Comment from Edith
Time: October 12, 2008, 5:07 pm

I prefer not to know because it makes me sick. It’s about time we change our system, so we won’t have to depend on those banks anymore.

Comment from Beckett
Time: October 12, 2008, 5:33 pm

I guess you guys don’t have any money invested in the stock market then? Because the financial meltdown has already started. Millions of people’s retirement funds have been wiped out or have declined dramatically in less than two weeks; centuries’ old banks are either shutting down or merging with other banks to avoid collapsing; home values are plummeting, foreclosures rising. Iceland went bankrupt last week, its currency now completely worthless and the IMF is being tapped to bail them out.

The trickle down effect of what is currently going on in the financial markets is horrible. Businesses are having a hard time getting credit because banks are unable to or unwilling to loan money. Limited to no access to credit means businesses cut back on everything, leading to layoffs, higher unemployment, consumer spending drops, etc. In other words, a full blown economic recession.

Comment from Tom
Time: October 12, 2008, 6:57 pm

“What happens if we do reach “systemic meltdown””

What happens? Some of us lose our jobs. Some of us lose our homes. The rest of us just get used to having less flight-take away-wine-TV-holiday-bread money. Oh yeah, and fascism becomes en vogue again.

What strikes me about this crisis is the sudden appearance of the so-called ‘trickle down effect’ that Beckett referred to. For decades, liberal capitalists have assured us that tax-cuts for the wealthy and supply-side economics would cause wealth to ‘trickle down’ to the rest of us. Strangely, it never actually happened. But I’m sure the Chicago boys would be pleased to see that at last, the trickle down effect is working. We’re all going to feel the pinch caused by a handful of greedy w/b-ankers.

Comment from Tom
Time: October 12, 2008, 7:12 pm

And I’ll add that despite a continued apathy when it comes to party politics, I’ve seen very few people commenting online who haven’t made it clear that they think a system change is needed. Crazy free-market capitalism may not be dead yet but a lot of people have just realised quite how sick they are of a system that does little more for them than raise their mortgage price, month on month.

Comment from Bill (Scotland)
Time: October 12, 2008, 7:17 pm

To answer your question, life will become ‘very difficult’ for a lot of people for quite a while. However, I’m one of those people who believes that all the authorities should be doing is - almost nothing. The market needs to be allowed to take it course and banks should not be bailed out of the predicament they have got themselves into; what’s being done at present is merely putting off the evil day of reckoning, largely to protect the votes of the politicians who fear they will be turfed out if it were realised that their policies over the past two or three decades are what have brought us to where we are. I don’t ignore the fact that this will be very painful for a lot of people (unemployment, lots of repossessions), but what’s being done right now is going to lead to inflation (with all the money being printed by governments out of fresh air with absolutely no basis in real assets) and is being done solely to fool people into thinking their governments are protecting them when all they are doing is attempting to protect their own voter base.

About all they should be doing is reducing interest rates as lender of last resort; then if if banks can’t survive they should be allowed to fail. Those who have borrowed up to the limits of their credit cards or at massive multiples of their income to buy property have been warned often enough how foolish they are - why should taxpayers pay for their folly. Every time a bail-out is arranged it gives the message that the management of banks can carry on regardless knowing that the taxpayer will bail them out - this vicious cycle has got to be halted (I’m a former banker, by the way); the same lesson needs to be learned by people who over-borrow and people who place deposits with institutions who offer interest rates significantly higher than others in the market.

Forget Keynes, read von Mises instead; it’s a pity more governments and central banks didn’t follow the latter. I understand the Germans are opposed to a Euro-wide find to support the finance sector, preferring individual arrangements in each Eurozone country; well done them - they must be regretting that htye ever agreed to merge the Deutcsche Mark into the Euro - I hope they are not persuaded into the final folly.

Cheers!
Bill
billcameron.blogspot.com
casabill.blogspot.com

Comment from Dare
Time: October 12, 2008, 10:03 pm

Stop fu***** complaining and do something. Complaining it’s end OF THE WORLD WOWOWOWO is not gonna help believe me. Don’t depend on the opinions of those people, did the news tell anything positive in the previous 10 years anyway?

Comment from Graeme
Time: October 12, 2008, 10:26 pm

Well based on current evidence the main conclusion on what happens when things goes wrong is that those who haven’t benefitted much from the casino economy have to pay the bill for those that have - so that they can do the same again.

Comment from raytibbitts
Time: October 13, 2008, 1:12 am

I’m worried for the world that there are going to be many, many people like myself, now.
No retirement plan, no savings, and facing an ever increasing probability of becoming redundant, and or irrelevant.

It also bothers me that my uniqueness is diminishing. jaja

I should have ignored my wife and kept my job in the U.S., saved my money, paid off my student loans. But no, she had to come to Spain. Darn me for putting family above common sense.

So did I value my family, or am I actually doing them more harm than good, with a job that just allows me to break even, barely paying the minimums on my credit cards? Putting off having kids for yet another year. (going on 10, and no, money isn’t even close to being the real reason we haven’t had kids yet.) My wife would kill me if I ever shared the real, and most important reasons. (Quite possibly literally)

So, I consider myself to be poor. Especially compared to the people who a currently “losing their shirts” so, I don’t feel very emotionally attached to the crash, but I don’t feel good about it either. I studied enough economics in college to know that I should be making better choices, and I also know that the only macro-economics that makes sense is to stop feeding the monster. Bill’s comments make so much sense to me. I know that the governments should stop doing what I’m doing. Stop postponing the inevitable, because it only going to make it worse when it really comes time for reckoning.

If only people would not hurt each other, we could all be true anarchists, or true communists, and we wouldn’t have to worry about all this crap. I mean it. Too bad there always seems someone to give anarchists a bad name… getting caught doing something horrible to other people, caught on TV hurting people, in the name of anarchism.

Maybe I should just get that second job, stop dreaming, pull my weight?

Comment from ValenciaSon
Time: October 13, 2008, 2:03 am

How ironic that the political party which not only espouses the view of minimalist government intervention but is diametrically opposed to anything socialist, forced the US government into becoming one of the largest socialist governments with the $700 billion bail out of Wall St.

Comment from Ben
Time: October 13, 2008, 10:37 am

@Dare, despite your slightly aggressive approach, I tend to agree that the only answer right now is to find new ways of dealing with things and not just give up in despair.

That may be easy for us to say as things are still going OK for our company, but that may also be precisely because I have been on a news blackout for the past 5 weeks while we worked like hell on our new project. For small business owners especially, I think the crisis is wake up call, a test - you either diversify, try new things, keep plugging away, or you’ve had it.

Things are a bit different if you are an employee… or are they?

Comment from bill (Legazpi)
Time: October 13, 2008, 10:49 am

I wouldn’t worry about it too much. It looks like we’ll get a nasty recession, but as long as you haven’t got silly debts, can find work and know how to cook on a budget then you’ll be alright. I tend to agree with everything in the post by Bill (Scotland).

This has been more of a failure of state intervention (keeping interest rates too low) than a failure of capitalism, and further state intervention will make things worse.

Comment from Dare
Time: October 13, 2008, 10:52 am

Ben I am currently a student but having my own small online business. I understand that companies like yours need to work hard to stay with the “flow”. Actually this may be positive for some small businesses because most people who planned or simply had an online business will quit or despair.

It happened in the past financial crisis, it will happen now. Human nature doesn’t change so quickly.

Try this approach: “What can be the benefit out of this”?

Maybe you know or not but..many people got VERY wealthy during the past recession.

When there’s a great difficulty there’s ALWAYS a great opportunity. It’s your choice on what you gonna focus…

Comment from Simon (Delgado)
Time: October 13, 2008, 12:15 pm

Although I feel for those who are going to face some very hard times ahead ,I’m with DARE on this one with regards to his comment “what can benefit from this?” A coulple of years down the line the chances are that an amazing oppertunity will arise for first time buyers who have a deposit for a house now, but are choosing to wait.To quote a financial advisor friend of mine ” If you have £30000 to put down as a deposite on a house now (preferable deposited in HSBC) in 2/4 years time you will feel like a millionaire as everyone will be dying to sell their property to you, that is to say that you could spend £250000 on a two bedroom flat now or wait a couple of years and get a 4 bed house!!!”

Comment from Graeme
Time: October 13, 2008, 12:23 pm

@ bill (Legazpi)

Interest rates were lowered, particularly in the US, because of the clamour from the private sector to do so - this was supposed to be the magic cure for the last speculative crisis when the Internet boom crumbled in 2000-2001. It didn´t stop that crisis from happening but it helped to lay the foundations for the next one. To suggest the state is to blame for that situation is to ignore the fact that states in the last few years have generally done what the private sector have asked of them. To nobody’s benefit except that of a tiny minority who make huge sums of money while the latest bubble lasts.

Comment from bill (Legazpi)
Time: October 13, 2008, 1:18 pm

@Graeme - who is responsible for setting interest rates? The central banks or the private sector?

Even if certain parts of the private sector are demanding low interest rates, it is the Fed/BoE/ECB/etc who decide. In the case of the UK, the BoE has to base its decision on criteria set by the government, not the private sector.

Comment from gary
Time: October 13, 2008, 2:15 pm

1 We give banks our money to keep safe for us
2 While we’re nor using it they lend it to other people
3 The people they lent it to cant pay back so the banks have lost our money.
4.The government takes more of our money and gives it to the banks.
5. The banks use this second lot of money to lend back to us instead of lending us the money that we had on deposit with them, which they lost by gambling it on the stock market or buying bad debts from other banks that had sliced and diced them up so they looked like a good thing.
6 They all pat themselves on the back and get a bonus.
7 Eventually the banks will make enough money by lending our own money to us to repay our money the government gave them.
8 The profits that accrew will go into the public purse never to be seen again
9 Everyone will get a bonus

Comment from Graeme
Time: October 13, 2008, 2:22 pm

Yes, but my point is that the markets were screaming for those lower interest rates, yet when things turn out badly they point the finger at the state. it’s curious how “the markets” are never ever to blame for any of the consequences of their operations. Blaming state intervention for what has happened recently is frankly surreal. A bit more intervention to stop a small minority of parasitical gamblers playing with people’s jobs, food prices and mortgages would do no harm to most of us.

Comment from Ben
Time: October 13, 2008, 2:23 pm

@Gary, lovely explanation, now I get it!

Comment from gary
Time: October 13, 2008, 2:42 pm

The market value of shares is tosh - I havent got any. If you have some in the hope of making money then you gave gambled and lost, as you would in a casino so dont expect sympathy.

If you have negative equity in your house so what? You are still paying the same out every month and eventually the price will catch up - its a cycle.

In the late 80s those old enough will remember that mortgauge interest rates were 14% - we all managed.

My loan was for £21k and my house value dropped to £18k but my repayments never altered. No boggy - it all caught up again then went through the roof about 12 years ago and about 2 years ago - its a CYCLE - a bit like the global temperature!!

Comment from Tom
Time: October 13, 2008, 2:47 pm

@ Bill (Legazpi) - of course central banks set interest rates. But you’re not trying to say that they do this job without any influence from the market? I mean they’re not exactly having lunch with union leaders every day, are they?

Comment from Pepino
Time: October 13, 2008, 3:08 pm

I hope all UK taxpayers are happy to be forced by that twit Gordon Brown into becoming effectively shareholders in the newly part-nationalised banks, especially if the recession causes any of them to have their homes repossessed by the very banks that each taxpayer has just paid massive amounts of cash to bail out!

We´re all mugs, but the sad thing is it´s taken us this long to even start to realise it.

Giving the banks the power to create the money supply on the back of nothing but debts for so many years will turn out to be one of the biggest mistakes in history, but it won´t be the banks who suffer. Now we´re just giving them more cash and telling them “get lending again!”. Yeah, like the bubble won´t burst so long as we keep inflating it!

A couple of weeks ago, Gordon Brown claimed that the Lloyds TSB takeover of HBOS was essential for HBOS´s survival. Now just 2 weeks later, he´s giving BILLIONS to Lloyds to help it survive itself. Where was the cash to buy HBOS in the first place then? Crazy. Yet the twit still thinks it´s essential to let the takeover go through and use the law to force the monoplies commision to keep schtum.

Comment from Pepino
Time: October 13, 2008, 4:43 pm

My last post was a bit on the depressing side, so I´ll counter it with this, which is my favourite take on the recent rescue plans of dopey Gordon and his panda de gilipollas…

http://newsbiscuit.com/article/world-leader-agree-rescue-plan-turn-all-the-computers-off-and-then-turn-them-back-on-again-382

Comment from Edith
Time: October 13, 2008, 5:14 pm

@ Gary,

Very well said, that’s exactly what I meant by saying we should stop depending on banks and on stock markets!

Unfortunately, there is nothing we as individuals can do to stop banks and insurance companies from fooling with our hard-earned money. IMO, the stock exchange system is the root of all evil.

Comment from bill (Legazpi)
Time: October 13, 2008, 5:17 pm

@Graeme & Tom

I don’t know where you get the idea that the markets were “screaming for lower interest rates”. In fact I’m not exact sure what you mean by it. Markets go up and down and react to the current situation, and speculation. You don’t get the FTSE 100 demanding rate cuts. You might get economists pushing for rate cuts, but there have been plenty of economists warning that interest rates should have been higher during the last few years. Indeed Mervin King sent out a few warnings about this as well, and wanted higher interest rates back in 2005 (he was out-voted by the MPC).

I can understand private industry pushing for lower interest rates, since private companies usually have debts to service. I imagine that maybe some of the banks also wanted low interest rates because they could pass them on to mortgage holders, but I really cannot recall large high street banks generally screaming for lower interest rates.

The “parasitic gamblers” (by which I assume you mean hedge funds) are more interested in predicting the market. It’s not particularly in their interest if interest rates go up or down. Even in a falling market they can take short positions and make money. They don’t care whether the market does well or not, as long as it does what they bet it will do. They just want volatility.

Besides, my point is that banks should indeed face the consequences if they get it wrong: they should be left to go bust, which is what free markets are all about. That way they won’t take such stupid risks in the future.

The problem has been Brown’s “miracle economy” of postponing any market correction by piling on more and more debt, so instead of going bust or making loses, banks were being rewarded for taking more and more risk. So when we got to the breaking point when people could no longer pay those debts, the whole system was contaminated with bad debt. This problem might have started in the USA, but it also applies to the UK.

The type of state intervention that is taking place through bail-outs will not put a stop to banks “playing with people’s jobs, food prices and mortgages”. Instead it will let them get away with it. The message is clear: don’t worry about taking risks with other people’s money, the government will bail you out. Only time will tell, but I think this has made matters worse in the long run.

(sorry for the long post)

Comment from Marie-Claude
Time: October 13, 2008, 7:19 pm

Ben, this video: http://www.invertired.com/quimu/videos/25/34is a good explanation of why we are on the brink of systemic meltdown”. Enjoy!

Comment from John Ross
Time: October 13, 2008, 7:25 pm

“World’s financial system was teetering on the brink of systemic meltdown”

Honestly, if it were drawn to my attention that I had engendered a sentence as atrocious as that I think I might top myself. “Brink” is the edge over a drop, so where is the brink of a meltdown? And why “meltdown” anyway, instead of “failure,” which at least works with “systemic?” And just what does “systemic” mean in the garbled sentence that has emerged? I mean, I can see what he wants it to mean, which doesn’t mean it does mean that, it means Humpty Dumpty is in charge of the International Monetary Fund. Furcrysache.

Comment from Edith
Time: October 13, 2008, 8:02 pm

This is not only about people losing their jobs or their pensions - the social consequences of this crisis could be dire because poverty and unemployment breed political unrest, making people less averse to totalitarianism:

http://www.telegraph.co.uk/news/3153626/Financial-crisis-German-minister-warns-of-far-Right-rise.html

Comment from gary
Time: October 13, 2008, 8:52 pm

It gets plenty of coverage because its cheap TV - all the links are already in and no OB crew is needed… 20 minutes on tonights news…

…and the ‘retiring’ Chairman of RBS will have a half a million a year pension - what happened to company directors being responsible for the stuff that goes on on their watch? Had this been a headteacher responsible for gambling away the teachers salaries he would have lost his pension and gone to jail.

Comment from John Ross
Time: October 13, 2008, 9:08 pm

@Graeme
<<this was supposed to be the magic cure for the last speculative crisis when the Internet boom crumbled in 2000-2001.
Yes, and to get the US out of the slump which followed the September 11th attacks. The idea was OK, but it was supposed to be a short-term way out, and someone forgot to turn the tap off.

@Legazpi Bill
<<I don’t know where you get the idea that the markets were “screaming for lower interest rates”
You’re right, of course, the markets weren’t, but lots of powerful economic pressure groups were. I think you’re interpreting the word “market” more literally than others.

Personally, I think the blame for this current mess lies firmly with the Reagan-Thatcher-Milton Friedman school of “Let’s stop actually producing things and turn the entire Western World into a service economy.” Crazy.

Comment from raytibbitts
Time: October 14, 2008, 12:19 am

I kind of like the mixed metaphor of “brink” and “melt”

The Fed drove prices down, (and the real value of the dollar down with it.)

The clamouring had little to do with it compared with the burden of foreign debt, and the attempt to diminish it by diminishing the price of U.S. dollars.

I like the way this guy explained it (years before it happened.)

http://es.youtube.com/watch?v=MoSwkCog

Although he seemed like a jerk at the time, and my livelihood was greatly enhanced by banks offering my potential-customers very dangerous (to the banks) loans back then, I have to give him, and Ron Paul the recognition they deserve for trying to warn us that we were selling-out our true conservatism for a few pieces-of-silver-adjustable-rate-no-money-down-home-loans. And then, of course, dumping them on the wall street investors, (and many Chinese interests) filling the exchanges with improperly regulated CRAP.

Comment from raytibbitts
Time: October 14, 2008, 11:18 pm

If you have a little more time; and prefer to listen to a somewhat more entertaining, yet nonetheless accurate description, you will really enjoy This American Life, and their take on the issue.

http://www.thisamericanlife.org/

Especially episodes #366 and #365

Comment from raytibbitts
Time: November 2, 2008, 12:34 am

Another good point of view on the trigger of the credit crisis…
http://www.linearpublishing.com/orsonscottcard.html

Comment from Tom
Time: November 2, 2008, 12:57 am

@Bill - Sorry, but you don’t seem capable of defending the system. Interest rates have dropped and they’ll drop again, not for our benefit, though.

The truth is that Adam Smith’s invisible hand has always been a stupid fantasy. Trusting the market to regulate itself is as foolish as believing in god.

Comment from raytibbitts
Time: November 2, 2008, 1:26 am

@Tom: All we are seeing now is the Invisible Hand strangling the banks and creditors who blinded themselves to the possibility that the market would ever correct itself.

No economy is immune to corrections, and some corrections HURT.
No economy will ever be immune to corruption, both from within and especially from those who are supposed to be regulating it.
Adam Smith’s ‘Hand’ is hard to see (it is invisible, after all) but markets that let it do its job will always fare better than those who try to force it. Sometimes the forcing comes from participants who try to ‘game’ the the system, sometimes it comes from governments who are trying to ’save’ it. Sometimes they happen to be the same people, or their agents.
Will police ever be able to catch everybody committing crimes? Will an economy ever be able to be regulated to the point that no corruption ever causes someone to unfairly lose or earn money they don’t deserve? How much will it cost to create such a perfect form of regulation? Who will regulate the regulators? How do we determine what is an acceptable ratio of regulation-to-corruption?
How about we try the laws on the books first, punish the people who deserve to be punished (according to the laws) and then see how regulation needs to be adjusted?
How will the recent upheavals on Wall Street actually effect you, personally?