The other day my gas run out and as usual i had to go get another one. I carried 3000/= just in case the prices had gone up but to my surprise gas was retailing at 4000/= shillings and i started wondering how we got here in the first place as a country and in fact the whole world.
The first time i had of an economic crisis was back in 2008 in a country called Iceland. I knew very little about Iceland except what i was hearing on CNN. On researching further i found out that the government of Iceland had privatized all national banks. In a five year period the banks borrowed heavily to the tune of 120 billion dollars which is ten times the size of the economy. The credit rating agencies said that this banks were OK and gave them AAA ratings. In 2008 the banks collapsed and so did the economy. They were riots all over the country that brought the country to its knees but this was just a dress rehearsal of things to come.
In September 15 2008 the same year Lehman brothers and A.I.G collapsed and the result was a global recession.
The funny thing is that this crisis was not the first time this had happened. After the great depression , America had 40 years of economic growth without a crisis because the industry was heavily regulated. After this America started a vigorous deregulation of the industry that made investment banks and banks extremely rich. By the late 1990's the financial industry had consolidated into a few financial firms to the point that if one collapsed it could threaten the global economy.
The next crisis came in the late 90's. The investment banks fueled a massive bubble in the internet stocks which crashed in 2001 popularly known as the dot com bubble. They promoted internet companies they knew would fail. Beginning in the 1990's there was an explosion of extremely complex financial products called derivatives which made made the money markets unstable. After all was said and done the financial institutions came up with what was called a securitization food chain. You see in the old system the home buyer would pay the lender the mortgage and since mortgages took ages to pay lenders were careful.
Now in the new system lenders sold the loans to investment banks. The investment banks would combine the loans and call them collateralized debt obligations or CDOs which is a derivative. They then sold this CDOs to investors. The mortgage con was on. This were what were known as sub prime mortgages. This led to a massive increase in predatory lending. Borrowers were given loans they could not repay. This resulted in the real estate bubble, one of the biggest in history. A.I.G compounded the problem by selling a derivative called Credit Default Swaps. This means that investors insured against the CDOs they had invested in case they collapsed. The really crazy thing is that speculators could insure against this CDOs even if they didn't own them. This does not make insurance sense at all. Rating agencies saw nothing wrong with this practices and gave them AAA ratings.
In September when Lehman brothers and A.I.G collapsed they took the whole global financial system down with them. The Global economic crisis had just started. A crisis that started in America had finally caught up with everyone literally. Foreclosures in the US reached 6 million by early 2010. 50 million people globally have slided back into poverty and this was in 2010.
This financial crisis had an unforeseen domino effect that has finally caught up with me and in large part the country and hence the various strike threats from different quarters because they are all feeling the heat of the inflation and cannot see a way out.
But as always this is just my opinion. Na jee wewe.
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