We all know that the economy is badly screwed. And this isn’t just some country-specific problem, it’s economic buggery on a global scale, thanks to the wonders of a joined-up international banking system run by people who thought they were a lot smarter than they actually were. “Gold rushes” always collapse eventually, it’s just that in this case the gold rush knew no national boundaries and when it ended, everyone is left with a hangover, even (or perhaps even especially) the people that didn’t benefit stratospherically from the good times.
It’s already getting ugly, and it’s going to get a lot worse.
Like a lot of people, I’m outraged with those that drove this particular bubble to such a bursting point; I’ve always been sensible financially – I only buy things I know I can afford, I make sure I have appropriate plans in the event of bad times, etc, and now I’m paying for other people’s folly anyway. I refused to participate in the Internet bubble in the late 90′s too, knowing full well that it was built on hype and lies – and despite offers to get involved in the booming sector, it just felt wrong to start jumping into something I knew would fall apart at any minute as soon as people woke up and smelled the coffee. Basically, if I wouldn’t invest money in something, I sure as hell wasn’t going to stand there and encourage others to do so, just because we might have a fun ride for a few months. It’s immoral. But, that’s exactly what the supposedly reputable banking sector has been doing for the past few years.
I was annoyed by the Intenet bubble too, that the sector I worked in was crippled for a while by people who didn’t (or refused to) acknowledge that what most of them were doing was total, unsustainable nonsense. The difference that time was that at least it was mostly confined to one sector, to the people that screwed up (although some of us also got dragged into it too). This time of course, everyone suffers.
But, the scale of the repercussions of the utter financial folly of the last few years may have one positive effect – to force people to consider the sustainability of what they do, and to hold others to account in the same way. Short-term thinking, get rich quick schemes, the dream of that ‘one big break’ – all these things are distractions, glittery diamonds dangled just out of your reach that more often than not simply lead you directly over a cliff. I personally think that if people put more thought into how they might positively contribute to the world around them in the long term (as well as making a living of course), and less about how they might be able to get on the cover of Forbes or Hello, or wangle the purchase of yet another unnecessary status symbol, they’d actually be much happier, and we’d all benefit.
The culture of worshipping celebrity, coveting great wealth, chasing the high life – it’s a mirage and entirely void of substance. The few that do make the transition to that kind of life (especially in the public eye) often turn into emotional train-wrecks along the way anyway, so quite why this is a laudable goal is beyond me. Better to aim for real, practical and substantial goals – such as a decent living, being happy, and preferably doing something with your life that you can feel content with (or even proud of), in a way that doesn’t require that you put a monetary figure on it before you can justify the time you spent doing it.
Maybe facing the reality of the folly that caused this economic recession/depression will trigger some people to reassess their priorities a little. If not, then it’s all been for nothing, and the only legacy will be a small bunch of people having gotten rich on the back of crippling the rest of the world for years afterwards, and the whole thing will be repeated in a decade or so once everyone’s forgotten. I’d rather not think that’s the end result.
January 30th, 2009 at 9:33 pm
Amen, from start to finish.
January 31st, 2009 at 12:59 am
I totally agree with you. As for my country-view point, I could add some other stuff that got into this, as of yet all my predictions are unfortunately becoming true with extreme accuracy. But I don’t think the blog system will allow me to make such large comment. I’ll skip that part.
I agree on everything you said, but one thing: although some people may realize what put them into this situation, others will come and make the same mistake again.
There have been much bigger crysis (economic or not) in history (and I’m not just thinking of the ’29 crack) and we repeat the same mistake over and over again (oh… and over again).
The human being is the only animal/creature that trips over the same stone twice.
Also history has shown and as economists theorizes, about the cyclic nature of capitalism. May be it’s the world balance what in the end of the chain causes this, but it’s gonna end at some point.
Pure failure is just illusion as pure success.
January 31st, 2009 at 4:15 am
What really makes me angry is the fact that we’re bailing out these companies and not requiring transparency or some kind of plan to success. Instead of dismantling large companies into smaller ones, allowing other companies to aquisition them, we’re tossing money at them and letting them keep the same incompetent executive staff that failed to lead the company in a positive direction.
“small bunch of people having gotten rich on the back of crippling the rest of the world for years afterwards”
Exactly.
January 31st, 2009 at 12:30 pm
“The human being is the only animal/creature that trips over the same stone twice”
Well, the old adage that “he who fails to learn from history is doomed to repeat it” is definitely relevant here. Humans are uniquely placed to learn from their mistakes (without paying for them with extinction, if we’re lucky), the problem is that we have to be willing to learn.
I’m not anti-capitalist, but I’m against capitalism in a vaccuum, and unfortunately globalisation and the way business is increasingly being run these days is inherently leading to an ever greater separation between the upper echelons of the worlds ‘great’ organistions and the real world. It’s why I would never want to work for any of the big companies – the decision making process is just too far removed from the reality that we all live in that I can’t possibly have any faith in it.
IMO, the best kind of decision making balances profit, environment, future sustainability, and people. Public companies, where ownership is basically devolved to a pool of anonymous speculators simply looking for growth (and that includes me – I have a pension too) basically removes all other factors from the decision making process except profit. People will say that regulation tempers this, and that the ancilliary ‘halo’ effects end up delivering on the other factors, but mostly that’s a crock. Because of the separation of morality and wider judgement from the pursuit of profit, when push comes to shove, those other things will be in the bin in double-quick time. Lipservice is all they really get.
Many sci-fi novels have talked of a time when megacorporations run the world, and while that’s still far-fetched, it’s certainly a lot closer than it was 20 years ago. I don’t think governments can resist this, but I think people can. If we demand more ethical business practices, buy from companies we support the goals of, invest in sustainable businesses, and yes, forgo the best returns in favour of supporting better causes, we can change things. In effect, all these companies ultimately answer to us, the consumer, even though they may not act like it sometimes. We do have choices to make, and they shouldn’t always be based on money, nor should we just say that we can’t make a difference on our own, or that someone else should do it. Make a stand
February 1st, 2009 at 6:46 am
The only issue I have with this, is you seem to blame the bubble on peoples short cited chase for profit. I just don’t think thats the case. People are no greedier now then they have ever been and to be sure many people make stupid choices, but people have always made stupid choices. The difference here is the governments movement behind the scenes magnify the effect of these choices.
I intend to agree with the Austrian economic school, this housing bubble, just like the dot com bubble before it were caused by the US government meddling in the economy. Mainly through the fed printing too much money, which resulted in the capital being inefficiently invested. First in the tech sector, then in the housing sector. This glut of money leads to it being put into all sorts of stupid ideas from websites that don’t have a business plan to AAA (well not really
) rated mortgage backed securities.
February 1st, 2009 at 12:11 pm
I certainly blame individual’s greed, because it is they who have benefitted significantly before the bubble burst. *Maybe* people aren’t any greedier than they were before (although actually I refute that, given the culture that has developed in the last 30 or so years), but certainly their ability to both indulge it, and for the effect of that to be widely dispersed has increased. Look at any developed economy today and you’ll find the gap between the rich and poor is wider than it’s ever been.
The government has to take some blame, certainly. But mostly they *allowed* it to happen, rather than driving it. Thus they’re culpable, but not nearly as much as those that actively pursued the end to which we’ve now arrived.
The ‘it’s the government’s fault for intefering’ excuse is right-wing propaganda and although there’s a shred of truth in it, it’s completely out of proportion. These are the very same people who are begging the government to ‘interfere’ now that they want an injection of money, so they’re hypocritical in the extreme. What they really mean is that they want governments to be hands-off while they’re riding the gravy train, and then step in to clear up the mess when it all runs out of steam. It’s unacceptable.
If you don’t believe there was a culture of unchained greed in the financial services industry, just listen to some of the interviews from insiders about what it was like, what they were being told to do, and what the culture was. I think you’ll find it’s different to what you think.
February 1st, 2009 at 4:03 pm
I also feel the same way that I am paying for other peoples follies. But as us pointed out people need to make a stand and first look in their own follies too.
February 2nd, 2009 at 4:05 am
What could the government of done? Have a regulator sit on a bankers shoulder telling him who to loan to? Wait… They already do that some, its called the “Community Reinvestment Act” and it does not encourage good loans.
Oh and right wing propaganda? I think the government caused the mess, but I don’t think failing companies should get a shred of money: NO BAILOUTS! Anyone who thinks otherwise, is not really right wing
(Seriously, the right, pro-business, side of the country is most against the bailouts).
There is, and there shouldn’t be any law against greed. I don’t care if there is are a bunch of greedy people on Wall Street, as long as they keep it legal. If they don’t I want them to be punished to the fullest extent of the law.
February 2nd, 2009 at 5:37 am
It is not just greedy, it is pure evil too because some rich people know that it is bubble waiting to burst, but they are riding on the wave as long as possible, and making sure they exit before it collapses. And then they laugh all the way to banks, although in this case it is 1 person’s gain in the expense of 1000 others. I somehow think I see the glimpse of this kind of smile on Merryl Lynch’s CEO upon weekend negotiation to seel the corp over to Bank of America.
The signs are all there, you can read many books, internet articles etc – eg I read more than 10 years ago that American spend 103% of their income.
February 2nd, 2009 at 6:13 pm
Problem is, if the banks go under and you don’t help them out, people don’t get paid for their house. For example I sell you my house, you take out a mortgage loan from the bank, and then default some time after, the bank now owns the house, and the bill associated with it. The government needs to regulate banks. They greedily gave out loans to people who could not pay them.
February 3rd, 2009 at 4:36 am
The CEO of Merrill Lynch, John Thain, is under investigation by the New York attorney general for those exact things you talked about. As I said, the people who did actual wrong are being investigate and punished. Also that is bad statistic, 2005 was the first time the US had a negative savings rate and its now back in positive territory (and yes I do think we should save more).
See 2006 story on negative side:
http://www.hoover.org/research/factsonpolicy/facts/4250756.html
See 2009 story on it now going back to positive:
http://online.wsj.com/article/SB123120525879656021.html
Warning long housing bubble explanation coming:
It was actually a very complicated system which ended up giving loans to people who couldn’t pay them. It wasn’t traditional banks, it was companies, mostly set up during the bubble, which just sold mortgages and made commissions on them. They then resold the mortgage which eventually got packaged into the securities which have been becoming valueless. To be sure there was fraud at those levels, especially because the companies giving out the mortgages made money based on how many and large the loans were, while taking none of the risk. There was also a large amount of mistaken risk taking based on mis-information.
The whole problem was that the demand for mortgage backed securities was *huge*, I mean really, really huge. Think of trillions of dollars wanting a new place to go because the return on US treasuries was so low because of the fed printing too much money. Bond companies rated mortgaged backed securities at AAA values and the companies which sold mortgages had several years of boom times during which every risky loan they gave worked out fine. Of course the boom times came because the housing bubbles created basically fake equity people used to refinance our of the bad loan.
This combination lead to a dangerous spiral where each company started to lower loan standards in order to meet the demand for more securities. Note, these are not your traditional bankers, your local bank most likely still loaning sanely, it was these mortgage businesses that caused the trouble. Of course once the housing bubble burst, and people were no longer paying those mortgages they gave out over the last few years the shit hit the fan.
The mortgage brokers soon realized that there ill-conceived models rated what was now junk grade securities at a AAA rating. The institutions that tried to park trillions in something they thought was as safe as US treasury, the safest investment on the planet, had bought junk bonds.
See, thats what happens when the government prints to much money.
My source for all the above is an US National Public Radio, a center left organizations if anything, *not* right wing propaganda.