What have you learned from the current economic collapse? (sell, company, taxes)
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Before the crash I considered buying. I just couldn't figure out what "I" was doing wrong and couldn't afford like everyone else. I got my answer from the banker when she gave me a sales pitch.... "and if you want to buy a bigger house you can get a loan where you pay interest only for the first 5 years". That's when I realized there must have been some fancy loans out there. I opted not to buy at all. I gave it 5-6 years before I would think about buying again because there were going to be alot of desperate sellers. That was about 6-7 years before the crash. Before that bank visit I used to dream of buying, after, not so much, I waited. That was the best self talk I ever had.
Everything else you wrote is excellent too.
Thank you. And, if more people had shown your kind of restraint, we wouldn't have had these record numbers of foreclosures, which depressed the entire market. That was a smart move on your part.
What I learned about the financial crisis... Not much. Having a Masters in Econ, and being in the financial field for almost 20 years, I'd already seen/lived through market crashes (tech bubble in 2000) and the Nasdaq just FINALLY got back to the highs it hit 14 years ago. It wasn't unexpected.
It is amusing to read the responses of those blaming the Fed. You guys just have no idea how a global economic system works, probably not even a micro one. The Fed is to be credited for how well they were able to mitigate the damage that was caused by investment banks and their securitization of mortgage debt, exacerbated by entities like Fannie/Freddie who let people who had no money nor credit to buy a home that was beyond their means, and our wonderful Congress, which is full of lifetime politicians and lawyers, who know NOTHING about economics, budgets, or how the economy works, either. The laws they pass governing the banking and securities trade are crafted and shaped by interest groups paying them to make them favorable to industry, not the consumer.
What can the average person do to weather hard times like we had? The same things that carried people through previous recessions. Don't live outside your means. Don't buy a home that is more than you know you can afford, and be honest about that. Don't try to keep up with the Joneses, that is a losing proposition in the long run in regard to your retirement and future expenditures (college costs, health care, elderly parents moving in, etc.) Contribute to your 401k if you have one, ESPECIALLY if you get a company match. That is free money that you are throwing away if you do not contribute. Do not touch your retirement savings unless circumstances are at their worst. The penalties are not worth it. Avoid interest. Interest is how OTHER people get rich, by letting their capital work for them. If at all possible, limit the interest you pay to your home mortgage. Pay off credit cards every month so no interest accrues. Cut unnecessary expenses. Yes, that means cable. That means cutting back and getting a less expensive phone plan. It means eating out less and saving more. It means avoiding buying that 60" tv on Black Friday because you want to replace your 50".
If you do all those things, and learn financial discipline, you may still go through tough times in a downturn, but you'll be a helluva lot better suited to meet the challenge.
Horrible post, but then its from a financial guy, so long steeped in it, is deluded by the system . I take the position of Rothbard.Healthy banks are no sign of a healthy economy. And I will use Milton's rebuttal.
EPSTEIN You were acquainted with the Austrian economist Friedrich Hayek and also are familiar with the work of Ludwig von Mises and his American disciple, Murray Rothbard. When you were talking about bad investments, you were alluding to Austrian business-cycle theory. A certain concept that has pretty much gone into our parlance and understanding fits in with what you said about what happened in Asia. There can be times and conditions in which the stage can be set for malinvestment that leads to recession. FRIEDMAN That is a very general statement that has very little content. I think the Austrian business-cycle theory has done the world a great deal of harm. If you go back to the 1930s, which is a key point, here you had the Austrians sitting in London, Hayek and Lionel Robbins, and saying you just have to let the bottom drop out of the world. You’ve just got to let it cure itself. You can’t do anything about it. You will only make it worse. You have Rothbard saying it was a great mistake not to let the whole banking system collapse. I think by encouraging that kind of do-nothing policy both in Britain and in the United States, they did harm.
Of course there would be harm in opening up someone for surgery and not sewing them back up. However that does not mean the banking system did not need to collapse. It does not fund capital creation, it funds mostly rising prices for ground rents and other monopolies.
But you financiers act as if the only source of credit is from banks. All credit could come from the Treasury in the form of tax holidays and credit to flush the economy with demand driven credit instead of housing. Then they could slowly and methodically return to a market credit system while preventing asset speculation by reversing the policies that promoted it.
n the great depression in the 1930s, big business consistently opposed experiments for increasing employment by government spending in all countries, except Nazi Germany. This was to be clearly seen in the USA (opposition to the New Deal), in France (the Blum experiment), and in Germany before Hitler. The attitude is not easy to explain. Clearly, higher output and employment benefit not only workers but entrepreneurs as well, because the latter's profits rise. And the policy of full employment outlined above does not encroach upon profits because it does not involve any additional taxation. The entrepreneurs in the slump are longing for a boom; why do they not gladly accept the synthetic boom which the government is able to offer them? It is this difficult and fascinating question with which we intend to deal in this article.
And "spending" could simply be tax cuts.
The side effect of course is demand driven finance does not tend to favour speculative capital formation, but may fund more of the status quo. New industry find labour and capital more expensive running maximum employment. Though since most "finance" just goes for real estate, we have that anyway, only it comes with wealthy leaches. With the bailout labour and capital have not become cheaper because the FIRE sector overhead remains.
But then how could a witch doctor understand this?
There were many ways to create credit. I am afraid handing money to the wealthy plutocrats in cash for trash was not my first choice. Neither is more private debt. We should have created more private equity in the real economy while stopping bank credit from flowing into the FIRE sector.
Don't get me wrong though. I am grateful that people were stupid enough to get on the debt treadmill. Please continue.
Thank you. And, if more people had shown your kind of restraint, we wouldn't have had these record numbers of foreclosures, which depressed the entire market. That was a smart move on your part.
Even worse. Many people where trying to save. Ordinary people can be forgiven for not knowing housing is industrial capital. Saving up 20k for a down payment on a house that went up 30k in cost was a 10k lose. Those were the conditions especially as people were fleeing from a falling stock market. Yep sure saved the day they did. So we not only created an economy suitable for spendthrifts and largess , but we also lured in the savers . They thought it was an investment. I know because as I said, I argued with these people.
I kinda like a more well rounded understanding, thanks.
Actually no I didn't. I was too busy and in a frenzy creating my own financial disaster to know about gold. Ah the difference, I took blame for my own actions and cleaned up my act.
Actually no I didn't. I was too busy and in a frenzy creating my own financial disaster to know about gold. Ah the difference, I took blame for my own actions and cleaned up my act.
I didn't have to clean up my act. I live off 2/3 of my cash flows in a bad year. I add to principle on a ten year mortgage. But then I take years cross linking several disciplines to answer tough questions while other people just feel their way though it.
The reason why I entered gold was when I realized it was manipulated downward with low 1% lease rates. Gold carry trade was happening. Once ZIRP came onto the horizon, it was not a bubble but an unravelling of a gold carry trade. So I knew the public was hood winked that is was a bubble. More like a vacuum leak. They also missed the Euro crisis which was the best competitor to gold. That was the next push. Now people could not apply marginal cost to produce to the market rate for gold to save their lives. But they do read head lines. So my guess is the big money thinks gold is a commodity without the monetizing potential as of now.
I will say I did not expect consumer credit to rebound this much but I am watching it carefully. I would also add they I was more defensive in the stock market than was warranted, but then I had no idea how well the cash would flow in the world economy. I added carefully but mostly held.
But ya know I just hate bankers and the puppets in the Fed. I will not let them take credit without a fight.
If it weren't for trillions of $$$$ created by the FED, the depression would now be a recession.
And a depression it WAS ..only bazillions of bucks in social welfare that was not available the last go-round shielded us from the worst effects of it.
Like:
2 years of unemployment insurance, Food Stamps, Medicaid, Sect 8 housing, WIC welfare, old-fashioned state-run Welfare, free school lunches, earned income tax credits, free cell phones, energy/utility bill subsidies, and old fashioned soup kitchens.
Today the labor participation rate is barely above what it was in 1978!
And a weakening labor force bodes ill for the economy..except if you are in the top 10-20% of earners or asset holders.
I strongly suspect that is who posts predominantly on these forums.
That is one scary graph. It we keep going at this rate then we will be at WWII levels of labor force participation by the year 2020!
What is your background? It must be far removed from anything financial, because you have absolutely no conception of how our economy works. Your post saying you hate bankers and the Fed has cost you any credibility you might have been able to muster.
I love armchair economists. "Let the banking system collapse." LOL Luckily for you smarter heads are in charge.
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