What Caused Our Economic Crisis?

Quote from Fractals 'R Us:

Is anybody here expecting hyperinflation in the US?
More...

Not quite yet. When foreigners simply refuse to lend us more and the Fed is forced to monetize debt, then hyperinflation of commodity and import items should occur, but I figure we will still see deflation in real wages, end result being you won't be able to afford the gas to go to work each day *IF* you still have a job.
 
The root cause of the financial crisis is not sub prime lending, nor the subsequent run-up nor depreciation of housing assets. Anyone who doesn't understand this has ZERO chance of fixing the problem.

It was caused by a banking system that can't survive the ups and downs of a laissez-faire economy. Mark to market accounting, inefficiency and incompetence among people make shloads of $$$ caused the problem.

Suppose housing prices are actually down 20% over the course of the last year. Well they're still UP nearly 100% over a ten year period. What percent of the assets of these failed banks were CDOs related to mortgages? Perhaps a third or fourth. If our banks become illiquid so easily, they were doomed for failure all along.

The answer is to create a banking system with winners and losers, one in which there are many more smaller players with open market access to the discount rate. A banking system that is designed so that some risk takers are rewarded and some punished. One which is nearly a zero sum system, and is judged for its ability to operate efficiently, at as little cost to the people as possible.

What we have now is a farce. How is the focus of everyone's attention so narrow? Wake up everyone! Pull your head out of your arses, lose the tunnel vision. This sub-prime bs rhetoric has got to go.
 
But the base problem is that we are dependent on the rest of the world to lend us more and more every day or the house of cards collapses.

For example, because we import so much more than we export, the dollars were only coming back here as investments, and so to make a better return than US govt treasuries the foreigners bought CDO's and SIV's consisting of packages of US debt, and CDS's to cover their butts in case of default. Now, as things go sour, the defaults threaten the CDS sellers solvency, which in turn threatens the solvency of anyone owning the SIV's or CDO's. So now they are afraid to buy anything other than US govt treasuries, thus necessitaing the US govt buying the garbage and selling bonds to cover it.

If we hadn't been dependent on the capital from overseas to keep the music playing, we would have still been borrowing from the local bank, who knew their customers and used to hold the loans till repaid, resulting in low default rates as long as the econmy was reasonable.
 
You must log in or register to reply here.
Back
Top