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Dealing with problems in the banking and financial sector Dealing with problems in the banking and financial sector
by Joseph Gatt
2019-07-10 09:05:48
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Here are a few of the problems that you can encounter in your country's banking and financial sector.

Cyclical problems

Oversupply of cash and overinvestment: In some cases, banks supply too much cash to stimulate investment and consumption. This leads to several problems, including wasted investments, overconsumption, inflation. It can lead to recessions in the long run if investments are not being monetized and loans are not being repaid.

banki001_400Undersupply of cash and underinvestment: If you don't supply enough cash, there will not be enough investment and enough consumption, leading to slow economies. Many African countries don't supply enough cash as an austerity measure, which leads to stagnant economies. If you don't supply enough cash, it's always going to be the same people buying the same things, and the same people making money.

Raw material prices: raw material prices fluctuate, and can go way up or way down. Raw material price fluctuates based on climatic factors, along with the availability of cash supply. If too many countries are printing too much cash, raw materials are going to shoot way up. If not enough countries are printing cash, raw material prices are going to drop.

Transportation costs: You need transportation to supply goods, so if transportation costs are too high, the economy will slow down. If transportation costs are too low, that could lead the transportation industry to collapse.

Human resources availability: This is where quality education comes into play. Some countries have skilled labor shortages, others unskilled labor shortages. Labor shortages could lead the economy to slow down.

Temptation to cut corners: When there's an overflow of cash, investors could be tempted to cut corners. They will try to make money without putting in the necessary effort or providing the necessary service, leading the banking and financial system to collapse.

Structural problems

Mismanagement: When you loan investors’ money, you want to ask yourself: is this person going to manage the program properly? Mismanagement could be at the private sector level, or at the public sector level. Both investors and politicians could mismanage.

Nepotism: If you're blindly going to loan money because you're dealing with family and friends, and don't take ability to manage projects into account, you're going to hit a recession.

Corruption: If you're charging triple the asking rate for a project, or are receiving money when there's no project involved, you're going to hit a recession. If you're killing competitors because you're backed by the government and have the police and the army to back you up, and that you also do a poor job managing your monopoly, you're going to hit a recession.

Ageism: Nepotism is blindly trusting family and friends. Ageism is blindly trusting older people. If you blindly trust older people or educated people without getting an idea of their ability to manage their project, you're going to hit the recession.

Debt-led growth: Sometimes governments encourage debt to stimulate growth, and start dishing out loans without checking people's ability to manage projects. You'll hit the recession soon enough.

Empire building: Sometimes governments and the private sector get together and daydream about conquering the world economically. The government and banks blindly loan money to investors who intend to conquer the world. The problem is investors will be vacationing in Bali, Cebu, Bora-Bora or Aruba, and will be slow to make money. Historical examples include British banks loaning to anyone who wanted to invest in Latin America in the 19th century, or banks blindly loaning to anyone who wanted to start an internet business in the 21st century.

Bubbles: Sometimes rumors have it that some investments are fail proof. People keep investing and investing. Let's take an example. Suppose the biomedical industry is going to be the next big thing because the baby boomer generation needs medication. People are going to start blindly investing in any company that makes medication. Some companies will be good companies, but then, a few dozen


    
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