Is Another Market Crash Around the Corner?

Sivaramakrishnan AStarred Page By Sivaramakrishnan A, 8th Jun 2013 | Follow this author | RSS Feed
Posted in Wikinut>Money>Economics

Periodical market collapses can be curbed if we stick to the fundamentals of banking. Rampant speculation now encouraged leads to unbridled greed and the final tab lands on the hapless citizen.

No Respite

When we are still trying to recover from the travails of previous market crashes some are convinced another is on the anvil to bring down the market by 60%. They have persuasive arguments and technical analysis to back their assertions and as is their wont claim to have predicted the previous ones. As usual the ordinary citizen stands stupefied. Even when the market is on the ascendancy general economic situation remains dire with record unemployment. An increasing percentage of young are unemployed after spending a fortune in education acquiring various skills. The change in governments hardly brings any cheer. When people are waiting for good times patiently these predictions are the harbingers of doom to sap any hopes of revival and general employment levels.

The backing for market collapse predictions includes a complex set of conditions including “a dreaded triple top” pattern. Some experts view the markets moves unnatural and distorted leading them buying into crash protection fund. The bet for a crash is also based on a sudden “black swan” event coming out of the blue or by excessive speculation through margin trading. A black swan event is a term coined by economist and trader Nassim Taleb for an unforeseen event that has extreme impact like 9/11 or Japan’s 2011 nuclear disaster.

Impoverishing the Poor

The big players have the ability to bring the house down and even take advantage through various option trades. In fact, they can profit from the misery of the vast majority who may not own stocks but their savings are entangled in them through pension schemes. In effect, the majority are helpless and will be drawn into the deep end of the pool by the swirling currents. They end up as the hapless victims.

It is clear that we are unable to control the inherent faults in the system that throws the whole foundation haywire from time to time. The end result is the rich becomes richer when the markets recover. This means they result in flow of wealth to the already wealthy thus impoverishing the poor further. Always the stakes are against the latter as they are last in the queue in getting out with their meager savings not giving them any clout. Their voices get drowned time and time again.

The only sane way is for governments to step in to control rampant speculation to safeguard the interests of the majority. We should not allow a system that proves inadequate against the excesses of few. When they make gains it is all theirs but when losses are made they run for cover only to resurface again later after the storms have crossed! I have read of cases when the big financial institutions make settlements under confidentiality clauses and the public are denied access to the details. But those who owe small amounts are easy prey, hounded to pay the last cent! I get a feeling even insurance policies are skewed in favor of the bigger ones to entice wealthy customers.

Do what is Right

Can we prevent the excesses in the system to avoid regular market crashes? There are ways to fine tune the system without attacking the fundamentals of free markets and capitalism. My take is:

Limit speculation: There is still rampant speculation even encouraged by big financial institutions but with caveat emptor clause. However beyond their tolerance of losses even rich customers throw in the towel and the institutions are forced to compromise and pick up the tab. The only way to reduce this impact is to limit margin trading for speculative purposes. Now the institutions are addicted to easy money from these activities with governments having to step in as the ultimate savior to bail them out. It is only fair that these practices are curbed so as not to impoverish the government and thereby having the poor foot the bill for no fault of theirs.

Encourage productivity: Financial institutions should encourage productive activity as their priority business. Now they go after the bottom line by encouraging speculation reeling out “exotic” speculative products even made to order! They should stick to strong fundamentals.

Reward based on long term: Now many traders are paid sums based on short term results. When their misdeeds come to roost, when they smell a rat, they would have left for safer shores. Again the losses of their misadventures land on the majority citizens who are never into speculation.

Improve Transparency: Transparency should improve so that the rich are not favored – at least others should know the details. Now ironically the poor subsidizes the rich especially in foreign exchange transactions as bigger transactions get better rates. Why should they walk away paying nothing while the poor are told – take it or leave it? No personal hearing – right across the counter!

Make Universal System: Though there are moves to bring uniform customs and practices in banking transactions the smaller countries have no clout to get to the bottom of illegal fund transfers. The powerful countries have the muscle to get their way and financial institutions have to please them but they ignore the requests of others under one pretext or another. This selective enforcement of rules should be discarded. In fact, why should there be secrecy at all as they benefit the few super rich, encourage illegal transactions and dodge paying legitimate taxes due. Even big banks are hand in glove to deceive the governments and ultimately the poor.

Stick to Basics

It is time we moved away from trying to make wealth out of thin air unless we mean well by investing in clean energy like solar and wind! Now there are still rampant speculative activities betting on anything under the sun. Our big financial institutions should not compete with casinos at public expense! When the level of speculative activities is curbed these market crashes can also be controlled. It is time we got our priorities right to prevent repetition of past follies. Let us bid goodbye to easy money. Easy come, easy go proves right all the time. What we have not worked hard to achieve will not reward us and proves elusive, less enduring.

Image Credits: All Images are from Public Domain - Wikimedia Commons

Links to my recent posts:


Expectations, Entitlement and Reality

That Moment We Close Our Eyes Forever

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Who Am I?

The Priceless Peace of Mind


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Comments

author avatar Steve Kinsman
8th Jun 2013 (#)

The bankers in America are now doing the same things they did that brought on the meltdown in '08. Their greed knows no bounds. Great article Siva. Thank you.

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author avatar Sivaramakrishnan A
9th Jun 2013 (#)

Thank you for your encouragement by awarding a star, Steve. I am reminded of Einstein's words - insanity is doing the same thing over and over again and expecting different results - siva

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author avatar cnwriter..carolina
8th Jun 2013 (#)

thank you so much siva for so plainly discoursing on the greedy and what that does to the needy...blessings...

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author avatar Sivaramakrishnan A
9th Jun 2013 (#)

Beautifully put, Carolina, thank you. Plain bad karma. Namaste - siva

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author avatar Delicia Powers
8th Jun 2013 (#)

A complicated market; bad news indeed Siva...thank you.

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author avatar Sivaramakrishnan A
9th Jun 2013 (#)

Thanks Delicia. Governments can do more to protect the common folks - siva

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author avatar wonder
8th Jun 2013 (#)

Yes, the bosses are insulated and go to safer shores., They have caused so must distress in lives of the poor.

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author avatar Sivaramakrishnan A
9th Jun 2013 (#)

For the rich it is only some psychological anguish losing a portion of wealth. But for the poor it is basic survival itself. The governments have to step in than look the other way - siva

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author avatar writershirley lopez
8th Jun 2013 (#)

This is a very good article with lots of good points if only those involved in the market would read it perhaps things could get turned around. Hopefully they will thanks for the article

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author avatar Sivaramakrishnan A
9th Jun 2013 (#)

Thank you Shirley. Greed is highly contagious and there is no limit. We need to divert our efforts and rewards to those that benefit the poor - siva

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author avatar Trillionaire
8th Jun 2013 (#)

Great article. Thanks

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author avatar Sivaramakrishnan A
9th Jun 2013 (#)

Thank you Trillionaire for your support - siva

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author avatar Stella Mitchell
8th Jun 2013 (#)

A great and an interesting post dear Siva on a subject that I believe will not go away until every penny is squeezed out of the hearts of the working classes until they are bled dry ... then the Governments will collude with the IMF and call the shots and bring in the cashless society , whereby all will be asked to take a mark to be able to buy or sell . A few years back , that seemed beyond comprehension , alas , not so today .
God bless you my friend .
Stella ><

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author avatar Sivaramakrishnan A
9th Jun 2013 (#)

Thank you for your heartfelt feelings for the needy, dear Stella. Sadly even in democracies the interests of few override that of the majority. We are moving towards a heartless, selfish society. But we can change direction when the awareness shines through dark clouds. Our leaders should not forget their election agenda and who played the crucial role to get them elected. People are not digits to wait forever for due justice - siva

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author avatar Grumpybear
9th Jun 2013 (#)

Very good analysis Siva. I agree with you. I think Stella is right that we will be squeezed dry of even our blood. I am so worried about the people of the world. Sometimes I can't help but cry over the way the people are treated in today's society, even by their own peers. rose

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author avatar Sivaramakrishnan A
9th Jun 2013 (#)

Thank you Rose for speaking out. The majority is not greedy but the greed of few casts a pall of gloom all over - dark clouds in the horizon. But they forget a fact that nothing physical can be taken away and mostly the greedy leave with a guilty conscience unless they had lost it totally along the way! siva

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author avatar Terry Trainor
9th Jun 2013 (#)

Greed and politics go hand in hand rich men tighten their belts, poor men starve.

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author avatar Sivaramakrishnan A
9th Jun 2013 (#)

Thank you Terry. I know of few rich who live poor to die rich and the possessions that they leave behind prove liabilities in no time. I have also seen in poor countries (democracies are no exception) the politicians treat nations' wealth as their own - siva

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author avatar Terry Trainor
9th Jun 2013 (#)

A great write my wise friend

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author avatar Sivaramakrishnan A
9th Jun 2013 (#)

Thank you Terry for your revisit and continued support and encouragement - siva

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author avatar Md Rezaul Karim
9th Jun 2013 (#)

Share market is now a days has become a gamblers den. Financial norms and fundamentals most of the time don't go with the market trend.... Clever people and corruptions... do well in the market.

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author avatar Sivaramakrishnan A
9th Jun 2013 (#)

Yes Karim. Even in developed countries inside information plays a part. Only two or three companies out of ten succeed while the majority, especially those in technology, are a wash out. We hear only of Apple, Microsoft, Intel but most others have bit the dust. I also know of promoters who are out to fool the public from the word go - siva

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author avatar Mariah
9th Jun 2013 (#)

Greed is the poison which flows through society, killing the right of fairness, equality, and human decency amongst mankind.
Excellent article Siva
Thank you my friend
Mariah

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author avatar Sivaramakrishnan A
9th Jun 2013 (#)

Thank you Mariah. Being in the finance sector I have first hand knowledge how greed has permeated society. It feeds on itself - many lose fairness and balance when the wealthier gets more attention Sadly many follow - you scratch my back and I will do likewise mode. Unless we put this trend down an inclusive society remains a pipe dream. We should embrace - from each according to ability and to each according to need. There should be limits to monetary rewards and what should matter is contribution to society's welfare - siva

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author avatar Shirley Shuler
9th Jun 2013 (#)

There is no limit to greed, siva...unfortunately the trail of tears is lined with greed on the backs of the working poor. Excellent article!!

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author avatar Sivaramakrishnan A
10th Jun 2013 (#)

Some can justify greed as a motivating factor but it should lead to depriving those who play by the rules and abide the law. All out greed divides society and leads to injustice. Thanks Shirley for a meaningful comment - siva

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author avatar philpalm
9th Jun 2013 (#)

One of the biggest curse to any economy is the flow of money too rapidly. Used to be a lot of economies were so closed that money stayed where it was made.

In the name of offshore investments a lot of money just moves to anywhere a rich person thinks is "safe". When signs of a bubble starts to appear the "smart" money flees the place where a bubble could supposedly appear and makes the panic even worse.

So far there is no real policy to stop money from fleeing too quickly. When one place suffers rumours the "smart" money leaves.

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author avatar Sivaramakrishnan A
10th Jun 2013 (#)

Thanks Philpalm. There is no genuine interest to invest long term - it is hot money flowing in and out. The main issue is the poor countries have no clout and they are denied information on accounts secreted away in offshore safe havens. The big financial institutions should not collude with dubious persons. But things are slowly evolving to have proper systems of disclosure but few will still find loopholes to stay ahead of the regulations - siva

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author avatar philpalm
10th Jun 2013 (#)

Funny you should mention that poor countries have no clout. Haiti is one of the poorest nation in the world and it is filled with bribery and con artists at times.

I believe Iceland and Ireland are sort of recovering after the economic bubble and the countries of Africa is a whole different scenario to write about.

The Churches should sponsor small business loans in some of the poorer countries. You also need a sort of stability of low bribery and terrorism.

I suppose I should tap your brains on economics. Do you specialize in SouthEast Asia?

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author avatar Sivaramakrishnan A
10th Jun 2013 (#)

The only way is for the banks to be transparent with details of accounts held. Now they listen only to big powers. When the US asks them to pay fines of hundreds of millions for abetting illegal transfers they oblige. But when smaller countries, or those with less clout, ask for legitimate details they refuse under the pretext of confidentiality. If this is not double standards, I do not know what the term means!

In Bangladesh, Mohammad Yunus started micro lending to women as they repaid the loans diligently. When a woman works the entire family is taken care of just like when a woman is educated the whole family gets the benefit. I am not saying men are less responsible but, okay, little less!

I have general interest on developments of countries. I have working experience in Asia. I feel all institutions should protect the common citizens everywhere and not be lured by the wealthy only. Now the stakes are in favor of a minority wealthy. Thanks Philpalm - siva

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author avatar Subra
11th Jun 2013 (#)

In short, the whole crux of the subject you have touched upon is nothing but human greed, avarice and rampant manipulation from those with money and influence. The big boys and rich governments always have the others at their mercy and very little can be done about this because the financial institutions work hand in hand with unscrupulous politicians and the super-rich for their own selfish improvement. Because of this, it is difficult for governments to control speculation and profiteering. So long as this continues, there will be market ups and downs!.

Once again, a great effort dear Siva

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author avatar Sivaramakrishnan A
11th Jun 2013 (#)

Thank you dear Subra for your input. I know from first hand experience how the money flows like a reverse Robin Hood syndrome - from the poor to the rich. The poor gets hounded to pay their dues while the rich dictate the terms. Powerful countries like the US tell the big banks to shape up or ship out. But poor countries do not have that advantage. So in another way the money flows from them to the richer conclaves of banking secrecy! The only way is transparency. For me I have no issues. Assets balance liabilities in perfect harmony assuring a good night sleep! siva

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author avatar Kingwell
12th Jun 2013 (#)

A great article Siva.It is greed that causes so much trouble. The rich always find a way to keep things going their way.

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author avatar Sivaramakrishnan A
13th Jun 2013 (#)

Thank you Kingwell. The system is tilted in their favor and greed - siva

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author avatar Komarudin Tasdik
13th Jun 2013 (#)

I am also studying transparency concept through online services to support government want and can save small and poor people. I like the points above.

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author avatar Sivaramakrishnan A
13th Jun 2013 (#)

The rich have the means for all their needs but the majority poor have to run from pillar to post for their basic needs. Thanks Komarudin, keep up the good work - siva

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author avatar LOVERME
13th Jun 2013 (#)

my the whole world has read your lovely article
but to my mind
THE GOAL POST
REMAINS THE SAME
ONLY teams change
more greed in their veins.. blood needs to be replaced with dollars ...
gold and silver melted in place..

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author avatar Sivaramakrishnan A
14th Jun 2013 (#)

Thank you Loverme. The greedy create misery on others too. Surely they don't deserve to corner so much wealth and is not justified by any yardstick - siva

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author avatar Chris Breva
14th Jun 2013 (#)

wonderful post Siva.

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author avatar Sivaramakrishnan A
14th Jun 2013 (#)

Thanks Chris for your support - siva

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author avatar Mani
16th Jun 2013 (#)

Thought provoking post. I will add one other major point which can improve the transparency. "Regulation " No one dealing in these trades and speculative bets want their actions regulated which gives them a great advantage over others.

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author avatar Sivaramakrishnan A
19th Jun 2013 (#)

Thank you Mani for your comments. Having been in the finance area all my working life, I know every rule, regulation, has an exception so that the rich can find a way out while the poor are caught in the cobweb and rigmaroles - siva

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author avatar Subra
19th Jun 2013 (#)

'Regulation' without proper enforcement and corrective action is as good as no regulation!

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author avatar Sivaramakrishnan A
19th Jun 2013 (#)

Thanks Subra. Just like democracy and freedom without rule of law is akin to anarchy! siva

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author avatar Ptrikha
28th Jun 2013 (#)

A well researched and well written article. Greed and Speculation are being used as a tool by a few at the expense of others.

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author avatar Sivaramakrishnan A
11th Jul 2013 (#)

Thank you Ptrikha. Few are on hit and run spree - let us stop them! siva

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author avatar Esther Thornburg
11th Jul 2013 (#)

Earn first and you are interest ahead. If money comes easy it may be quick to go. When earned it is more apt to be saved.

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author avatar Sivaramakrishnan A
11th Jul 2013 (#)

Thank you Esther. I am reminded of Warren Buffet's words - leave enough for our children for them to do something but not so much to do nothing! siva

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author avatar paidtoblog
23rd Aug 2013 (#)

Your article topic in regards to the financial institutions and how the people are affected by greed in our society makes me think of why entrepreneurship is so important these days.

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author avatar Sivaramakrishnan A
24th Aug 2013 (#)

Thank you Paidtoblog for your support. If everyone thinks how their activities benefit society in general we would have taken a big step to stem the rot - siva

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