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We may not have recovered fully from the crisis that hit us last year but there are some people out there who are a step ahead and are already seeking reasons that could cause the next big crisis. Mark Mobius, the widely respected guru of emerging markets believes that derivatives and the stimulus money could well spark the next financial crisis. Speaking to Bloomberg, Mobius has opined that political pressure from investment banks and all the people that make money in derivatives will prevent adequate regulation from coming into effect thus letting it flourish unchecked.
It should be noted that the enormous write-offs of the magnitude of US$ 1.5 trillion that the world’s biggest banks had to take last year was due to the excessive use of derivatives, most of it unregulated. Although governments are trying their best to introduce more regulation, banks seem to lobbying hard against any change that would prevent them from taking the risks they took some time ago.
Mobius also noted that a 'very bad' crisis may emerge within a few years as stimulus money to the tune of US$ 2 trillion globally would add to more liquidity and hence, financial volatility. The emerging markets guru has also predicted a number of short, dramatic corrections in stock markets in the short term, saying that corrections of the order of 15 to 20% are nothing when there is uncertainty all around.
Thanks to LiveMint
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