The Credit Crisis: How did we get here…
If you’re anything like me you probably wonder how we (meaning the country) got in this situation. Well, today I found a link to a great video by Jonathan Jarvis that simply explains the steps that got us to this national credit crisis.
Now that I’ve watched it several times, I understand the process and how it happened. But, I was always told that if it sounds too good to be true it probably is. Didn’t anyone along the chain of leverage ever think about what would happen if any of the the links in the chain stopped/broke/whatever. In other words this explains the problem — investors got greedy and went for riskier and riskier investments to keep the money coming in. But, and it’s a big but — as you get riskier and riskier the chances of a whopping big crash become almost inevitable — and we’re now faced with the clean up and the holding on until things get better.
It also explains why the first “no strings attached” bail out didn’t work — they went out and just did more of what they’d done to get us in this mess in the first place hoping somehow that this time it would work. At least now it makes a bit of sense as to how it happened.
Greeting! It’s been a while since I showed my whiskers. I just wanted to add to Gayle’s post a couple of thoughts of my own on the nature of the economy. Frankly, I’m convinced that there isn’t one. No, really … it doesn’t exist. It’s vapor … shadows … a consensual hallucination that nobody dares question for fear of things like what we’re now experiencing.
Today Citibank reported that they made a bit of profit. In response, the Dow shot up nearly 400 points. Why? Has the credit crises gone away? Are all the banks lending again? Nope. In point of fact, nothing has really changed at all. So why the rally on Wall Street? Hopes and Dreams. Back last year when oil prices were climbing like a rocket, each day the price would go higher and higher, and the analysts would report that it was because the President of Iran said something, or the Prime Minister of Iraq said something else. Had anything really changed? Did it, in fact, cost one more penny to pump, refine, and transship oil? Nope. So why did the price go up? Fear. That’s right, the entire global economy is run on hopes, fears, and desires, like some magical spell out of Faerie. Companies make huge profits or go into bankruptcy based on what some stockbroker had for lunch and how his stomach feels in the afternoon.
Everyone is so busy looking for reasons why things happen, that they ignore that, most of the time, the reasons come after the event. Nobody really knows why it happened, so they just make something up so that they can make it make sense. But it doesn’t really make any sense. It’s all just a dream that everyone is too afraid to wake up from.
Now that’s not to say that events don’t have some impact, since they obviously do. Gayle’s wonderful link above explains a lot about what went wrong when people’s desire for profit got in the way of good business sense. Greed and avarice obviously still play huge roles in human behavior. But if the markets had been based on something solid and real, then this crisis could never have happened. But the continually rising price of housing served as the engine that powered the whole circuit. But why were housing prices rising? Supply and demand to a degree, but also because that’s just what housing prices do … don’t questions it, just buy buy buy and pay no attention to the man behind the curtain.
Anyway, that’s my theory. Take it for what it’s worth, but to me, it makes more sense than an invisible hand benignly guiding the stockmarkets ever upwards.