INTERPRETATION OF FINANCIAL INFORMATION

Interpretation of Financial Information

Interpretation of Financial Information

Introduction

As financial institution and financial consultants, banks job is to be aware of what is occurrence in the world, foresee how events might influence their clients or their businesses and stay before the bend by taking activity to mitigate recognised risk. Banks can't rest just because things are going well now. Banks have to gaze ahead at what might or might not be.

Economic crises are as inescapable as rain in an English summer; yet precisely when it is going to rain is irritatingly unpredictable. The economic problems of 2008 may have features not seen before but rise and bust cycles have been with us for some time, viz. the tulip rush in 17th Century Holland, the South Seas Bubble of the 18th Century and the stock market rise and bust of the 1920s. There seems to be a dimming of collective recollection, myopia in the face of history, where the next cycle takes us absolutely by surprise.

There is some consensus about the causes of the economic problems of 2008 and beyond. In a nutshell, economic institutions loaned cash they did not have to persons who could not yield it back. To put it more mechanically, the difficulty was with 'leverage': banks scrounged cash to loan to sub-prime mortgagees making 'toxic assets' as the bubble in the housing market burst and interest rates went up. With the drop of Lehman Brothers numerous dreaded a international melt-down of economic markets and in September 2008 both the UK Chancellor of the Exchequer, Alistair Darling, and the French Finance Minister, Christine Lagarde, described it as the worst economic crisis since World War II (BBC 'The Love of Money' 2009). The loss of self-assurance in the banking world intended activity had to be taken. In the US a principle was put to Congress for the state to purchase the harmful assets so that banks could start lending again. With a US election not far away, Republicans in specific were sceptical and numerous voters accepted that this pattern of government intervention was a kind of socialism incompatible with their 'free market' principles. The principle was beaten in Congress; consequently the stock markets dropped very powerfully again. The more fundamental principle of the state evolving the major stockholder of foremost banks was taken up first by the Irish government and shortly after by the UK government portraying as guarantors for investors. Effectively the US had little alternative but to pursue suit, or risk vast amounts of cash raging torrent to the UK and Ireland. The really international environment of capital markets has not ever before been made so starkly apparent. Statements from the G20 summit underscored the significance of nations producing decisions of these kinds in consultation with one another. Eye-catching statements were also made about the require to curtail greed and unsuitable bonuses in the economic and banking sectors. Financial legislation should have sharper teeth so that bankers would not be permitted to make these ...