While the Fed is trying to bring the US banking crisis under control, things seem a little more complicated across the Atlantic.
The financial troubles that started in the US in 2008 had eventually spread to the European Union, then Greece, Spain and Portugal, where it became almost impossible for depositors to withdraw their money from the banks, and the debt-to-GDP ratio reached astronomical levels. Usually, recovery from such severe crises tends to last between five and ten years. Indeed, 2017 and 2018 were the years of global economic improvement, but in 2019, disruptions started again, worsening under the COVID-19 pandemic in 2020.
While the money and credit mechanism became distressed again with the pandemic outbreak, financial institutions began to seek alternatives to deal with the financial bottleneck. Financiers created new instruments for money and capital markets with the help of mathematics, and the algorithms they created by twisting mathematics, in a manner of speaking. However, a significant number of these instruments led to worse results than investments called “toxic assets” in 2008.
Economic sanctions imposed on many countries such as Russia accelerated the movement of money around the world, and due to the harsh regulations mostly in the United States, European banks began to accept as many deposits as they could from the citizens of the banned countries. In the meantime, the first cryptocurrency was created, offering investors to engage in high-volume transactions in a non-regulated territory. The truth was that even the most respected European banks, struggling with major liquidity problems, took action to attract coins of unknown origin.
“Coming Events Cast Their Shadows Before Them.”
Although today it would seem natural that a financial crisis arising in the United States could affect the EU, this time the problem will not be caused by the global connection of banking, but by the fact that the banking system has been doing things that are unwise. If the fear that the funds invested in new derivatives and capital market instruments created through intangible assets will not return prevails, Europe may experience a worse financial crisis than the one in 2008-2009.
Such bold and adventurous banking does not exist in Turkey yet. However, a considerable portion of domestic investors attach their money to those instruments abroad that I mentioned above. I remember that many Turkish investors called me in panic and rush during the collapse that occurred just before the 2008 crisis and devastated the stocks in the major US stock exchanges.
Therefore, I guess that these financial disturbances abroad will cause problems not for the banks, but for the holders of large savings. And I also think that Turkey will not be affected too badly by this crisis, being a country that has been in need of foreign funds, in corporate terms, for a very long time, yet has been paddling its own canoe all this time.