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Exactly What Caused Current World Economic Woes?  
User currently offlineSeptember11 From United States of America, joined May 2004, 3623 posts, RR: 21
Posted (5 years 1 month 1 week 2 days 19 hours ago) and read 3634 times:

I think I am little disoriented after reading numerous publications on declining economy. I can't quite put my finger on what caused current world economic woes. Can you?


Airliners.net of the Future
92 replies: All unread, showing first 25:
 
User currently offlineKlaus From Germany, joined Jul 2001, 21353 posts, RR: 54
Reply 1, posted (5 years 1 month 1 week 2 days 19 hours ago) and read 3613 times:

Lack of proper state oversight (primarily in the USA and Britain, but to some extent elsewhere as well) allowing basically a gigantic pyramid scheme being created primarily by banks which promised illusionary returns on "investments" which were actually just wasted and consumed for the most part. Everything else followed from there.

Unregulated capitalism on the loose running into the usual greed-induced feeding frenzy and as usual in such cases leading to a major crash.

Basically the financial equivalent of a drinking binge with a temporary high, resulting in a prolonged recovery with probably some permanent damage.


User currently offlineER757 From Cayman Islands, joined May 2005, 2431 posts, RR: 7
Reply 2, posted (5 years 1 month 1 week 2 days 18 hours ago) and read 3588 times:



Quoting Klaus (Reply 1):
Basically the financial equivalent of a drinking binge with a temporary high, resulting in a prolonged recovery with probably some permanent damage.

Nice analogy  drunk   fever 

What I've been thinking about lately is - for the U.S. at least, things seem to have collapsed disproportionately to the true state of affairs. Unemployement is about 8 - 9% which means more than 90% of people still have jobs. Mortgage defaults are less than 10% which means 90% of people are still paying on time. So, why are the banks all bleeding red ink when only 10% of their loans are toxic? I am no economist (obviously) so I hope someone can explain it.


User currently offlinePPVRA From Brazil, joined Nov 2004, 8875 posts, RR: 40
Reply 3, posted (5 years 1 month 1 week 2 days 18 hours ago) and read 3582 times:

Our flawed central-banking system and a monetary policy called "Quantitative easing".


"If goods do not cross borders, soldiers will" - Frederic Bastiat
User currently offlinePar13del From Bahamas, joined Dec 2005, 6729 posts, RR: 8
Reply 4, posted (5 years 1 month 1 week 2 days 18 hours ago) and read 3573 times:

Here's another one, a new way to define success. Company loose 1 billion dollars with a projected loss the following year of 1.5 billion. Fire CEO, hire new CEO, company looses 1.2 billion and not 1.5, pay the CEO a huge bonus for the success of the company.

Millenia ago, bonus's were paid by companies making money, not loosing it, new financial times lead to new workers whose focus is not in the ultimate success of the company, but the numbers required to be regarded as a success.


User currently offlineDreadnought From United States of America, joined Feb 2008, 8711 posts, RR: 24
Reply 5, posted (5 years 1 month 1 week 2 days 18 hours ago) and read 3573 times:



Quoting Klaus (Reply 1):
Lack of proper state oversight (primarily in the USA and Britain, but to some extent elsewhere as well) allowing basically a gigantic pyramid scheme being created primarily by banks which promised illusionary returns on "investments" which were actually just wasted and consumed for the most part. Everything else followed from there.

Unregulated capitalism on the loose running into the usual greed-induced feeding frenzy and as usual in such cases leading to a major crash.

Thanks for the anti-capitalist talking points, but I think he was looking for real information.

Ever since the arrival of the credit card in the 60s, we've become a nation that puts everything on credit.

Buying a house on mortgage is understandable and valid - it's been done that way for centuries, it's a long term investment and as long as the buyer has skin in the game (i.e. assumption of risk by putting some of your own money) it makes sense. Cars too, with the same caveats.

But now you have millions of people who buy cars and house on credit with no money down. You buy furniture on credit. Go to Best Buy and buy TVs, DVD players, stereos and kitchen appliances on credit. You can even get a credit card for buying stuff at Target, for pete's sake. It fueled our economy for a while, but now everyone (broadly speaking of course) is overleveraged.

Here is the painful part. Our government in Washington is telling banks that they should start lending again to consumers. NO! That's not what we need. That's what got us in trouble, guys - lending to people who could not afford what they were buying. It's got to stop. Credit card limits should be capped at 10% of your annual salary (in total - whether you have 1 or 5 cards). Credit purchases for furniture, stereos etc. should be shut down. Houses and cars should not be sold on credit unless you can put at least 20% down.

That means no more ARMs, no more sub-prime mortgages. If you can't afford to put in the 20% down payment, and you can't apply your 401k or IRA towards it, sorry, you'll just have to rent. A nice home in the suburbs is not a right - it's something you have to earn.

That will necessarily mean a market contraction, maybe by as much as 20 or 30%, all in one year. The good news is that the correction will happen quickly, and within a year demand should be back to normal, I should think. But no question, in the short term it would be a hard knock, and no politician will accept it (none of our current bunch anyway).

Another thing to do is to revise mark-to-market rules, which forced otherwise profitable banks to take huge losses on unrealized market fluctuations. All the banks and mortgage-holders which had a lot of property in markets where the housing prices have dropped were forced to rewrite the asset values by up to 40-50%, even if the homeowners were doing fine and paying on time. The law should be rewritten to not force a revaluation unless the homeowner is more than a month in arrears.

But of course, I have not heard any politician talk about these steps. They just want the banks to "start lending again", so that we can put ourselves from the fire right back into the frying pan where we started, instead of turning down the heat.



Veni Vidi Castratavi Illegitimos
User currently offlineKlaus From Germany, joined Jul 2001, 21353 posts, RR: 54
Reply 6, posted (5 years 1 month 1 week 2 days 18 hours ago) and read 3568 times:



Quoting ER757 (Reply 2):
Unemployement is about 8 - 9%

The numbers reduced to only those people getting unemployment benefits are deceptive.

Quoting ER757 (Reply 2):
So, why are the banks all bleeding red ink when only 10% of their loans are toxic?

Because the actually failed or failing loans are just the tiny tip of the iceberg (or the pyramid, in keeping the image). The huge bulk of the problem is the mass of speculative derivatives hooked to the original loans which — without proper oversight — have become a much larger problem by themselves. Without the derivatives neither the extent of lending nor the extent of financial consequences for the entire system would have happened.

Quoting PPVRA (Reply 3):
Our flawed central-banking system and a monetary policy called "Quantitative easing".

Not the cause. Just a marginal influence on the side.


User currently offlineDreadnought From United States of America, joined Feb 2008, 8711 posts, RR: 24
Reply 7, posted (5 years 1 month 1 week 2 days 18 hours ago) and read 3568 times:



Quoting ER757 (Reply 2):
So, why are the banks all bleeding red ink when only 10% of their loans are toxic? I am no economist (obviously) so I hope someone can explain it.

That relates to mark-to-market. I explain it briefly above.



Veni Vidi Castratavi Illegitimos
User currently offlineAirframeAS From United States of America, joined Feb 2004, 14150 posts, RR: 25
Reply 8, posted (5 years 1 month 1 week 2 days 18 hours ago) and read 3561 times:



Quoting September11 (Thread starter):
Exactly What Caused Current World Economic Woes?

The media.



A Safe Flight Begins With Quality Maintenance On The Ground.
User currently offlineKlaus From Germany, joined Jul 2001, 21353 posts, RR: 54
Reply 9, posted (5 years 1 month 1 week 2 days 18 hours ago) and read 3561 times:



Quoting Dreadnought (Reply 5):
Thanks for the anti-capitalist talking points, but I think he was looking for real information.

Ever since the arrival of the credit card in the 60s, we've become a nation that puts everything on credit.

Sorry, but unregulated capitalism is the clearly verifiable cause of the problem here.

The lack of oversight of the derivatives market in the US and Britain have been the root cause for both the defaulting "investments" which now paralyze the financial system and for the much smaller problem of actually defaulting loans. Without the leverage introduced through derivatives this would be a much smaller problem, if it would exist at all.

The fuel for the overextended credit lines was the unregulated derivatives market. Without that there would not have been the credit volume available you're (justifiably) critical of.


User currently offlineMir From United States of America, joined Jan 2004, 21092 posts, RR: 56
Reply 10, posted (5 years 1 month 1 week 2 days 18 hours ago) and read 3543 times:



Quoting September11 (Thread starter):
Exactly What Caused Current World Economic Woes?

Very simply, the perfect storm union of:

A) People who buy things with money they don't have
B) People who sell to people without regard to whether they will be able to get paid or not.

Both are going to have to stop.

-Mir



7 billion, one nation, imagination...it's a beautiful day
User currently offlineAirframeAS From United States of America, joined Feb 2004, 14150 posts, RR: 25
Reply 11, posted (5 years 1 month 1 week 2 days 18 hours ago) and read 3539 times:



Quoting Mir (Reply 10):
A) People who buy things with money they don't have
B) People who sell to people without regard to whether they will be able to get paid or not.

Add:
C) The media who speculates that something might happen that will produce more fears into citizens.



A Safe Flight Begins With Quality Maintenance On The Ground.
User currently offlineDreadnought From United States of America, joined Feb 2008, 8711 posts, RR: 24
Reply 12, posted (5 years 1 month 1 week 2 days 17 hours ago) and read 3509 times:



Quoting Klaus (Reply 9):
The fuel for the overextended credit lines was the unregulated derivatives market. Without that there would not have been the credit volume available you're (justifiably) critical of.

If the government had not stuck it's nose in the business in an attempt to do social engineering, there would not be any such things as "sub-prime" mortgages to go bad in the first place. Only the government could pressure the industry into offering excellent credit terms with no money down, and little in the way of creditworthiness or revenue checks. Without government involvement, all mortgages would have a reasonable percentage of money down as a requirement, and banks would have ensured that the applicant had a solid credit history and sufficient revenue. The only reason they relaxed on those rules were that 1) govenment told them to, and 2) government created Fannie and Freddie to help liquidate and resell them.

It's the law of unintended consequences - government tries to make housing cheaper, and ends up blowing up the industry.



Veni Vidi Castratavi Illegitimos
User currently onlineFlighty From United States of America, joined Apr 2007, 8203 posts, RR: 3
Reply 13, posted (5 years 1 month 1 week 2 days 17 hours ago) and read 3498 times:

First, things really aren't that bad. The world is a little screwed up but it will unscrew itself. There is more wealth-creating material lying around than ever before. Happily, a lot of it is environmentally friendly too.


I would say the media was hyping a "coming recession" way back early in 2007, when all was well. It started when gas prices rose. Traditionally, some say "oil shocks" can cause economic crises. It might have done that through the mortgage market.

But, no need to blame anyone outright. The US government, as voters commanded, supported unsustainable bubble home buyers and had a mandate to hold up prices on them. Low interest rates result in home prices spiking, which voters just love. Tax benefits to mortgages also cause home prices to spike, which voters also love. So the voters wanted this campfire.

The "crisis" has also made some things clear about executive compensation. They were compensated asymmetrically when gambles paid off (i.e., for $100 million extra, the executive could pocket $10 million). Yet, when the gambles lost, did the company charge the executive for the loss? Did they send them to a torture chamber? Unfortunately not. The point is, asymmetric executive rewards for risk-taking put them out of step with shareholders. This caused for example, the shareholders of AIG or Citi to lose all their wealth. Oops! But the executives got paid anyway. Of course, that strategy was disastrous for shareholders and the financial system. Ideally, an executive will be just like a shareholder (say, locking their shares up for 6-8 years after they leave). Shareholders absolutely hate losing all their money. This is a good safety mechanism, or it should be.

Here is how the gambling went in Vegas terms. An executive can go to Vegas with a $1 billion bankroll, and play hands of poker. 99 times out of 100, he can walk away with $10 million profit. He looks so smart! But it was easy, because he had such a big bankroll, he never ran dry on losing streaks! So he almost always won. The other 1 time out of 100, he loses the whole $1 billion. Oh dear! Maybe it is time to "pursue other interests" at the ski home in Aspen for Mr. Executive. Can't win 'em all, he tells cleaned out shareholders.

So in reality, he was not creating value, he was simply gambling, with zero value creation. By risking the entire bankroll, he put the entire company at risk, which resulted in some good years, always with a risk of disaster. The problem is, the executive will pursue the "disaster" strategy unless his incentives are created otherwise. They are paid well to take inappropriate risks, so that is what they do.


User currently offlineSTT757 From United States of America, joined Mar 2000, 16693 posts, RR: 51
Reply 14, posted (5 years 1 month 1 week 2 days 17 hours ago) and read 3492 times:



Quoting September11 (Thread starter):
I think I am little disoriented after reading numerous publications on declining economy. I can't quite put my finger on what caused current world economic woes. Can you?

What started everything was the outrageous spike in the price of oil, it was being manipulated by speculators and no one in power (particularly oil friendly Bush administration) wanted to try and reign that in. The spike in oil prices meant big businesses started to stop growing which lead to suppliers and other smaller businesses to start laying people off which meant some individuals who were living pay check to pay check started to default on their mortgages, which caused a glut of foreclosed homes which tanked existing home prices which in turn lead to home builders not being able to sell new homes and that popped the housing bubble which had been building to absurd levels in some parts of the Country.

The mortgage crisis then sparked the financial crisis, banks and investors quickly realized they were up to their necks in bad loans and mortgages they should not have approved. Not only that but these banks were allowing investors to come in and invest in these bad assets, which caused the investment community to tank.

And now we are where we're at.



Eastern Air lines flt # 701, EWR-MCO Boeing 757
User currently offlineKlaus From Germany, joined Jul 2001, 21353 posts, RR: 54
Reply 15, posted (5 years 1 month 1 week 2 days 17 hours ago) and read 3492 times:



Quoting Dreadnought (Reply 12):
If the government had not stuck it's nose in the business in an attempt to do social engineering, there would not be any such things as "sub-prime" mortgages to go bad in the first place.

There wouldn't have been many if any sub-prime mortgages if derivatives hadn't allowed the banks to inflate their lending without actually having the capital to back them up.

The mortgages are not the root cause of the problem, nor the cause of its massive extent which by far exceeds the volume of the mortgages themselves.

Without the artificial (and illusionary) leverage through derivatives lending would have remained constrained and even the same number of defaults would have been just a nuisance. The massive crash and financial market paralysis we're seeing now has been caused by unregulated (and largely fraudulent) speculation.

It's almost a textbook example of why proper regulation is essential to keep capitalism stable and viable in the long run. If greed and egoism run free, the market will end up in wild oscillations which can lead to self-destruction of the entire system. Pretty much like any self-reinforcing system without proper damping.


User currently offline757GB From Uruguay, joined Feb 2009, 676 posts, RR: 1
Reply 16, posted (5 years 1 month 1 week 2 days 17 hours ago) and read 3490 times:



Quoting Dreadnought (Reply 5):

Thanks for that post. It explains a few things I've been trying to understand.

Regards,
GB



God is The Alpha and The Omega. We come from God. We go towards God. What an Amazing Journey...
User currently offlineDreadnought From United States of America, joined Feb 2008, 8711 posts, RR: 24
Reply 17, posted (5 years 1 month 1 week 2 days 17 hours ago) and read 3467 times:



Quoting Klaus (Reply 15):
There wouldn't have been many if any sub-prime mortgages if derivatives hadn't allowed the banks to inflate their lending without actually having the capital to back them up.

The mortgage-based derivatives were a reaction to having to sell these mortgages in the first place. You are putting the chicken in front of the egg.

Housing prices rose steadily for the past 100 years, accelerating a little with the first CRA and then skyrocketed in the 90s when Clinton really stepped on the gas. If housing prices fell across the board around 50%, we should be about back where we should be according to the 100 year trend.

Ironically, doing the reforms I recommended and allowing the markets to fall would result in far more affordable housing than the government was ever able to accomplish  Smile



Veni Vidi Castratavi Illegitimos
User currently offlinePrebennorholm From Denmark, joined Mar 2000, 6289 posts, RR: 54
Reply 18, posted (5 years 1 month 1 week 2 days 16 hours ago) and read 3450 times:



Quoting September11 (Thread starter):
I can't quite put my finger on what caused current world economic woes. Can you?

It is three different things.

3 x G

Governance, greed and Greenspan.



Always keep your number of landings equal to your number of take-offs, Preben Norholm
User currently onlineFlighty From United States of America, joined Apr 2007, 8203 posts, RR: 3
Reply 19, posted (5 years 1 month 1 week 2 days 15 hours ago) and read 3418 times:



Quoting STT757 (Reply 14):
What started everything was the outrageous spike in the price of oil, it was being manipulated by speculators and no one in power (particularly oil friendly Bush administration) wanted to try and reign that in.

I would love to say you're wrong. But oil was such a big drag on us at the moment when we had no cash to spare. We should not have been so vulnerable to it. We had a big huge problem that the oil spike may have helped uncover.

The "crisis" happened because of the law of large numbers. The crisis COULD happen so eventually it did. It was destined to happen. The policies and laws we had locked us into this result. We had no safety mechanisms to prevent these diseases from happening. But we are learning, hopefully.


User currently offlineTugger From United States of America, joined exactly 8 years ago today! , 5251 posts, RR: 8
Reply 20, posted (5 years 1 month 1 week 2 days 14 hours ago) and read 3380 times:



Quoting Dreadnought (Reply 12):
Without government involvement, all mortgages would have a reasonable percentage of money down as a requirement, and banks would have ensured that the applicant had a solid credit history and sufficient revenue. The only reason they relaxed on those rules were that 1) govenment told them to, and 2) government created Fannie and Freddie to help liquidate and resell them.

It's the law of unintended consequences - government tries to make housing cheaper, and ends up blowing up the industry.


You are being far too simplistic in your placing of blame, the government does share some of the blame but so does business since it did not regulate itself and find a balance point as both the administration and Greenspan thought it would. The crisis is due to a combination of factors, and party and administration errors that lead us to where we are today. As an example of a counter argument:

The requirements were still there, the banks didn't have to make the loans if they did not operate in the area. And when they did make loans that conformed to the CRA they were very careful about the applicants and the stats show the default rate on these loans were not worse than the industry average.... until CDO's came along and disconnected risk from the loans. Then the banks didn't care about anything but the fees they could make off the loans since they would just sell them quickly to the market.

Also the congress, as a whole, put new requirements on Fannie and Freddie which opened the price escalation even more when they passed requirements that Fannie (or Freddie) use third party property value estimators. Republicans liked it because it placed more of the process into private business hands, Democrats liked it because it allowed more loans to be processed. Prior to this Fannie used their own estimators who did far more research and at a much slower pace, with the third part estimation banks influenced them and could get "an estimate to justify the loan". This helped lead to the insane home price escalation.

Quoting Dreadnought (Reply 17):
The mortgage-based derivatives were a reaction to having to sell these mortgages in the first place. You are putting the chicken in front of the egg.

Remember the whole "chicken or the egg" thing is about "which came first" since you need one to have the other. And the derivatives were not a reaction CRA mortgages, they were around a long time before and their use for sub-prime loans was a reaction to the loosening of lending standards the business friendly Bush administration encouraged. You can see this by the fact that it wasn't until the Bush era changes in regulations came about that CDO's became vehicle for sub-prime loan offloading. I am not saying that loosening standards is the wrong thing to do but that to do so and also decreasing regulatory oversight is not wise.

Quote:
From 2003 to 2006, new issues of CDOs backed by asset-backed and mortgage-backed securities had increasing exposure to subprime mortgage bonds. Mezzanine ABS CDOs are mainly backed by the BBB or lower-rated tranches of mortgage bonds, and in 2006, $200 billion in mezzanine ABS CDOs were issued with an average exposure to subprime bonds of 70%.

http://en.wikipedia.org/wiki/Collate...bligation#Subprime_mortgage_crisis

Quoting Dreadnought (Reply 17):
Housing prices rose steadily for the past 100 years, accelerating a little with the first CRA and then skyrocketed in the 90s when Clinton really stepped on the gas. If housing prices fell across the board around 50%, we should be about back where we should be according to the 100 year trend.

The CRA was not the reason for the failures, the banks offloading of all risk and the reduction in regulatory oversight was. That in conjunction with the enabling of Greenspan opened up a can of home price escalation the ran on for almost two decades.
The CRA itself was first implemented in 1977 and the Bush administration and congressional Republicans has a chance to change it and address the concerns in 2005 but did not do anything. If the CRA was to blame why did it not have any effect until the last eight or so years? Once you uncouple risk from the loans that the banks make you can guess what happens. And did.

Quote:
Fresh off the false and politicized attack on Fannie Mae and Freddie Mac, today we’re hearing the know-nothings blame the subprime crisis on the Community Reinvestment Act — a 30-year-old law that was actually weakened by the Bush administration just as the worst lending wave began. This is even more ridiculous than blaming Freddie and Fannie.

The Community Reinvestment Act, passed in 1977, requires banks to lend in the low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly. But it’s even more ridiculous when you consider that most subprime loans were made by firms that aren’t subject to the CRA. University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations. As former Fed Governor Ned Gramlich said in an August, 2007, speech shortly before he passed away: “In the subprime market where we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat.”

http://www.businessweek.com/investin...hives/2008/09/community_reinv.html
( What's really fun is to read the 'opinions' section that follows this blog article, they get into it almost as well as we do here! Almost...  Smile )

This crisis is as much Capitalist based as it is social engineering but the primary actor was what is normally in between those two ends of the spectrum: Rules, Regulation, Requirements. All of which must be imposed by and controlled by the government to ensure that all players in a market play be the same rules (would you really want to fly on a plane that was not designed to FAA regulations and requirements? EAA is one thing, but for a commercial airliner?). The real problems is separating good government regulation from bad or overly burdensome regulation. And I can't think of anyway to actually change that.

Tugg



I don’t know that I am unafraid to be myself, but it is hard to be somebody else. -W. Shatner
User currently offlineDfwRevolution From United States of America, joined Jan 2010, 912 posts, RR: 51
Reply 21, posted (5 years 1 month 1 week 2 days 13 hours ago) and read 3367 times:



Quoting Klaus (Reply 1):
Lack of proper state oversight (primarily in the USA and Britain, but to some extent elsewhere as well) allowing basically a gigantic pyramid scheme being created primarily by banks which promised illusionary returns on "investments" which were actually just wasted and consumed for the most part.

The U.S. subprime mortgage crisis may have been the tipping point, but Europe's lending practices are looking significantly worse than the America's problems. And it isn't fair to put Europe's woes on the UK either.

Quoting Klaus (Reply 9):
Sorry, but unregulated capitalism is the clearly verifiable cause of the problem here.

You cannot state this as fact. It may be a well informed opinion, but that is all.

I disagree that unregulated capitalism was the "clear cause" of this mess because the government was massively involved in the economy before things went to hell. You are going to say that we didn't have the right kinds of regulation, which aside from being the most obvious statement imaginable, fails to address the conflict in interests spawned when the government meddles with the financial services of a $14 trillion dollar economy.

Naturally, the purpose of regulation is to establish rules that shape the allowable conduct for those in the financial services sector. That sounds all well and good, but government is totally and completely incapable of stopping there. Two examples are particularly relevant today:

1. The federal government bailed-out the poorly managed Long Term Capital Management fund in 1998

2. Fannie Mae and Freddie Mac, both chartered by the government to alter the financial services market, directly contributed to the crisis by purchasing hundreds of billions of dollars in securities backed by subprime loans

Both actions were taken for short-term gain and gave both spoken/unspoken assurance to the commercial financial institutions that the subprime market was safe. If worse came to worse, the government would intervene. Regulation led to participation which led to a loss of accountability. IMO, I don't think it's possible for the government to simply regulate without getting involved.

Finally, there are successful industries that essentially police themselves and create their own set of standards. How active is the federal government in regulating engineering practices in comparison with financial services? What is the rate of building failures to bank failures? Engineering disciplines have created meticulous building and testing standards because they are completely liable and accountable for their work. When failure is an option, you tend to do so more often.


User currently onlineFlighty From United States of America, joined Apr 2007, 8203 posts, RR: 3
Reply 22, posted (5 years 1 month 1 week 2 days 13 hours ago) and read 3339 times:



Quoting DfwRevolution (Reply 21):
You are going to say that we didn't have the right kinds of regulation, which aside from being the most obvious statement imaginable, fails to address the conflict in interests spawned when the government meddles with the financial services of a $14 trillion dollar economy.

About regulation, one thing is antitrust. If we didn't let banks get so big and so connected, (which they wanted), then nothing would have been too big to fail. No financial bailouts would have been necessary (nor should they be!)

That's one kind of regulation we can talk about.


User currently offlineCannibalz3 From United States of America, joined May 2001, 392 posts, RR: 0
Reply 23, posted (5 years 1 month 1 week 2 days 13 hours ago) and read 3321 times:

This thread is a good one - people all over are asking themselves the same question. Many of the reasons have been highlighted here.
Check out Frontline's show on the economic meltdown for the blow-by-blow. They do a good job of using simple ideas to explain complex happenings without dumbing it down.
http://www.pbs.org/wgbh/pages/frontline/meltdown/view/


User currently offlineWarRI1 From United States of America, joined Sep 2007, 8510 posts, RR: 10
Reply 24, posted (5 years 1 month 1 week 2 days 12 hours ago) and read 3318 times:

I cannot say what caused the problem, but here are some ideas how to prevent another finanicial collapse.



http://www.nytimes.com/2009/03/11/business/economy/11fed.html?em



It is better to die on your feet, than live on your knees.
25 Pyrex : I would bother posting a picture with the evolution of the default rate in mortgages vs unemployment and oil price but we wouldn't want facts to get
26 PPVRA : It's the very cause. Nothing marginal about it, those policies have very big impacts. Unfortunately the banks don't have the capital to back much of
27 MOBflyer : My understanding is that Bush did it.
28 StasisLAX : Executive greed - banking industry greed - political greed.... Human greed.
29 Arrow : I thought the following item was the best explanation I've heard on how we got into this mess: Subject: Bank Crisis in Terms I Understand Heidi is th
30 MadameConcorde : I hear a lot of talking about derivatives being a critical element amidst this financial crisis. Can somebody explain derivatives? How about the centr
31 RedFlyer : There's actually quite a bit of regulation in all capitalist systems, including here in the U.S. Some would even say too much. But more to your point
32 AverageUser : Here's a little something from a rather famous 19th C. theorist: As a matter of fact, since 1825, when the first general crisis broke out, the whole i
33 Post contains links Baroque : But you do need to add: to get the full flavour of the disaster. And arguably, even then, the sub-primes might not have gone as well if there had not
34 Dougloid : If I had to take a stab at it, I'd list the following. 1. Little regulation and oversight in the financial industry, which led to lax lending practice
35 Us330 : Basically agree with the intent and logic of the argument--don't buy things you cannot afford, and don't make it possible for consumers to do so--but
36 Alessandro : So no one thinks population growth has anything to do with it? It took 150 years for the population to double between 1750 to 1900, today it took 40 y
37 Post contains links StarAC17 : It has but where has most of that wealth gone, it has gone to the wealthiest people in not just the US but the entire world. Which is what Reagan pre
38 Flighty : Agree 100%. Though, sometimes executives set their OWN rules and defrauded the shareholders. But, that should have been prevented. Solution to that i
39 Dougloid : It's important but tangential, Mr. Malthus. Be careful what you wish for, too. When the eugenics machine finally gets up to speed it will be the weak
40 Hawaii12 : frankly, i like to blame my old boss, joe cassano. he was the chief at AIG Financial Products. He was allowed to insure mortgage backed securities (vi
41 Alessandro : My name isn´t Malthus. Nor do I wish to do a Roman "reduction" after battles lost.
42 MD-90 : The Federal Reserve: Devaluing our currency and making the world poorer since 1913. Thanks a lot Alan "I Love To Inflate" Greenspan.
43 Baroque : In theory the large presence of super funds in the markets would prevent this, and it probably played its part in keeping the mountain stable long be
44 Us330 : I don't see how population growth has anything to do with this. Yes it has grown so much. But more people are also better off now in 2009 than they w
45 N174UA : Sure - derivatives are "derived" from the value of the underlying asset. There are four general categories of derivatives. 1. Options (there are "Ame
46 Yellowstone : Copied and pasted from a post on DailyKos: The Evolution of the Credit Default Swap Stage 1 (Perturbo mutans) You have just made a loan to someone, an
47 Wardialer : I know what caused the US to sink in the first place....I can tell you that. And the answer is......OUTSOURCING. Can come up of other ideas on why our
48 Baroque : Formidable you two. First a detailed explanation of what they are and then the timing of how the bastards evolved. News Wardialer, with no outsourcin
49 Post contains images NAV20 : No-one seems to have mentioned Milton Friedman yet? He was the guy who (once Keynes was dead and Galbraith had retired) set himself up as 'world's lea
50 LTBEWR : One critical area is that of the politicans, of both parties, corrupted by the need for huge amounts of campaign monies yet still get votes from the m
51 Dreadnought : Popular myth for electioneering, but essentially a paper tiger. BMW, for instance manufactures is Z-line sports cars and SUVs in South Carolina and e
52 Baroque : Scattological piece of information. Keynes and Hayek (the precursor if you like of Friedman) while at daggers drawn over economics were great friends
53 Post contains links Francoflier : It was the mexicans. http://www.topgear.com/uk/jeremy-clarkson/clarkson-finance-2008-12-01 Well at least according to J Clarckson...
54 MadameConcorde : I never expected so much detail. Thanks a lot for sharing your financial knowledge with us.
55 Dougloid : I like my own analysis of credit default swaps with apologies to Peter Finley Dunne. Let's say that Gallagher the bricklayer and O'Mara the carter ar
56 Post contains links PPVRA : Federal Reserve Governor Donald L. Kohn, April 1, 2004 Quite a few interesting quotes in that piece. Recommended reading.[Edited 2009-03-12 11:07:36]
57 StarAC17 : That will kill any of the spending that is happening right now and that will basically stop everything worse than it is. However the banks in the US
58 Alessandro : The demand for resources are one, pollution is another. Even if the baking owens and production of ingredients are much better today, there´s more p
59 PPVRA : An increase in interest rates would also help rebuild savings rates. In general, yes, but not in a crucial way: money and banking. Monetarism is a ty
60 Post contains links PPVRA : You might like this: http://crisisofcredit.com/ A bit over-simplified perhaps and might not cover everything, but pretty neat.[Edited 2009-03-12 14:3
61 NAV20 : I think you're absolutely right that governments are concentrating almost entirely on providing 'painkillers' (in the form of lower interest rates an
62 757GB : That's what seems so crazy about this NAV20, I agree with that concept and wonder to what extent economy has become a game of the mind: to make peopl
63 Dougloid : Where I live the population has stayed relatively stable in the last 100 years. Some places here have lost population over the last hundred years. It
64 Post contains links UAL777 : Wrong. Very wrong. The eastern European countries are in VERY deep trouble. http://www.telegraph.co.uk/finance/f...-as-fears-of-debt-crisis-grow.html
65 Baroque : True, but not letting the Christian right (or Islamic right for that matter) hijack responses to countries that do make attempts to control their pop
66 NAV20 : I think that that's the entire size of it, 757GB. The politicians are scared stiff of the consumer getting 'sensible' for once........ But it'll happ
67 Dougloid : You know me....that was a gentle push to get the brother to do a little reading and get grounded in reality: "Who the heck IS this Malthus fellow, an
68 Arrow : You nailed that one Baroque. Ardent capitalists have never been able to deal with the fact that without growth, capitalism dies. When that bangs up a
69 Post contains links Baroque : Mmmm, but I can see a few of these things getting unpleasant during your most likely lifetime. Just this time around, while western countries are ago
70 Dougloid : There is a great leveling going on. As my mother used to say "Lo! How the mighty have fallen." Bernie Made-off's in jail. The stripping and downvalui
71 Alessandro : Dougy, impressive since US has gone from 92 million to 305 million during the same period. Cars are the most common transportation still.
72 Na : Greed and lack of control, which blinded the experts and managers, and also some politicians responsible. And like in 1929 its mainly US made. What c
73 757GB : " target=_blank>http://crisisofcredit.com/ Thanks for sharing PPVRA. I've shared it with friends as well as it is very clear. Regards, GB
74 NAV20 : I'd tend to say 'ignorance,' first and foremost. Even after a professional lifetime spent in 'town development' - 'property,' in shorthand - I simply
75 Dougloid : And ratified by everyone else just like last time, because who among you said "Nope! I ain't gonna play in that market and make all the money I can w
76 Baroque : I doubt if any nation will turn out to have clean paws, or perhaps I should say trotters. Different laws make for different manifestations of the mal
77 Post contains images Dougloid : I was speaking in very general, geopolitical, looking over the last 125 years terms. I get awfully tired of the moral superiority noises emanating fr
78 Post contains links AverageUser : Here's a recent example of what has caused a major depression in a modern economy, and what happened afterwards. www.hi.is/files/skjol/THE_FINNISH_GRE
79 Post contains links AverageUser : Two company names that often appear on Iowa foreclosures - Deutsche Bank and Mortgage Electronic Registration System, or MERS - can be even more puzz
80 Dougloid : They're not strangers, though. They're either the real party in interest or the stalking horse for people who bought those gilt edged mortgage backed
81 Post contains links CasInterest : http://timesofindia.indiatimes.com/C...-are-worse/articleshow/4265611.cms Excellent article above as to what the G20 really has to work out next month
82 YWG : If you can blame one person for this mess, Robert Rubin would be your man. Do some googling and you'll soon understand why he once changed banking reg
83 Post contains links AverageUser : In the interests of not making any issues of national pride that you were referring to any worse, we should be happy that the German bank is only act
84 Dougloid : That's a very interesting blog and I have bookmarked it. I have also heard of foreclosures being dismissed because the alleged plaintiff could not pr
85 Baroque : Bloody hell, it IS just as Bird and Fortune said! What a mess. It is like pass the parcel on a dark night in a fog.
86 Dougloid : It is. It stands to reason that if a fellow wants to sue you, he ought to be able to produce the instrument he alleges is how you became indebted to
87 UAL777 : The problem is not that there is a lack of wealth; rather it was the squandering and over-leveraging of wealth by the U.S. and Euro financial institu
88 CasInterest : The US is only loosing in the trade because with a strong dollar everyone wants to export to the US. The US can't produce on it's own because it is t
89 Egmcman : Greed on the part of executives of the banks and products which didn't require deposits which would have been fine if the properties value increased.
90 Post contains links CasInterest : Here is another interesting take on the crisis that derives the current ills from the fall of the Berlin wall. http://money.cnn.com/2009/03/17/news...
91 Post contains links NAV20 : A tiny piece of 'good news':- "Richard John Macphillamy is the first person to be banned by the Australian Securities and Investments Commission under
92 Baroque : True but as Mr K said of a former financial person, so far the exercise is all tip and no iceberg.
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