Banking in Financial Services
Global Financial Crisis
Lavina B Israni,
Roll No. 15,
Jai Hind College
The U.S. Economic Crisis 1
The Greek Economic Crisis 5
The PIGS Economic Crisis 7
The Structure of the Indian Banking Industry 9
The turmoil in the international financial markets of advanced economies, that started around mid-2007, has exacerbated substantially since August 2008. The financial market crisis has led to the collapse of major financial institutions and is now beginning to impact the real economy in the advanced economies. As this crisis is unfolding, credit markets appear to be drying up in the developed world India, like most other emerging market economies, has so far, not been seriously affected by the recent financial turmoil in developed economies. The global financial crisis, brewing for a while, really started to show its effects in the middle of 2007 and into 2008. Around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. On the one hand many people are concerned that those responsible for the financial problems are the ones being bailed out, while on the other hand, a global financial meltdown will affect the livelihoods of almost everyone in an increasingly inter-connected world.
The U.S. Economic Crisis
The U.S. economy is currently experiencing its worst crisis since the Great Depression. The crisis started in the home mortgage market, especially the market for so-called “subprime” mortgages, and is now spreading beyond subprime to prime mortgages, commercial real estate, corporate junk bonds, and other forms of debt. Total losses of U.S. banks could reach as high as one-third of the total bank capital. The crisis has led to a sharp reduction in bank lending, which in turn is causing a severe recession in the U.S. economy. 1. The decline of the rate of profit:
The most important cause of the subpar performance of the U.S. economy in recent decades is a very significant decline in the rate of profit for the economy as a whole. According to Marxist theory, this very significant decline in the rate of profit was the main cause of the “twin evils” of higher unemployment and higher inflation, and hence also of lower real wages, experienced in recent decades.
2. Strategies to restore the rate of profit :
More recently, more and more companies in the U.S. are actually reducing money wages for the first time since the Great Depression. The strategies used by capitalist enterprises to increase their rates of profit in recent decades have in general caused great suffering for many workers—higher unemployment and higher inflation, lower living standards, and increased insecurity and stress and exhaustion on the job. 3. Search for new borrowers—low-income workers:
Instead, owners and executives have chosen to spend their higher profits in other ways besides investing in expanding their businesses:
They have paid out higher dividends to stockowners (i.e., to themselves);
They have “bought back” shares of their own companies, which has increased the prices of their stock and their executive compensation; and
They have loaned the money out (e.g., for mortgages), thereby contributing to the financial speculative bubble in recent years. To begin with, borrowers were given low mortgage rates that they could probably afford for the first two to three years (these initial low rates were called “teaser rates”). And the strategy was that by the time the teaser rates expired and the rates were to be adjusted upward, the value of their homes would have increased enough so that a new...
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