Current Economic Condition

[jh322]

Ok, a little background first. I'm entering my last year of study for my degree in finance. I'm pretty interested in global economics etc etc. Now, without sounding like some know-it-all high-and-mighty expert (which I'm far from), I'd like to know what the general public (even if demographically speaking escapists are likely to be of above average intelligence) think the two major factors for the current economic situation are (or could be). Arguments vary, and there could be many more than two, but my understanding of it is that two things set the whole thing in motion.

Please don't do any research, that sort of defeats the purpose. I'll try to give some feedback to genuine answers.

EDIT: broader factors that might be simpler to answer, where do you think it started? Can anybody be blamed?

 

[jh322]

1. People are stupid.
2. People don't change.

Ok, if we were going for simultaneously the most vague answer that would get closest to the truth, that wouldn't be a mile away. Do you really think it boils down to stupidity, though? And with regards to people not changing, this specific type of recession (as far as I'm aware, with the prevailing issues being linked to credit) hasn't really happened in the west before. Although, whether directly or indirectly you're using Minksy's argument: any capitalist market will crash. The longer the successful period, the worse the crash will be.

 

[LordGarbageMan]

I know almost nothing but I think it is because people are stupid and take out loans that they can never pay. Blame those people. Also blame the banks for giving those people money in the first place.

 

[BonsaiK]

The current financial situation was a self-fulfilling prophecy.

A few people went under because of stupid borrowing. Then people got worried about there being a recession and more people going under, so they stopped spending money and partaking in their usual economic activity, thus creating the recession that we otherwise probably wouldn't have had, or at the very least wouldn't have had quite so severely.

The media was basically saying "we're in recession" before the recession actually happened, thus worrying people into not spending, thus ENSURING that we would have a recession. Blame the media, and blame obsessive people who believe in the media and endlessly worry about nothing.

 

[Puzzles]

Approvals of sub-prime loans with a honeymoon rate sweetener, sub-prime loans packaged with other investments and sold on to unwitting investors, America putting everything on credit for so long, sustained period of growth - people thought house prices would keep rising, so taking out a loan would be safe as just selling the house would cover it.

Honeymoon was over baby, people defaulted. The housing market bubble burst as people tried to sell, confidence failed the stockmarket, the newspapers called it the apocalypse. Everyone went into hiding.

Luckily I sold my shares 2 weeks before the big crash, making a tidy profit.

In marketing, my lecturer hinted that marketers should also take some of the blame for selling on the packaged investments to investors in a perhaps misleading way, or not showing all the risk.

All in all, a lack of forsight and a lot of retardedness.

 

[Good morning blues]

Based on what I know without doing any research, I blame a weak regulatory environment and an astoundingly short-sighted financial management sector.

 

[Skeleon]

Unregulated economy in America, taking down the rest of the world with it.

 

[Flying-Emu]

Based on what I know without doing any research, I blame a weak regulatory environment and an astoundingly short-sighted financial management sector.

Possible way to look at it. The free market is not the most secure thing in the world, although it has massive upswings and booms, it has almost as severe downturns and busts.

Unregulated economy in America, taking down the rest of the world with it.

That's pushing it a little far. A regulated economy that relies so much on an unregulated economy isn't much more secure than said unregulated, no?

@topic

Banks taking high-risk loans and people foreclosing rather than living off of white bread and cheese to pay their house bills.

 

[pipboy2010]

1. People wanted to spend lots of money
2. Banks were happy to lend the money without considering long-term consequences.

Rinse and repeat til all the money is gone. People taking out too many loans and credits cards are as responsible as the banks who were so eager to hand them out like candy.

 

[Skeleon]

That's pushing it a little far. A regulated economy that relies so much on an unregulated economy isn't much more secure than said unregulated, no?

Let's just say Europe was generally doing fine until the bubble burst in America.
As for your second point, well, it's a global economy, after all, of course everybody'll be affected.

 

[Flying-Emu]

That's pushing it a little far. A regulated economy that relies so much on an unregulated economy isn't much more secure than said unregulated, no?

Let's just say Europe was generally doing fine until the bubble burst in America.

That was kind of my point.

As for your second point, well, it's a global economy, after all, of course everybody'll be affected.

Of course you'll be affected. I'm not denying that. But if it made such a big dent* in your economy, that means you rely on America, an unregulated economy. If A is ordered and regulated and relies on B which is chaotic and unpredictable, then A is chaotic and unpredictable.

It's simply not logical to put so much faith into an economy that is prone to upswings and downswings in such varying strengths. Granted, it's not your fault, but no one should be surprised or angry at America for this economic downturn, since they chose to put interests into a chaotic system.

They took a risk, and now they're paying the price. Simple as that.

*Said in a sort of sing-song playful voice.

 

[Skeleon]

*snip*

Why can't I be angry at America for not regulating their economy properly, like we do?

Anyway, as for your last point, I agree with you there. Our businessmen are no less greedy and willing to take risks at the expense of their employees than American businessmen. It's just that it's less easy for them here.

 

[Flying-Emu]

*snip*

Why can't I be angry at America for not regulating their economy properly, like we do?

Because apparently you rely on their deregulated economy to power yours? If America's downturn affects you so horribly, that means that you have a lot riding on their success or failure. This is kind of like a customer getting mad at his favorite store because it went out of business. It serves no purpose, and since you CHOSE to do business with them, it is as much your fault that you lost in the bargain as it is theirs. If you had ignored them, or put your interest into another store/nation, this would never have affected you, or would have affected you far less.

Anyway, as for your last point, I agree with you there. Our businessmen are no less greedy and willing to take risks at the expense of their employees than American businessmen. It's just that it's less easy for them here.

So despite your regulation, you still were fucked by greedy businessmen.

Hrm.

 

[More Fun To Compute]

1. Fraud and bad practice by highly paid people.
2. Stupidity of general population who are easily convinced that down is up, up is down, and that there is such a thing as a free lunch. And that there is always someone more stupid than them who will pay the cost.

Overall, the failure of government to educate and regulate both having been convinced by (1) that everything is new and shiny and there is no reason to worry any more.

 

[Eleuthera]

The current financial situation was a self-fulfilling prophecy.

A few people went under because of stupid borrowing. Then people got worried about there being a recession and more people going under, so they stopped spending money and partaking in their usual economic activity, thus creating the recession that we otherwise probably wouldn't have had, or at the very least wouldn't have had quite so severely.

The media was basically saying "we're in recession" before the recession actually happened, thus worrying people into not spending, thus ENSURING that we would have a recession. Blame the media, and blame obsessive people who believe in the media and endlessly worry about nothing.

Mostly this. The media had been yelling "the recession is coming!" for months before it actually happened and I'm sure if they'd just shut up it wouldn't have been nearly as bad.

 

[Skeleon]

Because apparently you rely on their deregulated economy to power yours? If America's downturn affects you so horribly, that means that you have a lot riding on their success or failure. This is kind of like a customer getting mad at his favorite store because it went out of business. It serves no purpose, and since you CHOSE to do business with them, it is as much your fault that you lost in the bargain as it is theirs. If you had ignored them, or put your interest into another store/nation, this would never have affected you, or would have affected you far less.

Yeah, but that'd only be true if there were such another store/nation to trade with. America is an important business partner, but not because of their unregulatory nature but because of the market they provide (Germany and much of Europe are mostly reliant on exporting goods rather than importing).

That's like saying to a guy in a shop in a desert: You don't like it here? There's another one, just 1000 miles that way.

So despite your regulation, you still were fucked by greedy businessmen.

Hrm.

True. By far not as much as you guys, but true.

 

[Akai Shizuku]

All the above problems that have been discussed stem from capitalism. That is all.

 

[Flying-Emu]

That's like saying to a guy in a shop in a desert: You don't like it here? There's another one, just 1000 miles that way.

I actually have nothing to say to any of this except for this part.

That's capitalism!

 

[LongAndShort]

1. People are stupid.
2. People don't change.

Ok, if we were going for simultaneously the most vague answer that would get closest to the truth, that wouldn't be a mile away. Do you really think it boils down to stupidity, though? And with regards to people not changing, this specific type of recession (as far as I'm aware, with the prevailing issues being linked to credit) hasn't really happened in the west before. Although, whether directly or indirectly you're using Minksy's argument: any capitalist market will crash. The longer the successful period, the worse the crash will be.

Mate watch a series called the "Ascent of Money". Probably the best summing up of current Economic crisis and you will learn IT HAS ALL HAPPENED BEFORE. It will all happen again. He would agree its not all people being stupid, just very, very greedy. That's the big issue.

I guess I believe that the current problem is that the Neoliberal Capitalist goal of a perfect market, is a Utopia that will never be achieved because it removes the human factor. We need an effective blend of Capitalism free markets, heavy regulation to maintain solid competition and government intervention in areas of public health, power, force and infrastructure.

 

[jh322]

Ok, lots of interesting things being thrown around here. As far as my understanding of it is, the situation did indeed start in America. People were taking out 125% mortgages, and the banks were lending money that they didn't actually have. When the interest rates increased in the states, people didn't want to buy houses so much, the prices dropped, people were "trapped in negative equity", and when they defaulted on their increasing loan payments, the banks were screwed because they didn't have the money in the first place, and had to sell the houses for less than they lent out, resulting in a loss on their part. This became a factor internationally when we look at how the banking system relly works: banks were selling mortages to each other, as they always do, but bundling the shitty sub-prime ones with the more desirable ones, so the problem spread a lot faster than it would have done otherwise. Hand in hand with this came a decrease in lending, which resulted in a decrease in spending in countries which rely heavily on credit (e.g. the UK), which lead to businesses failing, and then people lose their jobs, spend less, and defualt on more of their debts, so the banks get in more and more trouble. This cycle sort of goes round and round, and that's why it's hard to fix.

EDIT: so, the 2 things are, 125% mortgages in the U.S.A, and the following increase in interest rates.