Loan Deposits

The September and October 2008 fallout had greatly affected the economic community worldwide. Looking back, we can see the possible events which have led to the crisis.

It all began in the US economy. During the start of that decade, the Gross Domestic Product (GDP) of the United States was firm and stable, and so was the growth of the country’s economy. However, according to an article in the newsletter “The Economic Blue Screen of Death”, if the accrual of debts on advances and mortgages were deducted, there would have been only an average increase of the GDP. It would seem that the GDP of the country was affected by real estate prices. In addition, there also existed an accrual of consumer credit debts. The positive GDP growth of that time was driven by debts. With the high buildup of those debts, the country’s GDP would have diminished.

Commodity businesses, private equity companies, and bigtime investment banks have taken higher risks. They have funded their development with loans and they have added to their balance sheets’ leverages. Some individuals in the financial community who can afford it have even mounted up loans are 50 – 80 times bigger than their own equities. By doing so, they could make an impact on their investors and shareholders by the excellent returns. This pyramid of debts crashed as the assets lost their value as well as the investments. Even outstanding banks have worked like a hedge fund. In Iceland, even one whole state worked like one. These events were outrageous and insane.

Lesson: It could go unnoticed but there ARE warning signs of a crisis.

Some of those signs might include that fact that an accumulation of debts drove the real estate prices, rather than productivity growth, firms inflate their leverages, and uneven the large amount of loans.

It is therefore critical that you always consider long term data analyses. It shows that further trends could be discovered from long term data only if we would study them.