When the Nikkei average, the FTSE-100, the German DAX, and the French CAC-40 plunged into the deep, Dow Jones had no other choice, but to follow suit. The Industrial Average lost few hundred points for a day due to the drop in stock prices of some of the biggest companies listed on the exchange. As the market closed on Monday Dow was down to 9,955.50 points.

The big problems of the world economies started with the housing market bubble in the United States whose explosion led to the contamination of almost every single country in Western Europe. It was a pure Domino Effect beginning with the U.S. and then spreading to Western Europe and finally reaching Asia. Since banks wanted to look profitable to the shareholders they decided to give out loans and all kinds of financial instruments to risky borrowers. When the borrowers defaulted on their debts banks had to do some write offs, but this would be equal to recognizing losses. However, banks did not want to record losses and instead intensified the lending practice. As a result banks had in their balance sheets “balloony” assets that had to balance the real liabilities. Unfortunately no auditing company would recognize nonexistent receivables as assets, so banks had to write off few billions of their assets. This led to the bankruptcy of many prominent banks and to some mergers and acquisitions of other leading banking institutions.

Now not only that there are very few banks left in the US, but they are afraid to lend money to each other because they want to achieve high liquidity and do not want to risk with someone defaulting on their debt. This fear prevents banks from lending money to businesses and individuals, which will most certainly slow down economic activity and might even cause a depression.

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