The financial crisis from my point of view

More for my reference in future than anything else...

Whats the current crisis?
Markets around the world, US, Europe and Asia, has fallen by roughly 20% over the past week and 40% over the past year. Banks are collapsing or being taken over, there is a squeeze on cash, and no bank is willing to lend to each other or to other corporations. Governments all over have been hastily trying to fix the problem by implementing new, uncoordinated measures, resulting in extremely wide market swings.

Why is it so serious?
Obama probably put it best - companies, big or small, are not able to take new loans, to buy a new factory, hire more people, or even pay existing employees. People will start losing their jobs. Unemployment will go up, while the cost of living will remain the same or higher. There will be a drop in consumer spending, resulting in a contraction in the general economy, which will cause more job cuts and ... a vicious cycle ensues...

Why can't we get out of it?
I used to think we can - if the problem was fixed quick enough. Hank Paulson tried to fix it but it wasn't enough. Once investors lose their confidence in banks and in the markets, and tried to withdraw their deposits/positions, the problem just escalates. There was a joke I read about how markets work - funny but very true:
It was nearing winter and the native americans were preparing for it. They heard the weather forecast that it was going to be a cold winter. So they chopped more wood to prepare for it. The following day, the forecast said it was going to be a very cold winter. So they went out and chopped even more wood. The next day the forecast said it was going to be the coldest winter in history, so they went out and chopped even more wood. One guy called the weather station and asked, "How do you know its going to be such a cold winter?". The answer was, "Look at the insane amounts of wood the native americans are gathering!!"
and so thats it... markets start falling, people start selling. Markets drop further. People sell more.

What about market fundamentals?
There was a time when I believed in that. That finance can be explained by maths. pfft. There is no concept of fundamentals. Look to Volkswagen. They reported that their earnings will be crap. Their future is bleak. The economy is heading towards a recession. Automobile companies are hurt bad. BUT while everything around them is falling 40%, Volkswagen has shot up by 400%. Why? The story is a little long, but just to document it... it was because Porsche had owned 35% of the outstanding shares and had options to buy more with banks - but nobody knew how much and when they had to honor those options. Hedge funds had also shorted their stock. When the time came to cover, they had to buy the stock back. That resulted in a short squeeze (short sellers having to buy stock back while there is little stock to go around) resulting in absolutely crazy stock prices that is NOT supported by either the intrinsic value of the company, nor its expected cash flow.

Are the banks safe now?
Pfft. After Lehman fell, all the big banks got into big trouble. At first it was like 5 banks. Then 10.. and then I lost count. The governments have been trying to help, so for now it looks like no more banks are going to fail. Deposits are being guaranteed now, all over the world. So don't fear about your savings and current accounts.

Is my job safe?
No. Even though my bank is partially nationalised, there will definitely be a few rounds of cost cutting measures, which will include job cuts, salary cuts and bonus cuts.

Am I worried?
Past that stage, really. A cut might even be a good thing for me, since I should get a decent severance package and I wont have to suffer in such a bad economy (with low margins and profit) for another year.

Who is to blame?
Yeah believe the press about those scheming greedy bankers who invented these imaginary financial products that nobody understands, then paying themselves a huge paycheck at the expense of innocent consumers.
BUT THATS NOT TRUE.
As I mentioned, a large part of the blame lies with asset bubbles. Especially in China, markets work like this: a stock performs decently. Some smart investors start buying it. As they start buying that stock gains popularity and prominence as a good performer. More people start buying it. And so the stock gains in price. Repeat this for all other stocks in the world, including commodities, like oil. Goldman Sachs analysts predicted oil at 200. People started to believe them, FKING driving up the price of oil. As nearly everyone went bullish on the market, everyone started making money, and there was an excess of cash! And so people started investing more!
Blaming the subprime market, credit default swaps (CDS), or those well paid bankers does prove to be popular, but nobody was complaining when they were making money themselves!

What am I gonna do?
I joke that I'm gonna grow sweet potatoes. After all, that seems like a sensible way to live through even the worst depression. But practically though... I can't, since I don't have a garden. I don't know what else I'm gonna do besides Finance, but lets face it, its never going to be the same game again, not for another five years. No way will I expect fat bonuses anymore. So really, there isn't any more pull factor to remain in finance.

Do I regret working in a bank?
No. Its such a great experience, given the chance I'll do it all over again.