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- The economic activity in the entire society is very high after a long period of progress, on the different hand is beginning to decline.
- Stocks are traded for traditionally high quotes after a long period of rise of 300% or more, they have reached an all time high level, on the different hand they are beginning to decline again.
- The prizes of real estate properties are also high after a long period of progress, 300% or more, on the different hand they also are beginning to decline after an all time high level.
- Companies are sometimes over-tested after competitive investments for borrowed money. The investments have now not yet shown lucrative, on the different hand the companies estimate first-class gains from the investments because they think the general progress will continue uninterruptedly.
- Also the real looking humans have high debts after having invested enormously in their residences and in luxury objects. They have some beginning problems with payment on their debts, on the different hand think these problems soon will move away with an anticipated further rises of non-public profit.
Another intent are executives in banking companies tempted to lend out as an awful lot money as attainable to the borrowers, despite the results for the bank and the borrowers, because this behaviour gives the executives a wide brief term private gain.
An fundamental intent of the crisis are over-positive companies and humans during the foregoing period of commercial progress. They tend to consider that the general progress will continue forever without interrupting durations of commercial decline. They also tend to overestimate themselves and think they shall be a winner in the competition against different companies or humans, now not a looser, now not a conventional performer, on the different hand the winner.
THE INITIAL STAGES OF THE CRISIS
- The activity and earnings of companies are abruptly declining.
- Many companies easily feel massive losses.
- The selection of companies and humans with debt trouble is abruptly emerging.
- The selection of bankruptcies is abruptly emerging.
- The unemployment level rises abruptly.
- Banks get into serious squeeze due to potentialities unable to pay on their debts and due to the decline in the valued at of properties serving as security for the loans.
- The troubled banks have to rise the interest charges by many % to counteract the losses. But this act handiest increases the problems for different banks, humans and companies and hurries up the crisis.
- A high percentage of the banks get unfunctional and bankrupt
- Now there shall be massive sell-offs of properties and stocks. The sell-offs are exerted by humans searching to free themselves from some of their debts and by banks searching to stop losses on loans.
- The stock market cracks down by an new 50% or more driven by the massive sell-offs.
- The real estate market also cracks down a new 50% or more due to massive sell-offs, on the different hand normally barely slower than the stock market.
THE END OF THE CRISIS
In the outstanding crisis the production of products and services in the society has fallen 30% or more and continue to fall. Investments or constructing activities have utterly halted. There is mass unemployment, 30% or more.
Future crises can handiest be prevented by hindering financial college lending out more money to anyone that the borrowers can pay back in a comfortable way. This can handiest be carried out by governmental guidelines that set clear criteria that wants to be fulfilled when a specific extent of money is lent out.
The outstanding stage of the crisis is seldom reached, because the governments will at some factor take control of the financial systems and riskless a minimum functionality.
THE CHARACTERISTICS OF AN ULTIMATE CRISIS
THE CAUSES OF THE CRISIS
This optimism, which is a general human property, make all actors borrow massive amounts of capital and invest them in residences, luxury objects and expansion of their business. This expansive behaviour tend to speed up for relatively a long time untill in meets the wall.
The crisis sometimes occurs after a long period of commercial progress, high employment and high activity. The scenario for companies and humans are customarily as follows:
Also banks wants to be forbidden to identify employment contracts for their executives that compliment them immediately for the extent of mortgages they identify.
Before the crisis can end, all sell-offs to pay back on loans wants to be fulfilled. Then every actor in the society has to accept their losses. Debts that actors are now not in a scenario to pay back must in some way be nullified. Then all the pieces remaining of the former companies wants to be fixed together again into new useful devices. Then the society can slowly rebuild its strength.
THE TYPICAL SITUATION BEFORE THE CRISIS
At a even as there ought to also be a severe turning factor leading into the improvement of a comprehensive blown crisis that it is now not attainable to recover from in a sincere way. This turning factor occurs when a definite percentage, for example 10%, of humans and companies keep in mind that they do now not have enough profit to deal with their debt, and that sell-off of properties and stocks will now not nullify the debt. The comprehensive-blown crisis has these properties:
A financial crisis has happened with regular intervals all the way through the last century, it happens again in the year 2008, and presumably will happen in the future in an awful lot an analogous way. There is no main differences between such crises in our time and former crises, aside from presumably that they occur speedier, occur more regularly, on the different hand luckily also heal speedier.
The crisis normally has a slowly creating initial face. During this face the scenario can reverse and the economy recover without first-class damages. In this initial period one can monitor the following process:
The financial system has nearly utterly collapsed, and is handiest in a scenario to support the day-by-day payment for food, strength and different necessities. The production amenities and organizations of the society have fallen apart 30% or more due to lack of preservation, which capability that the society is now not in a scenario to recover in a brief lived even as.
- Steadily more companies keep in mind that their massive investments do now not pay back with the expected revenues and they have problems paying on their loans. They abruptly cut down further investments and begin promoting off resources.
- Steadily more humans also understand they have a too first-class debt to deal with with their private profit. They cut down their consume and dump properties and luxury objects.
- Companies are getting steadily much less orders, are promoting much less and have much less to do because of decreased consume and investments.
- Earnings of companies and humans are declining and many are downright loosing money.
- The stock market values are sharply declining, sometimes 20-30%.
- The property prizes are sharply declining, sometimes 20-30%.
THE FURTHER STAGES LEADING TO A FULL-BLOWN CRISIS
