The current global financial
crisis has totally shaken the
confidence of the people in the financial markets,
institutions and their products and services. It is true that considerable efforts
have already been initiated by the governments, central banks, as
well as by banks themselves, to counter the crisis and create confidence
and stability in the financial markets globally. In fact, the current
crisis has exposed the gullibility of a large number of customers operating
in the financial markets and investing in financial products and
services without adequate comprehension of the latent risks present in
such products and services. The threat reached the pinnacle
when investment banks developed and introduced complex
instruments, called Collateralized Debt Obligations (CDO) and
Credit Default Swaps (CDS) developed using highly
sophisticated mathematical models. These turned out to be very risky instruments
and adversely impacted the global financial markets.
This global financial crisis has, not only exposed the gullibility
of investors—rich or poor, educated or uneducated—in the
complex products of the banks, but has also brought to light the
poor supervision of both the bank managements and
regulatory authorities. As these products generated huge returns
initially, these drew irrational exuberance among the investors who did
not bother to check the accompanying risks. At the same time,
the regulators also overlooked the speedy developments in
the markets, failed to identify the risks and devise measures to protect
the investors against these risks. All these have led to a massive
financial crisis where big institutions are being bailed out by doling out
large amounts of taxpayers money from the exchequer. Some of the
big institutions, like Lehman Brothers, have filed for bankruptcy. |
