Especially in the financial sector, crises are almost at the Agenda. But they can be prevented if the causes are tackled.
- Financial crisis: why it is emerging
- A small event causes the entire economy to collapse
- From the Fall of the Wall to the Financial Crisis
- Ronald Reagan is guilty!
- Lack of regulation of the capital markets
- 4 steps for effective crisis management
- The builder of the financial crisis
- Top books on the subject
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Financial crisis: why it is emerging
Although the media and politicians are busy telling us something different, financial crises in particular usually do not come as a surprise. And we can arm ourselves against them.
The Crisis 2008, for example, did not begin with the real estate bubble in the USA, as was rumored everywhere. Their origin is much, much further back, their destructive power is much greater than imaginable and previously assumed. Hardly anyone talks about it. I do it. On the occasion of my seven-year research for my book “Verlorenes trust – The Tsunami Model of the Financial Crisis” I have dealt intensively with a question that has stuck with me ever since: what really triggered this crisis?
My tsunami model is based on the fact that there must be a trigger that started this wave. A tsunami. Tsunami means "wave in the harbour". The Term was shaped by Japanese fishermen who returned from fishing and found everything in their harbor completely destroyed. And this despite the fact that they had not seen or felt anything on the open sea for a while.
A small event causes the entire economy to collapse
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Similar to a sea or earthquake, which can set a wave under the sea surface for the time being unseen, a small, locally limited event in a globally networked financial world can trigger far-reaching consequences up to breakdowns of whole economic systems.
And that's exactly what happened. Now I had understood how a financial crisis arises in principle. However, the trigger was not one step closer. I only knew one thing: Somewhere, something had happened that had caused this wave.
From the Fall of the Wall to the Financial Crisis
The wave had then spread underground for a long time, at first small, then expanding. Until, yes, until we could no longer overlook her because she was already overrunning us and causing a mess in the financial markets.
So I had grabbed and did not let go. After long and intensive research in the USA, London and Switzerland I came close to the core The same force that brought the Berlin Wall down, triggered the most severe financial crisis of our century!
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It is called Reagonomics. To be more precise, the neo-liberal economic course of the Reagan era and the belief in the market's self-sufficient market forces, The Reagan era forced the Soviet Union to its knees by the tremendous contest.
The communist System the planned economy was ultimately defeated by the capitalist system of the free market economy and had to admit defeat in 1989. This paved the way for the reunification of Germany and the fall of the Berlin Wall!
Ronald Reagan is guilty!
Applied to the financial market, this means that the office holders of the Reagan era and their successors, above all Alan Greenspan, were firmly convinced that by dismantling controls and barriers, not only Economy would be animated.
They also believed much more that this would lead to a more equitable distribution of money Capital and resources in a society. Ronald Reagan was a proponent of neo-market liberalism, spiritually supported by Nobel laureate Milton Friedman's laissez-faire approach.
Lack of regulation of the capital markets
How horrendously wrong this assumption was and to what catastrophic consequences it led, turned out much later. Unknowingly, the Reagan era triggered so long ago a seaquake whose waves today threaten to tip the existing financial world off its hinges and which still keeps us breathless with its full destructive power.
By the way, Alan Greenspan admitted at a hearing in the U-parliamentary committee in 2010 that it was a mistake not to regulate the capital markets more! A late insight, from which I hope for the Future was learned.
Because my tsunami model says that a possibly unnoticed event can often only cause a financial crisis over several countries or even continents years later, similar to the way a tsunami is triggered by an earthquake in the sea. And how does it continue? How does this huge, powerful wave come about from the moment of triggering, how does it spread? How does it reach all of its destructive power?
4 steps for effective crisis management
In order to take action against the crisis, we must first recognize: How does the wave become so powerful in the first place? There are essentially these four elements that contribute to the development of a tsunami financial crisis - and this is where we find the main ones steps for Prävention:
1. Too high speed due to global networking
In the early 60s, Stanley Milgram developed a theory. He hypothesized that everyone on this World connected to each by six contacts. The theory entered social research as the “small world phenomenon”. In a world where everyone already has a social with everyone Network connected, this phenomenon applies even more to the financial world.
Instead of People machines trade with each other there and are networked around the clock – 7 days a week, 24 hours a day. As a result, due to the strong networking, innovations in the financial sector can spread much faster than the regulatory forces ever have the opportunity to intervene. This fact very quickly leads to catastrophic undesirable developments.
2. Risky financial innovations
Innovations are closely linked to finance. By developing options, for example risks be better secured. Bank limits could be extended through the development of credit default swaps.
The downside of all these innovative developments was that it opened the door for speculators. Similar to a pyramid game, a few very rich and many investors were very poor. Not otherwise, Warren Buffet described these instruments as weapons of mass destruction. These financial innovations finally found their way into the financial sector and caused enormous damage.
3. Greed is a vice
Here is a driving force that is all too human. The immeasurable pursuit wealth and makes. In my book I describe how genius (the human side of Innovation) paired with greed could unfold to an immense destructive power.
I had the opportunity to do this in personal interviews with people such as John Meriwether or Andy Krieger – both of whom will be discussed later Rede be – to shed light on this dark side of finance.
4. The butterfly effect
Edward discovered that small causes can have big effects. N. Lorenz in his modeling of the conditions in the earth's atmosphere for the purpose of long-term weather forecasts. This effect, also known as the butterfly effect, plays a major role in today's financial systems and explains, among other things, why bubbles persist over the years positive Feedback can increase rapidly.
A new innovative business model or product can evolve through permanent adaptation and positive feedback fast spread. The risks and implications underlying the business model are mostly overlooked at the beginning. But over time they come clear appear and grow in size until they are almost impossible to control. So it is the initial underestimation of the consequences of a financial innovation that later leads to a Problem is.
The builder of the financial crisis
As my research has shown, all four elements play an important role in the creation of a tsunami and are thus the builders of today's financial crisis. The prerequisite for this is the global networking of the trading systems, as well as the inexperienced practice of soliciting entire teams in the financial world and thus simply copying successful products and business models, regardless of the associated risks.
Through financial innovations, one is usually one step ahead of the existing set of rules and can thus bring risky financial products to the people. In addition, the human plays weakness of overconfidence, paired with the pursuit of even more wealth, plays a decisive role. Together they ensure that the wave picks up speed.
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