Source Pravda.Ru

City Share Crash

54 bn.USD in one day. That is the extent of the share-value crash which hit the city of London on Friday.

Another Wall Street Crash (how low can it sink?) on Thursday saw the FTSE 100 Index crash down another 151.4 points, down 3,5% to 4145.9, reaching a 6-year low point.

The effect of dubious accounting standards in the USA with hints that the Enron and WorldCom scandals are only the tip of the iceberg, continue to send shockwaves rippling around the financial marketplace.

The more pessimistic analysts point towards a further 25% fall before the lowest point is reached. What is to be pointed out is that the model of market-economy-based capitalism currently in vogue is based partly upon speculation and not wholly upon real wealth, founded on a solid bedrock of industrial, agricultural and tertiary sector output.

In 1996, for example, US Federal Reserve Bank Chairman Alan Greenspan was complaining that “irrational exuberance” was over-valuing the US stocks market. Now, a lack in confidence caused by the enormous US current account deficit and poor accounting standards not only unseen, but unthinkable in the European Union, have led to a crisis which brings back reminiscences of the Great Crash in 1929, when real earnings were as difficult to pinpoint as today.

This economic model is not based upon real values, so when confidence reaches crisis point, or when the type of practice commonly used to make the system work leads to such crises in confidence, the model collapses, which appears to be more and more the norm and not the exception.