The Giant Pool of Money episode on This American Life talks about how the former Fed Chief Alan Greenspan sewed the seeds of the current crisis. He was fighting the previous credit crisis (I need to connect the dots here, but I am pretty sure it was connected to the aftermath of 9/11 and the resultant economic contraction), and he basically held interest rates too low for too long (in retrospect). All that easy credit led to the housing bubble in the US.
Flash-foward to 2008: The current Chairman of the Fed Ben Bernanke has been dealt the same bum hand. He has no choice but to keep credit easy and plentiful! Now that money is going to necessarily have to find a place to invest in - grown in - speculate in - leading to, you guessed it, the next bubble. The only question is: where? Stay tuned; my crystal ball is in the repair shop.
1 comment:
But isn't the common denominator in all of this that risks were weighted, calculated and taken nonetheless by entities as small as Joe Sixpack to those as large as Lehman Brothers and a whole bunch of Money Market Fund Managers in between? Clearly, many of those risks did not pay off.
Now the parternalistic government is looking to provide a mattress to soften the fall and asking, at the point of a gun, all of us to pay for those risks which turned out to be bad ones.
Artificially propping up the market is an untenable and dangerous situation. They (we) are simply kicking the can down the road and should just let the financial markets adjust by getting the undue influence of government as much out of the way as possible.
You risk big, sometimes you win big, and sometimes you lose big. Other than the government, no person or entity forced these risks on anyone. That is essential to understand.
When exploring the possibility of buying, fixing, and reselling properties, we calculated that the risk was just too high. WE DECIDED.
There is still money/value to be had, made, and borrowed - just not as easily as it has been. That's all.
I did find those two "This American Life" podcasts quite informative about the specific nature of the beast, which contribute to the understanding of the general nature of the beast I have had for a while.
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