elections, Prime Minister Recep Tayyip Erdogan has ruled out this possibility.

Football hooligans who support rival clubs Fenerbahce, Galatasaray and Bekistas even united as one body in order to collectively march on Taksim Square.

Local and presidential elections would take place next year as scheduled, said an official from Mr Erdogan's governing AKP (Justice and Development Party). A general election is due in 2015. This party has been in power since 2002, and have started a row of social reforms by introducing more authoritarian and Islamist values.

The president has called these protests undemocratic, but has met with leading protestors to discuss a solution to the sporadic outbreak of violence. Now police and riot vehicles have withdrawn from Taksim Square to ease the tension.

These are crucial times for Turkey, a nation that depends on the willingness and support of its masses, who have since 31^st May cried out against a government that is becoming increasingly stringent on social affairs.

 

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Obama’s Second Inaugural Day by Morgan Mitchell

 

Although the inspired occasion has come and gone, many Americans still commemorate Obama’s inauguration day as he confidently took to the stage and pledged an oath for his second term. Obama’s significance as president is considered to be of the up most importance to the African-American community that is so vibrant to the United States.

Obama called for a more inclusive America highlighted some key concerns that he plans to address in his second term as President. These included immigration reform, gay rights, and a fight against climate change.  Although last month’s ceremony was filled with traditional pomp, many related it back to his 2009 presidential campaign when he took to office on a mantle of hope and change as America’s first black president.

This event certainly left many in awe, and although some may criticize the lack of promised widespread reforms in recent years for the States, many still took to the streets to pay homage to Obama’s second inauguration.

In more detail, Obama’s campaign has been hindered by lingering economic weakness and a politically divided Washington, but Obama stood strong in guaranteeing a core of liberal democratic causes.

He explained to his fellow Americans that, “we must seize this moment together.”  It has been a tiring term in office for Obama, and his hair has visibly gone grey, but he still voices his aspirations for a better America. 

“We cannot mistake absolutism for principle, or substitute spectacle for politics, or treat name-calling as reasoned debate,” Obama said from atop the Capitol steps overlooking the National Mall.   

Observing the momentous crowd with their flags pitched in their hands, Obama was seen admiring an audience of hundreds of thousands of people that was smaller than the record 1.8 million who turned up for his first inaugural address four years back. 

Obama was aware that this would be his last term in office and when he spoke in more specific terms, it was understood that his promise of “hard choices” to engage in the revamping of a government was taken with more confidence on the democratic front.

What will be recorded in history as an inspiring day is when a crowd assembled at the footsteps of the Capitol on January 20^th, reassuring Obama when he raised his right hand and was sworn in by Chief Justice John Roberts.

During a conquering parade down Pennsylvania Avenue to the White House, Obama and his first lady Michelle Obama thanked cheering spectators with a wave of the hand before stepping into an armoured limousine to begin their blossoming representation of their nation for another four years.