Runaway, rampant, unchecked greed.
Exactly! The blame has to be spread far and wide. As greed grew many fell into it's trap.
Hi dave, <br />
Old Farm Guy has it right regarding the strategic cause. The tactical cause was the lack of/insufficiency of oversight/regulations to prevent/detect problems. That lack/insufficiency resulted from powerful financial interests making huge campaign contributions to legislators who promised to "get the government off the backs of business." In addition, those doing the gambling ("speculation") knew that if they won their bets, they could keep the money. If they lost on their bets, others would pay what they owed. It was a disaster waiting to happen.<br />
When the Glass-Stegal [sp,?] Act was repealed by Congress, one legislator predicted that a financial disaster would result from removing the necessary regulation. Unfortunately, he was right--about TEN YEARS before the meltdown.<br />
It's sort of like a situation where cows eat moldy hay that kills them. The hay is the "tactical" cause. The farmer's failure to keep the cows away from the hay--or to know that it is moldy--is the "strategic" cause. Good fences/regulations keep the herd/investors safe. When can go wherever they like, they may get into the moldy hay....
Frankly - Except the two biggest causes of the problem happened not just under the nose of regulators, but with their full cooperation and blessing. The housing crisis was caused by loose credit buyups by Freddie Mac and Fannie Mae - two entities so government related that they share common employees. The derivatives market was not just rubber stamped but actually endorsed by federal regulators. It wasn't a lack of regulation or government oversight - government oversight was arguably the biggest part of the problem. The problem was investors who depended on the government instead of saying to themselves "You mean I'm buying a home I know I can't afford?" or "You mean I'm buying into a fund that is backed by loans that are for homes that were purchased by people who can't afford them." What we need is a return to people being responsible - government oversight was rampant in both of these problems and didn't help one bit.
The derivatives market was "endorsed" by government regulators because they didn't really understand it. Why not? It was deliberately made UN-transparent in order to get by with skulduggery that was "legal"--sort of the same way people have created designer drugs that have a ring or two different from the illegal thing but still has the same intoxicating and addictive effects.
As a result, government oversight wasn't really oversight. Had Glass-Stegal not been repealed (by Republicans, at the hands of their plutocratic puppeteers), things might very well have gone differently.
Fortunately--for all of us--American car manufacturers are alive and Bin Ladin is dead. That's something we should all cheer, no matter what our political frame of reference happens to be.... Problems in both of those areas helped create a lack of confidence among investors.
Correction (grammar): Change "has" to "have" in the fifth line of my reply.
So you're saying that government regulators - highly paid people with mega authority who oversee millions of transactions per year - didn't understand the laws they were enforcing? Too, too funny. Pull the other one it has bells on. As for the auto industry, we would have been much better off as taxpayers had they allowed the auto makers to simply file for Chapter 11 bankruptcy protection and re-organize. The auto industry would actually be in better shape and tax payers wouldn't be in negative territory on GM stock to the tune of several hundred dollars per household. So who wants a "Chevy Volt?" Anyone? Anyone????
Nobody in the for-profit financial industry was going to lend money to the automakers following a bankruptcy. There was--and still is--a liquidity problem, especially for people/companies trying to get back on their feet.
Regarding the "highly paid people with mega authority," one part of the oversight problem goes back to the sainted Ronald Reagan, who cut the number of auditors/examiners in order to "get the government off the backs of business." Oversight and enforcement are separate functions. The oversight people depend on "boots on the ground" in order to know what's really going on. Cut the number of boots on the ground, and problems arise.
People/Countries spending money they hadn't got.....................
Just about sums it up, along with irresponsible banks lending money to people that they couldn't hope to repay
Derivitive exposure. Gambling with fake money. : )
Transparency is the key in financial transactions. Unfortunately, there are those who are actively fighting against financial transparency: "bad for business."
An overintrusive government is the problem. Freddie Mac and Fannie Mae overheated the housing market and the derivatives market was created with blessing and endorsement of government regulators to cover it up.<br />
Without an intrusive government, the banks never would have done that lending as they simply wouldn't have had the capital.
Would that have been when Dubya was President ?
Peza - Yes. You'll never see me working overtime to defend bush on some of the domestic issues. Though to be fair to him, he did stand in front of congress in 2006 and tell them that the Fannie and Freddie stuff needed to be reined in quick. (And was ridiculed for it by some of the same dems that now want to crucify him for it.)
Government and the Federal Reserve policy. Government decided that people who banks would never lend to would be lent too so the banks lent out and the Fed printed money and kept interest rates low enough to allow this.<br />
Of course the money printing and the low interest rates created an inflationary bubble in the housing market. The banks knew all the debt that was being created was worthless and created all kinds of derivatives to try and make it as secure as possible, with Government backing. Then like all bubbles it burst and took the whole banking sector with it because everyone realised that the derivatives they had bought were worthless.<br />
Government then quickly blamed the banks, churned out the rhetoric about evil and greedy capitalists wrecking the economy and because it's simpler to understand the rhetoric than the economics everyone bought it.<br />
"Bad guys did evil things because they're greedy" is a better headline than "The Market was destabilised by daft monetary policy leading to malinvestments pursued for unobtainable and utopian goals."<br />
So now America is in a position where it's running off Obama's (printed) stimulus money and that'll run out soon and when the money runs out Obama will be in a position where either he massively cuts government spending in order to finance the debt or he'll have to print more money.<br />
This will massively devalue the dollar, people will then sell their dollars which will cause a run on the dollar leading to hyperinflation and the total economic ruin of the US.<br />
If I were an American I'd be buying gold and silver and stocking up on at least two years worth of supplies. Also I'd be praying that the delegates nominate Ron Paul and that he gets elected, otherwise you're all screwed.
I agree with all but the last line of this. I keep scratching my head at this "Ron Paul as savior" thing. It reminds me of the adoration of Obama last time, and we see where that got us. I think Paul has a lot of things right, but unfortunately he's been good at telling us how the house burnt down but not much about how to rebuild. This is a time for a builder - not a Monday morning quarterback - and Paul seems to have all of the history and none of the go forward plans.
The problem has been the builders, the guys who wanted government to do more and thought government could solve problems. If you understand this you understand why Ron Paul talks about history so much and why people like him so much: his solution is really simple, cut government spending, stick to the constitution. The solution is not another builder, the solution is to get back to the policies which made America powerful in the first place.
Well I agree with that Ketsan - except at this point we also need a grow component and i think Paul misses that. We not only need to start living within our budget but also find a way to pay back what we've borrowed or the interest will kill us. As I said, I like what Paul says and don't disagree with it, he's right we've overspent and continue to because government got bloated. I guess my issue with Paul - and I admit that it's my issue not his - is kind of what some liberals say about Jesus Christ. "I respect what you say, but please protect me from your followers." Too many Paulites look at Paul as a savior instead of someone who is simply saying what even hated people like Rush Limbaugh have been saying for 20 years. Our government tries to do to many things and spends too much.
Paul cannot bring himself to be so crass as to utter his basic belief: "Every man for himself." He absolutely detests taxes of any kind, hence his stance against the Iraqistan wars. He knows they have to be paid for, and he doesn't feel like paying. Ditto his stance on drug legalization: he figures the taxes derived from legal drugs would help keep his own taxes much lower.
He is a long-time believer in the failed "philosophy" of Ayn Rand (named his own son after her). Ayn Rand liked to wrap herself in the flag of individualism, when, in reality, she was at heart, a self-centered atheist (who needs God, anyway?) who also was in favor of abortion (who needs a g***amn baby, anyway?) Her "philosophy," boiled down, was that people should be totally "objective" about their decisions. The problem is that when people act only in their own self interest, they are being very subjective, not objective--self-absorbed, bordering on narcissistic. When I was a sophomore in high school, I read everything of hers that I could. I thought that she was a genius. Then I matured....
Wow, Frankly, you really want to try to bring Ayn Rand into this? Feeling a need to show your went to high school? I guess I used to spout words like that too at some point, but then I graduated and realized that in the real world they use words like "results" instead.
"Feeling a need to show your [sic] went to high school" ?
Bush's administration looked the other way on all the corruption in going on at that time. Madoff, AIG, banks, the war in Iraq.
JustKoz - Bush was in front of congress two years before the crash asking them to put a lid on Freddie and Fannie. (The dems mocked him - I think Chuck Schumers line was "Republicans always want to climb the ladder and pull it up after them." - A clever way of saying since people who could afford home loans benefitted people who couldn't should benefit too.) As for AIG and Madoff - you might be on firmer ground, but frankly crooked financial companies have been with us since the beginning but did not bring this country down. Derivatives and housing did. Derivatives happened with the full blessing of the bank oversight committees, bank regulators, etc. were heavily scrutinized and actuallly endorsed. Freddie and Fannie are quazi-government entities that not only provided loose credit but actually threatened to sue banks that didn't extend credit to less deserving potential homeowners.
The banks weren't corrupt, they were doing what government told them to do, Iraq was a natural extention of US foreign policy. Madoff and MAYBE AIG are examples of corruption but they're not economy threatening examples of corruption and they were resolved via the courts.
Actually, the sainted Ronald Reagan campaigned on cutting bank regulations--and the number of auditors--in order to get "government off the backs of business." The number of auditors and audits decreased during his time (kept that promise!!). Guess what resulted from having fewer audits and auditors?
Regarding the Freddie/Fannie debacle, its a wide-spread conservative talking point that is only half true, but since most people (if their eyes aren't glazing over) know nothing about the Frannies, they tend to just accept the whole baloney. I could give the facts, but those who don't care won't listen/read, and those who do care have already made up their minds.
I like most of your posts, but on this one, you just don't know what you're talking about.
Well, Frankly, since you insist above that bank regulators don't have any idea what they are talking about, it really didn't matter. I care - tell me why the Freddie/Fannie talking point is "half true." I bet you can't put together a cohesive argument without cut and pasting an old Krugman column. (Oh wait - I should say "You can't cut and paste a cohesive argument - ESPECIALLY if you cut and paste and old Krugman column.")
Vulture capitalist investment bankers. Bloodsucking parasites who serve no useful purpose to society at large.
What a truly dumb answer. Venture capitalists build businesses and employ people. Some of the largest and best playing employers of this decade - the computer companies, the software companies, the mobile phone and mobile phone aftermarket companies, the internet companies, etc. were all venture capital backed operations. Without them we would be in a world of hurt.
If you read the answer , I said investment bankers.....the banking crash , did you hear about it ?
Peza - you still have it wrong though. Investment bankers aren't blood suckers and do serve a purpose. Anyone who doesn't think investment capital is valuable for building companies has probably never built a company. Anyone who doesn't understand that some companies (most) don't deserve the investment they are asking for doesn't understand the fundamentals. Our problems were two fold (1) Freddie and Fannie (both government controlled entities) and (2) Derivatives which were developed as a financial instrument by financial managemers - not by "venture capitalist investment bankers."
That's what I meant , those hot shot financial managers whose only talent is to create vast profits with their mathematical prowess out of thin air. They should all be in jail.
Well, now we probably agree. I think there's a lot of misunderstanding on what a "venture capitalist" or "investment banker" is out there - and I have a few as clients. I see them make people rich on a regular basis and don't like to see them lumped in with some of the vultures on Wall Street who churn stocks for a living.
This could be a first for us ! :)
What about Exxon Frankly? A public company for decades that has absolutely zero to do with venture capitalists or investment banking. Are we throwing random words at the wall again in order to try to look like we have some insight?
No that was just another political scandal........... :)