Well, yesterday saw one of the steepest falls in the BSE Sensex. 800 points down in a single day! Market indices everywhere are nosediving. Seems we will soon have negative indices. Price of gold, on the other hand, is skyrocketing. Are we going to have Great Depression Part II now?
How long will it be before the financial institutions regain public trust is a big question. Even the question 'Will they be able to do that?' seems harmless now. Greed is not good anymore.
The decision of the Reserve Bank to reduce the CRR by 150 basis points to increase liquidity is a welcome move. But liquidity cannot replace trust. At least, not for now.Going by the present trend, we will need a lot more money to stay where we are. That means that RBI will have to reduce the CRR as well as the other rates. However, that cannot solve the problem. We are facing high inflation as well. Increase in liquidity can have negative implications as well.
Financial institutions everywhere are failing. We have escaped so far because we are relatively isolated.
The financial crisis seems to be precipitating diplomatic crises as well. The spat between Iceland and Britain which went to the extent of invoking anti-terrorist laws to freeze the assets of a financial institution, is unfortunate but thought-provoking. We seem to be sitting on a time bomb without being aware of it.
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