Indicators To Predict A Coming Financial Crisis Finance Essay

During the last decennary, the fiscal sector experienced many new ordinances like IFRS, US-GAAP, Basel, SOX 404 in-control-statements etc. Most of the participants in the fiscal sector, who invested one million millions of dollars to hold all these ordinances implemented in their administration, had the sentiment that their organizational procedures were good controlled. The sector who had implemented all these ordinances, had its balance sheets in order, and the supervision institutes were soundless. It was a ground to believe that everything was in control.

At the terminal of 2000, an cyberspace ‘balloon ‘ exploded that gave a short recession to the fiscal sector, followed by a wholly unexpected bead in the lodging market in the summer of 2007 ( FHFA, one-year monetary value alteration chart, 1997-2009 ) . The bead in the market had big effects on the consequences in the fiscal sector, as the sector had changed its traditional banking theoretical account of accounting to an “ originate and distribute ” banking theoretical account, for illustration sale of packed mortgaged by securisation to particular purpose vehicles ( Brunnemeijer, 2008 ) . These complex buildings made it hard for members within the fiscal sector to judge each others fiscal hazard. It caused a liquidity-crisis in the fiscal sector, and created a Domino consequence that finally hit all of the western economic systems.

Banks did non swear each other any more, balance sheets ( with accountant statements, run intoing all IFRS, Basel, SOX etc ordinances ) did n’t look to give the information that the universe needed to give a making to the hazard of those specific administrations. Cardinal Bankss and authoritiess had to back up the fiscal sector and sometimes had to intrude the province assistance protectionism Torahs ( European Commission, Journal C156, 09.07.2009 ) . Society blamed top-management in the fiscal sector for their short-sight and “ fillip ” -egoism, opposite Adam Smith ‘s theory of the “ unseeable manus ” ( Smith, 1776 ) to advance free market economic system.

As authorities disbursals increased by these support actions to the fiscal sector, the crisis even caused certain ( weaker ) authoritiess to go less financially dependable ( for illustration: Greece, Iceland ) . Peoples, fearing for a long go oning world-wide crisis, went into gold investings, a safe Eden when fright on all other economic capital markets arises.

1.1. Preliminary job statement.

Fiscal accountants are used to confer withing balance sheets, net income and loss statements, and hazard studies to judge whether a company is “ in control ” .

The current crisis proves that all introduced ordinances and implemented control systems are non sufficient to supply valid statements about being in control. There are elements within the economic that influence administrations, which are soon non implemented in the current control systems.

The inquiry that is being posed in this research is whether it is possible to happen indexs ( or a group of indexs ) that can be used to assist to foretell a coming crisis in the economic motions of the economic system. If that index ( or group of indexs ) is found, it can be used by fiscal establishments to add to their control-systems, so that they can expect on approaching financial-events.

1.2 Preliminary research

In 2008 I foremost started my preliminary research to analyze what actions happened during this crisis.

Second I researched what in old crisis that have elements equal to the present crises, for illustration the 1930 ‘s.

Third I now do research to what indexs can be found to compare these crises. Get downing this 3rd stage, I research:

what research workers have analysed the moving ridges in economic crises

what elements did they found in these moving ridges

what footings do these moving ridges indicate

In his essay “ Long Waves of Economic Life ” ( Kondratieff, 1926 ) ,

Nikolai Kondratieff concluded that revolutions and wars arise from the world, and originate above all economic and environmental determinations, a theory of reiterating dynamic economic development. In that theory, he concluded that these moving ridges in the economic system have a typical form. Other research workers about rhythms seemed to hold the same attack, but have different visions about the rhythms. Most of them seemed to recognize the chance of the long rhythms, but give different accounts. Some acknowledge that the rhythms are rather clear and unequivocal, others decide that it is a consequence a random factors and occurrences in economic life, and that in this period these random occurrences look like a rhythm but in world might non be a tendency. Most economic experts nevertheless did n’t research the issues of big rhythms so much as Kondratieff. The kernel of the research involves a really long period of detecting the information. Second the information is frequently non sufficiently, complete, uninterrupted. Third, descriptive information is hard to compare.

Jacob new wave Gelderen concluded even before Kondratieff ‘s theory was published that there were long term motions in industrial development and monetary value motions ( new wave Gelderen, 1913 ) , but the analysis were non complete.

Dutch theoretician De Wolff subsequently published a theory with his visions and some statistical informations about short and long moving ridges. His theories and vision predicted the 1930 crisis, but Dutch economic experts did non accept his strong Marxism vision that was obvious in his researches ( De Wolff, 1929 ) .

John Maynard Keynes concluded in his theory ( Keynes, 1936 ) that certain governmental policy could be used to act upon the economic system and public to salvage the economic system ( particularly the fiscal sector ) during periods of recession. In this present crisis, some Keynesian instruments were implemented. Kondratieff nevertheless evaluates that winters should look. In a winter, a authorities action can make a impermanent upward rectification harmonizing to Kondratieff, but his theory concludes that it will finally neglect because the continuance of the fixed cycling of curves ever has to win. It means that in Kondratieff ‘s theory, cycling of moving ridges has to happen above all actions taken by authorities. He claims that actions like the Keynesian theory could give some short effects within the rhythm, but ca n’t alter the way of the rhythm.

1.3 Contentss of this thesis:

debut

What lessons have we learned from the present planetary fiscal crisis/credit crunch, and what will be the coming prognosis? .

start of the crisis

how did it happened?

what is the current position?

theory of Nikolai Kondratieff

what does Kondratieff state about crisis?

how make these rhythms exist?

when make these rhythms exist?

Theory and long moving ridges in the yesteryear

Is Kondratieff ‘s theory a valid theory? ( based on analysis of old events and moving ridges ; and reflected to theories of other economic experts ) ?

The twelvemonth 2011 and the hereafter

What does Kondratieff state about the hereafter, looking from the present province of the economic system?

What can be said about the difference of the Kondratieff sentiment ( moving ridges will follow its fixed form ) against Keynesian sentiment ( governmental actions can alter the way of the moving ridge ) ?

Decision

Suggestions for authoritiess, and particularly the fiscal sector ;

Can the long moving ridges be recognised by the authoritiess, or by the fiscal sector themselves?

Can the recognised signals ( 7a ) be used to alter our behavior to decrease/deleverage our hazards ( to avoid unexpected bankruptcies etc ) ?

What suggestions do I have to implement these recognized elements into the present economic system ( authoritiess ) and the present disposal of the fiscal sector?

What subjects need extra research? .

1.4 Restriction of the specific country of the research

The research is limited to:

– researching how the present crisis appeared

– analyzing the theory of Kondratieff, look intoing its cogency, and comparing it to the present crisis

– spring suggestions to the fiscal sector ( or even authoritiess ) to be more in-control by agencies of found indexs

Empiric research methods will be used to reason if the long moving ridge theory can give the fiscal sector dependable indexs to recognize the place in moving ridges, to finally be able to move and acquire to be more in control utilizing the indexs.

Validity cheques of the Kondratieff moving ridges can be done by comparing bing quantitative ( economic ) charts with recent up-close, deep, believable apprehension of real-world contexts ( Miles and Huberman, 1984 ) .

The features of the moving ridges can be analysed by analyzing the turning points ( minutes of upper limit and lower limit ) in the moving ridge informations and amplitudes in relation to the lengths of rhythms and to the events occurrences in the same periods in the economic system.