The (newly designed and very nice looking) Wall Street Journal website has a great article about the current financial problems. This is not a discussion of how we got here, but more specifically of why it is hard to correct the problems. The key is an orderly de-leveraging of financial firms. Firms have to unwind their debt and build up capital. Unfortunately, as they sell assets to reduce positions, the value of these assets decline, worsening their capital position. We're in a sort of death spiral. It is looking more a more likely that more government intervention will be needed to help these firms get out of their debt positions. This obviously brings with it unpleasant questions about who gets bailed out and who doesn't.
What is clear is that going forward, credit will not be as easily available. Particularly to more marginal borrowers, and those who want to borrow at very high leverage rates.
From a personal finance side, I take the view that first you want to remain very well diversified, and second, when the recovery comes, which it will, you want to be in the market. Therefore, I am staying the course.
The article really great, For a long time we are in the recession and the worst economic crisis has taken the toll on our economy. I have checked many articles on this topic and also covered some of them in my finance blog but all of them was missing the complete view. I was searching for such a comprehensive article which will be "be all, end all" in itself. Thanks for suggesting us such an article. I am planning to cover the article in my blog also. Thanks.
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