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My Thoughts Of The Crisis

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I’d like to recall again how the financial crisis started. The financial crisis that has been inflicting in several markets in the U. S. and across the world since 2007 had its origins in an asset that networked with new kinds of financial innovations that concealed risk; with companies that miscarried to follow their own risk supervision and controlling procedures; and with regulators and supervisors that failed to confine extreme risk taking.

In many different ways it has still has not ended, with the billions in losses and slowing global economy manifesting them in the current European sovereign debt crisis. It resulted in the failure or downfall of a number of big financial institutions and is reflected by many economists to be the worst crisis since the Great Depression. Though the grounds are several, the foremost cause is measured to be the crash of the US housing market.

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Banks restricted their different lending to businesses and households. The strike in lending affected prices in these markets to fall, and this means those that have borrowed too much to wonder on increasing prices had to sell their assets in order to recompense their loans. House prices plunged and the bubble burst. As a result, banks panicked and cut lending even further.

It has been a disastrous parts of the industry subsequently its beginnings. Bankers, Businesses, and financiers willingly admit that in a business so large, so global and so complex, it is naive to think such actions can ever be evaded.

There are many things to be learned in this happening that includes a boom creates excessive interest and lofty prices. The ensuing crash results in never-again perspective regulations having controlling mechanism at the present, only for another crisis to pop up, sometimes as soon as the next year. The world has had to cope with the European sovereign debt crisis, a delinquent that never seems able to go away totally and seems to get worse with each subsequent multi-billion dollar bailout.

When people recompense loans faster than banks are building new loans, it’s like draining the oil from the engine of a car, the economy slows down and prices drop. Even those businesses and people that weren’t involved in creating the bubble suffer, causing a recession.

The Response of the International Financial Community

Financial Institutions was able to react on the situation. Some investors became aggressive for they are still hoping that the financial crisis will soon be ended. They take an opportunity on it, some borrowed money to establish businesses, and take some time to wait for it to grow. It’s the right time for them to borrow resources to other countries and or continents that could support the affected countries during the down time period. Many are not prepared with crisis and financial war is present there. Companies and hundreds of thousands of others are confronted every day by state actors, criminals, and they don’t really have the authority in place to have the proper response and protection. The government knows this, but they don’t have that capacity that time to make it as their priority that needs for them to be fixed since there are also community problems that are arising that time and still they haven’t fixed it that makes companies especially banks became unsecured and unprotected. Largest banks in USA that handles trillions of dollars more than the gross domestic product of several countries, which means that the amount of money that was deposited there should really be protected since most of the government fund was there. It leads the people to withdraw their money, and just keep it with them for they were traumatized by the incident.

There were wide range of issues that came out in the international financial community including the employee wages across USA that also affects their clients in various continents and countries most especially the call centers that handles by American government, they needed to reduces the wages of their employees and worst thing happened, they needed to close some companies that don’t have lose hope in this matter. Higher interest rates of loans were also given to the borrowers since banks are seeking for the community of borrowers who can support their financial objectives and projects to come to survive in the financial crisis while giving their customers a perspective of helping them to rise again and secure their money in their banks.

For most of the bank owners, they want to handle the crisis well by not letting their clients’ feel that should eliminate their loyalty with financial institutions. By doing their part the best they can and serve their clients well. It doesn’t mean that they have to run in panic. Banks saved a lot of companies in the financial crisis and many things and tools are to help facilitate orderly markets to survive and rise. Its effect to the financial community has a certain effect on the system-wide upturn in borrowed money which was careless and destined for disaster, it is not outrageous that consumers and clients, would-be homeowners, and profit-maximizing banks will borrow more money when asset prices are growing; indeed, it is moderately instinctive. What is particularly appalling, though, is how institutions, businesses whether it is small or medium in size, along each association of the securitization chain failed so exceptionally to accomplish satisfactory risk valuation on the mortgage-related assets they held and traded. From the mortgage originator, to the loan servicer, to the mortgage-backed security, to the credit rating agencies, and to the holders of all those securities, at no point and arguments did any institution stop the party or question the little understood risk models, or the knowingly unsustainable deterioration of the loan terms of the underlying mortgages.

The Effect to the Philippines and its response

There were businesses that really affected by the financial crisis directly. These are the businesses that have transactions with Americans, affected by foreign exchange rates with the importations like foods, clothing and Filipino Investors that has investments outside the country especially in America and Foreign investors too that stays in the Philippines since their purchasing power was decreased because of the economic condition.

But generally speaking, the Philippines were not precisely shocked when the financial crisis inclined upon the Asian scene. Bangko Sentral ng Pilipinas (BSP) would have known that there are foreign reserves to defend the Philippine Peso from the concentrated assaults of currency speculators.

Expecting a possible infection from the currency speculators, the BSP raised in the overnight borrowing rate as a defense measure. There were widespread reports that the Philippines would devalue the peso, and this fueled greater speculation. The BSP further increased its overnight borrowing rate to 32%. These moves apart, the peso was being sold for dollars in remarkably huge amounts at t the Philippine Dealing System Exchange.

It became a strange instant response, when shielding a level of foreign-exchange rate for the country, to hike local interest rates. Higher interest rates translate to a higher return on funds, which, because of this, might induce these funds to stay on in the local currency. The problem on higher interest rates is, interest rates also take to cost of funds for business borrowers, and any unexpected growth in interest rates for in this case of handling the protection of the exchange rate makes and generates destruction on the profitability, even the practicability, of businesses and business projects whose borrowing costs have suddenly increased. That is why the BSP has continuously been subtle and conscious that interest rates have to be as rapidly brought down to normal levels after optimistically stabilizing the foreign-exchange projected environment.

However, domestic allocation of the borrowed foreign funds was unproductive and inefficient as well because of weak banking systems, poor corporate governance and supremacy and a lack of transparency in the financial sector of our country. The partial absorptive capacity also contributed to the inefficient distribution of foreign funds. The Philippine exchange rate regimes exchange rates were effectively fixed gave borrowers a false sense of security, encouraging them to take on dollar denominated debt. The huge capital inflows and weakening exports were reflected in widening current-account deficits. To make matters worse, a significant percentage of the capital inflows were in the method of short-term borrowing, leaving the countries susceptible to external shocks. Also, the Overseas Filipino Workers were also affected by this financial crisis for the business that they work with became bankrupted and no longer able to sustain them. That lead them to send lesser money in the Philippines that affects our Philippine and economy and others came back to the Philippines for good since they found no hope already in U. S. , with this, the unemployed also increases that also affects the Philippine Economy.

Implications to the investment climate

During the Financial Crisis, investors gravely suffer since most of their investments that are gaining especially in the stock market before the market collapsed. The effect of financial crisis hurt the feelings of the consumers because it’s hard for them to cope up on the situation. Those who have planned to investment on that time, wasn’t able to enter in the market but others took this as an opportunity to investment most especially on businesses that gives or support the basic needs of the people.

There’s also an implication for the bubble formed in the housing markets as home prices across the country increased each year that gives them a low purchasing power that out of line with fundamentals like household income. Like traditional asset price bubbles, the expectations of future price increases established and were a significant factor in inflating house prices and this makes the people feel that they are incapacitated to buy new houses. As individuals witnessed rising prices in their neighborhood and across the country, they began to expect those prices to continue to rise, even in the late years of the bubble when it had nearly peaked. The quick increase of lending to subprime borrowers aided expands the housing price bubble. Subprime lending was virtually non-existent, but thereafter it took off exponentially. The continuous rise in house prices, along with new financial innovations, unexpectedly made subprime borrowers beforehand shut out of the mortgage markets attractive customers for mortgage lenders. Lenders invented innovative Adjustable Rate Mortgages with low rates, no down-payments, and some even allowing the borrower to postpone some of the interest due each month and add it to the principal of the loan which was based on the anticipation that home prices would continue to rise.

The investors like everyone else were gathered up in a bubble mentality that enclosed the complete system. Others saw the large profits from subprime-mortgage associated assets and required to get in on the action. In addition, the pure difficulty of the securitized financial system meant that many people simply did not have the information or capacity to make their own judgment on the securities they held, instead trusting on rating agencies and complex but flawed computer models. In other words, poor motivations, the bubble in home prices, and lack of transparency erased the frictions inherent in markets with asymmetric information (and since the crisis hit in 2007, the extreme opposite has been the case, with asymmetric information problems having effectively frozen credit markets). But good thing that they came up with the innovation in mortgage design alone would not have permitted so many subprime borrowers to admission credit without other innovations in the process of securing mortgages or the collecting of mortgages into packages and then marketing securities financed by those packages to investors who obtain pro rata disbursements of principal and interest by the borrowers.

They would have had a lot more liquidity, a lot more transparency, and at the time that Lehman went bankrupt, the United States government didn’t have the lawful authority to take them over like they could take over. And now they do. And they have the information to achieve it, so it would never have gone bankrupt. If it did go bankrupt, at the moment of bankruptcy, it would have created another billion of equity. It would have been the most overcapitalized firm in the world. The government can run it and do whatever they want with it, but think of it as an orderly unwind. What happened with Lehman was a disorderly unwinds where assets were thrown, people couldn’t get their cash. Markets were going to collapse because they had to sell assets. So that was all fixed. So the capital liquidity, the banking system is stronger. Your personal investment philosophy, explicit policy and anticipated behavior

For me, “Investing with a purpose is the heart of investment. ” This is my personal Philosophy. Personally, I am investing wit having different goals in life. I remember the time when I started saving as early as 7 years old when I started having an allowance from my Parents and Grand Mother when I was in grade school, I put it in my bamboo bank that my Father is giving me every day. I make sure that every day; I have something to keep so that I can use it to something that I would want to buy.

I always believe that to have money, no matter how much it is, you can grow it and with this, you could help others with their needs too.

I had my first bank account when I was 12 years old, opened by my mother from that time, I was encouraged to save more and at the same time, use a portion of it to give something for some of my needs.

As a way of my savings policy, I make sure that my inflow fits the structure of my investment. There are percentages on much am I going to put in my Metro Bank, BPI, BDO etc. based on my purposes. One bank has its own purpose, like my BPI account, it’s for the Church and other Community. My bank account for my investments is BDO. All my sources of funds for my investment tools are coming here.

I trade stocks, entered in mutual investments, UITF and farming. Most of these investments are for long-term. I give importance to diversification.

My policies in stock trading are as follows: I make schedules in direct trading and allot fund for each stock like for example, 10,000 every month for WLCON, 5,000 for ANI, and 5,000 for SMC, 2,000 and for ALI, 2,000. But these are subject to other conditions too like the performance of the market. If the market is performing well, then I’ll see how my stocks are reacting, those that’s gaining, I sell and retain others, depending on fundamental analysis giving information on the economic condition.

On the other hand, if the market is down, that would indicate that it’s cheaper to buy some stocks, with this, I adjust my monthly investment, add on it if it’s possible so that I can catch or take the opportunity at the level where I am with capacity to proving fund for this. I also set the buy and sell schedule in my account so that whenever i am busy, it’s automatic that I am funding my investment, doing Peso Cost Averaging in buying side. Like buying shares of SMC every month not exceeding 2,000 peso cost of total shares every month. This is also with calendar that I am setting for my investment planning. Regarding Mutual Fund Investments, I also set schedule for funding. This is quarterly basis. This is less risky as compared with the stocks trading, that’s why I put bigger money on this as compared to stocks trading. When it comes to my Unit Investment Trust Funds, I invest directly to BDO bank and this is also funded by my payroll account in BDO deducted every 15th and 30th of the month. This is a scheduled auto debit but still in my control so that whenever I need to leave 1 month and continue it on the next month, it should be strictly followed. I always consider the purpose of investing. Why invest? I always make sure that there is a purpose before entering into a new investment.

Generally speaking, I am investing for my future. I have an Investment and Savings for my brother so that when he grow up he could have the money to be used, for our farming business also, I always set a budget for every cropping so that I am always prepared during the cropping period. The income in each cropping, once received will automatically be deducted the allowance for the next cropping and the remaining should be deposited to a bank in which; Land Bank is my bank for this. When it comes to short-term investments like bonds, I was able to try investing in a 90 days investment and 360 days maturity under DBP and RCBC few years ago. I entered into it for the reason that I am not using my money in my savings account and a portion of the income from our farm was invested there, just for a short run so that after a year, it gains interest and additional income that can be used as an additional fund for the farm expenses to come. The 90 days investment was then used for our family outing that was postponed, and since the budget is already there in the bank and still waiting for the time to come, I have decided to invest it in bonds having 5. 5% return. I also make sure that I am becoming a good steward of God for everything that He has given unto me.

Since I really own nothing in this world, everything is God’s therefore, I need to manage well what God has entrusted me to manage and handle. With this I always make sure that I am faithful with my Tithes and Offering which is really very much important. This is 10% of my Gross Income for my Tithes. I always make sure that it should always come first before anything else for God never ceases to bless me in different ways that even me can’t even count, fathom, and realized that I deserve those things. I make sure that my savings related on Church activities I put it in the safest investment like bonds. Because I have already tried it that it really gives return. And sometimes making a 50-50, 50% should be in bank, as savings for that activity to be given to Church sooner and 50% investment in bond also if there’s available to capture and accept with. Now, in my Master’s Degree, this is one of my additional investments. Since all throughout my studies, I was supported by my parents. But this time, I can now pay for my own schooling since I already have a fix income that comes in farming business, salary and other projects. I follow these personal finance rules of percentages: 10% Tithes, 5% Offering, 5% Benevolence, Community Service, Social Development etc. 30% Personal Spending including schooling and other priorities, 20% Emergency Fund, 20% Savings, and Investing which is 10% of my income, a total of 100%. These happen to change sometimes due from other factors and priorities that are coming on my way that are unexpected.

I know how risky some investments is that is why I always try to control my emotions in every decision that I am making. I might lose a lot with my risky investments that is why I just put there the money that I can still cope even when it lose. I have learned that rights emotions would lead to rights decisions. And by knowing creating certain policies, conditions to follow, and personal philosophy, I believe, this would make me eager to do more significant moves not just in investing but also as a good steward.

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