Can we establish a link between the contraction in the number of installment loans granted and the financial health of national and European stock exchanges? A quick point on a burning topical question.
A disturbing finding
The financial crisis we are experiencing in Europe started in 2008 and was directly exported from the subprime crisis in the United States. Subsequently, the awareness of the abysmal evolution of sovereign debts in Europe has considerably contributed to tarnish a financial activity flirting for months with the recession.
A consequence was soon apparent: the financial health of the banks deteriorated and the credit activity also with, as a corollary, a policy of granting loans and credits much less generous.
The causes of the financial crisis
The severe and lasting crisis plaguing and undermining Europe’s financial health has essentially three origins:
- Exporting the subprime crisis to the United States. In short, the US banks have granted mortgage loans to indebted households and have speculated in return on the upward trend in the market value of real estate. Alas, this disconcertingly naive scheme collapsed like a house of cards as soon as the real estate market turned around, producing the opposite desired effect;
- Financial speculation from European banks buying sovereign debt from severely indebted southern European countries. The banks have helped to seal the southern states by granting them large loans. On the flip side, some countries such as Greece, Ireland, Portugal have made partial defaults and Europe has had to grant credit discounts with corollary, bank failures;
- The endemic bad governance of states both European and across the Atlantic and even Asian – Japan in the lead. States spend far more than they earn tax revenue. The welfare state model that is well established in Europe is faltering on its foundations and social benefits must be reduced.
Your money and the purse
Between 2008 and 2011, the health of global stock markets was catastrophic. The returns on investment have been largely negative. Both stocks and corporate bonds have severely drunk the cup. A rule of thumb for small investors: invest only what you don’t need.
And now what am I going to do?
It seems that the sovereign debt crisis in Europe is now under control. Banking activity is slowly picking up and stock market assets are slowly but surely on the rise. It’s time to invest for the more adventurous.
Bank stocks, so long discarded, are slowly regaining their colors. Credit activity will undoubtedly still be very precarious in 2013 but 2014 should appear as the new dawn of credit activity.