The domino effect of poor credit ratings
Ever since the housing bubble burst in the US in 2007 the world is struggling to make this financial storm of the century go away. No one is still exactly sure how we managed to find ourselves in this predicament but one thing is for certain, the crisis is here to stay for at least a few more years.
History is bound to repeat itself if we don’t make an effort to learn from our past mistakes. And from what I can see we aren’t making a good enough effort. Why is that you ask? Let me draw a few analogies for you and try and connect the dots in this big picture called global economy.
The Beginning of the Problems
As was said earlier it all started with the housing bubble in the US. For those of you that don’t remember, if there are such among you, it was a problem where the banks were giving credit to people with poor credit ratings that were ultimately unable to pay off their debts.
Everyone and anyone could buy a home back then, regardless of the risk factor they posed to the bank and the investors. When people who had large mortgages could no longer pay their debts banks were forced to foreclose on them. Thus the first domino fell and pulled everyone else down with it.
To get out of their loss banks tried to up the interest which made it impossible for countless more to keep up with their financial obligations. More foreclosing only got banks stuck with property they did not want and could not sell due to the crash of the real-estate market brought on by an overabundance of cheap houses for sale.
When banks start to get poor credit ratings from other banks and financial institutions you know things are taking a turn for the worse. Then the first banks started to go under and the rest is history. The government of the US had to intervene and bailout some of the largest companies in order to prevent a crisis of yet unseen magnitude to push the states back in the days of the big depression.
Here we are today, 5 years after the initial crisis in the US began, and we still face same foes with same blunt and inefficient weapons, although with a bit reversed roles. I am talking about the situation in Europe of course. Greece was the bad apple in the basket this time, though not the only one as it would later appear. There however the government was to blame more than the banks.
By spending a lot more than it could afford, and not collecting all due taxes from its citizens, the country was getting deeper in debt than ever. The same trend continued in a futile attempt to save itself from the poor credit ratings that were upon her if word of its debt got out.
Eventually when the banks asked for their money back and the country was unable to repay them the domino effect was in play again. The country fell and was in dire need of help from its EU allies which were slow and reluctant to react. That was enough to render the other countries which were in over their heads to be unable to pay their own debt. All of that resulted in poor credit ratings for Italy, Portugal, Ireland and Greece which made things even worse.
History seeming to repeat itself
History is repeating itself and we are doing nothing to stop it. Instead of accepting the loss that is bound to occur and help the said countries to get out of their bad predicaments the leaders of the EU and the financial world would rather wait for the worst to come in order to make a strong and unified stand against another global crisis which is looming over our heads.
One would think that the domino effect of poor credit ratings is pretty apparent by now but it seems it is not obvious enough to the people that can make a difference.