Financially speaking, the world was an unusually tranquil place till 2007. Money was easily available & at low rates; prices did not rise too fast; markets seemed attractively valued at all levels; most industrial endeavors seemed profitable; smart MBA’s kept designing financial models of ever increasing complexity; china exported deflation & inflation (besides goods) alternatively; acronyms were coined at great speed to describe new trends in global economy & in general a significant number of people were becoming prosperous. Experts were busy predicting & justifying higher and higher levels of asset values. Investors were keen to explore new ideas with great enthusiasm. Risks were low, returns highland what termed ‘the great moderation’ seemed to have finally materialized.It was into this pleasant scenario 2007 that the global financial and economic crisis struck. A crisis which has already changed our world fundamentally and will continue to affect it well into the future.
The real causes of the crisis are indeed significantly more involved. Unfortunately, lack of awareness about these causes has led to a majority of lay persons viewing the crisis as the fallout of greedy actions by a few companies and individuals on Wall Street. While these companies and individuals are indeed to the crisis, the global economic imbalances and loose monetary politics of central banks have played a more central role. It is understandable that blaming individuals or companies is often more satisfying in the quest for culprits rather than ascribing the causes to abstract phenomena like economic imbalances and lax monetary policies. However, in doing so, we run the risk of ignoring valuable lessons from this crisis which could help avoiding another in future.
