chocolatekake said:
Maybe I'm misunderstanding what you're saying, but it's not the banks that are doing that. It's the government. We have nothing actually backing our money because we've been off the gold/silver standard for a while. And aside from that, the banks don't really have that much in the way of effect on the economy.
The financial sector has a
massive effect on the economy. Seriously. I don't know who's taught you your economics, but they didn't know what they were talking about.
This recession was not caused by a lack of a gold standard, and a gold standard would not have prevented it. You can still lend more money than you have no matter how you determine the value of that money. That's why this same thing has happened throughout history irrespective of the presence of a gold-standard.
It was not the government's fault in any way
except the low-cost housing initiative, but then they didn't
force the banks to cash in. They did that themselves because they didn't really think about it hard enough, mathematicians are young, CEOs are greedy, and they are obliged to maximise profits for their shareholders; among other reasons. You could say it was the government's fault for not regulating
enough, and you'd technically be right I suppose, but you'd look like a bit of an ass who just wants to hate on the government all the time.
Of course, people without the incomes could have not borrowed, too. I don't know how such an act of mass retardation- in government, in the markets, in the minds of the people- could have happened.
What I do know is this: the exact same fucking thing will happen again unless something is radically changed, because the recent crash wasn't really down to discrete acts of idiocy- those being neccessary but not sufficient- it was really down to the
system.
And by that I don't mean 'the man' or anything like that. There's no conspiracy... at least... I hope there isn't. O.O
Genuine Evil said:
also yes a large scale withdraw is a bad, bad idea .
DarkRyter said:
I wish I had more than a tangential understanding of economics.
He neglected to mention three things:
1) We did have a run on Northern Rock in the 2007 one. I expect there were smaller runs in the USA. It's harder for you because you're so spread out.
2) The great depression was not caused by a run on the banks, rather the run on banks was a symptom caused by banks lending too much money to people who couldn't pay it back. Sound familiar? That's right. This exact same thing happened before. That's why the bigwigs entertained the notion of bailing out the banks rather than letting the financial sector collapse completely and rebuild itself, because another World War wasn't forthcoming.
3) Although depositors didn't run on the bank to withdraw all their money this time around, every other bank went to every other bank demanding their money to be repaid. They were all so connected that they ran on eachother. Like in the Great Depression, but faster because it's all electronic now.
It's like a run on banks, except it's banks doing it to eachother, and none of them can pay eachother back because the either don't own enough stuff which they can sell, or the stuff they do own is suddenly not worth anything. In the most recent one, and in the great depression, that thing was housing. They're a safe investment in the long-term, because population goes up yada yada, but in the short run they were not able to sell those houses they gained from people defaulting on their mortgages because so many people had done so that there were so many houses on the market that they started losing value.
So the bank who owns the houses that are now losing value has lost some expected revenue, so he puts up his interest rates and causes his own little vicious cycle of people defaulting. To try and get himself out of it he goes to other banks to borrow, but because they were all doing the stupid thing and lending to people who they shouldn't have lent to, they can't lend him any money to pass to the bailiff from the other bank who's knocking at his door.
So that bank collapsed, so they (almost) all collapsed.
So then, you've got all these remaining banks who have severely cut back. They're super-careful now (just when we don't want them to be), because they could so easily go bankrupt. Plus they're running on government life-support in the form of the bail outs. They don't want to lend to people, so companies get massive cash flow problems (because they can't borrow to pay their raw materials suppliers before they make the money from selling their product) and other sectors suffer, too. Not only that, but because the banks don't want to invest their money anywhere remotely risky, no new enterprises are being funded, either. This creates a self-fulling prophesy. "We won't lend, because the economy is bad."->Not lending makes the economy bad->"The economy is bad, so we won't lend."
I'm going to emphasize the effect on
cashflow by putting it on its own line. Not all loans are for big things like houses. Most go into keeping the world spinning, so to speak.
What investment is happening is apparently happening abroad. That's where all the cheap labour is. No need to buy all that expensive capital for the high-tech US industries. Meanwhile, the bank bosses are raking in mind-meltingly large bonuses- amounts of money average people earn in an entire
lifetime, but they're not doing any Americans any good, so what the hell, man? They bailed out the banks, so the banks should help fix the recession!
I think that's basically it.
Oh, wait, no. There's hypocrisy here.
Some of the people most vocal in their disapproval of this planned bank run are the same people who campaigned that the banks should've been allowed to fail to begin with. That's a 360-degree about face. Perhaps they're being pragmatic. Perhaps they're being reactionary. Perhaps they just want ratings. Who knows?
It's fun to post outside of Religion and Politics.
AnotherAvatar said:
Credit leads to false wealth, and wealth in any form leads to excessive greed.
But it doesn't always lead to false wealth.
I can't understand why you'd think credit would be a wholly bad thing. It's just not. Really. Savings->Investment, Cashflow, Not-too-big-deficits-when-they're-needed, venture capital, funding. Once more,
investment. The ability to officially say 'I'll pay you back later' to the tune of millions of dollars has been invaluable to the economic growth of the last 300+ years, and with that growth has come increased standards of living, smarter, safer, and freer people
everywhere, not just in the West.
Seriously, without loans, the world would be a much darker place.
Not least because Edison and Swan needed to take out loans to roll out their DC power plants, and Tesla needed loans from someone whose name I've forgotten to compete using his AC design. Honestly I don't know why Edison gets so much fame. He didn't even invent the lightbulb alone, and his DC system was rubbish!
But anyway...
People can't afford these giant engineering projects that make all our lives better, even in groups. Think of power stations, hospitals, giant bridges, the New York sewer network, airports, supermassive fuel tankers. All these great things require credit to exist.
Sure, hate on the banks or whatever, but to say that credit is an unambiguously bad thing is an idea so countervailing to reality that its implementation on a macro scale would mean economic suicide.
