When the bubble burst, private capital is unwilling to take risk. This caused the collapse of the credit market.
Read this article.
The Governments have to step in to provide funds to re-capitalise the banks, to guarantee bank deposits, to guarantee the credits of borrowers (i.e. homeowners, small businesses). In this case, what is the purpose of private capital?
This has happened in USA, UK, Singapore and many other countries.
What is the solution in the future? I believe that the capital has to be provided by the state (it is already happened) or by state-sponsored mutual funds. Ir should not be provided by private capital that are driven by short term gains.
2 comments:
i think gahmen intervention in our economic system should be kept to a minimum else we will slowly but surely lose more and more of our liberty..
the problem is noone knows whats the root cause of economic/financial crises and boom-bust cycles.. this does not exist naturally it is caused by something...
and that systemic problem is the central banks control of interest-rates/forex-rates, and allowing fractional-reserve banking to effectively print money out of thin air..
it is these practices that should be abolished once and for all...
Private capital (I think you meant private equity here) invests in non listed companies, with a view of making money through exit such as IPO, trade sale.
Their job is to make money. That is their purpose of existence.
Nothing else.
When bubble bursts, private equity run like everybody else including public equity, lenders, hedge funds, angels. This is normal.
It is not the job of private enterprises to assume risks that they cannot manage. If they die, would they expect anyone to bail them out?
If I can see or anticipate any risk, I would run to avoid that risk too.
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