My, my, we live in interesting times. The financial chaos, greedy and stupid people caused, has escalated into a bona fide economic disaster.
I don’t pretend to be an economist but I am conflicted as to what actions our government should take if any.
I do know that the economic turmoil we and the world, yes the world, are now facing had a trigger, a cause that is verifiable. That cause was and is the sub-prime mortgage debacle that was allowed to happen by seemingly smart people who let greed triumph over their good sense.
We can argue about who to blame; the greedy lenders or the stupid borrowers, but I will have to lay the bulk of the blame on the lenders who made fat commissions on sub-prime mortgages that they then sold to financial institutions who re-sold them, etc. The lender knew that the sub-prime mortgage was very iffy but there were no rules to follow; rules are for banks but these lenders were mortgage brokers and unregulated.
The financial institutions knew what they were buying but they re-sold it without blinking an eye; they made their money and that is that! After a while, thousands of these mortgages were “bundled” into “mortgage backed securities” which sounded good because mortgages are solid – right? No one bothered to look how really stable were these mortgages that backed the securities until the shit hit the fan and the house of cards came tumbling down.
Looking at how this all came about, a true capitalist would say – let the market take care of itself. People and institutions will pay for their greed and stupidity because they have to, otherwise how will they learn from their mistakes?
But when 100+ year – old financial institutions like Bear Stearns and Lehmann Brothers started to fall, I knew we were entering uncharted waters. I was not around for the Wall Street collapse in 1929 and for the Depression of the 30s’ that followed but I bet there are similarities.
One thing I do know is that after the Stock market Crash of 1929 financial reforms and securities trading regulations were put into place to curb the rampant speculation and unregulated lending practices that contributed to the crash and thus help avoid or even prevent future crashes.
It is ironic that today, unregulated lending practices and rampant speculation and manipulation started us on a road to a crash that could have dwarfed the 1929 crash. BUT Ben Bernanke our Federal Reserve Chief is a “1929 Crash & Depression” scholar and has written some books on the subject.
He thinks that the Great Depression of the 30s’ could have been prevented or maybe, eased by making cheap capital available. In 1929, the government tightened the money supply and dried up credit and Bernake surmises that this caused or helped the Great Depression last so long. It really did not end until WWII.
And so our government, taking Bernake’s advice, is making cheap capital available – boy, are they making it available. We will hear numbers that will astound us and make “trillion” a common word in finance.
I am still having my doubts and will explore them in the coming days…
I don’t pretend to be an economist but I am conflicted as to what actions our government should take if any.
I do know that the economic turmoil we and the world, yes the world, are now facing had a trigger, a cause that is verifiable. That cause was and is the sub-prime mortgage debacle that was allowed to happen by seemingly smart people who let greed triumph over their good sense.
We can argue about who to blame; the greedy lenders or the stupid borrowers, but I will have to lay the bulk of the blame on the lenders who made fat commissions on sub-prime mortgages that they then sold to financial institutions who re-sold them, etc. The lender knew that the sub-prime mortgage was very iffy but there were no rules to follow; rules are for banks but these lenders were mortgage brokers and unregulated.
The financial institutions knew what they were buying but they re-sold it without blinking an eye; they made their money and that is that! After a while, thousands of these mortgages were “bundled” into “mortgage backed securities” which sounded good because mortgages are solid – right? No one bothered to look how really stable were these mortgages that backed the securities until the shit hit the fan and the house of cards came tumbling down.
Looking at how this all came about, a true capitalist would say – let the market take care of itself. People and institutions will pay for their greed and stupidity because they have to, otherwise how will they learn from their mistakes?
But when 100+ year – old financial institutions like Bear Stearns and Lehmann Brothers started to fall, I knew we were entering uncharted waters. I was not around for the Wall Street collapse in 1929 and for the Depression of the 30s’ that followed but I bet there are similarities.
One thing I do know is that after the Stock market Crash of 1929 financial reforms and securities trading regulations were put into place to curb the rampant speculation and unregulated lending practices that contributed to the crash and thus help avoid or even prevent future crashes.
It is ironic that today, unregulated lending practices and rampant speculation and manipulation started us on a road to a crash that could have dwarfed the 1929 crash. BUT Ben Bernanke our Federal Reserve Chief is a “1929 Crash & Depression” scholar and has written some books on the subject.
He thinks that the Great Depression of the 30s’ could have been prevented or maybe, eased by making cheap capital available. In 1929, the government tightened the money supply and dried up credit and Bernake surmises that this caused or helped the Great Depression last so long. It really did not end until WWII.
And so our government, taking Bernake’s advice, is making cheap capital available – boy, are they making it available. We will hear numbers that will astound us and make “trillion” a common word in finance.
I am still having my doubts and will explore them in the coming days…
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