"We had one just a few years back when the dot-com stock bubble collapsed. That provoked a recession and the loss of a lot of paper wealth in the stock market, but there was no crisis. There was no crisis because the big movers and shakers of the finance world didn’t build a giant house of cards built on the assumption that tech stocks would continue to rise in value indefinitely."The articles goes further into the dot-con vs. housing bust, for example the leverage used by the banks:
"Dotcom wealth was mostly held by individuals and funds. Mortgage debt is mostly held by banks, and when it disappears it causes massive capital losses in the banking system."And as one of his readers points out via Robert Reich's blog, there is more to it than just failing mortgages or equities that crash:
"over the past thirty years, households had done everything they could to compensate for falling wages: women entered the work force; people worked longer hours, they maxed their credit card debt; they borrowed against the equity in their houses. Part of the crisis now is because consumers have nothing left to give. Years of conservative policies have gutted the middle-class. Reich gives the nice analogy that at the end of the poker game, when one person holds all the chips, the game ends."Bubbles happen, greed and fear run markets, I get that, but there are indicators that we can hopefully see next time and avoid:
"Greenspan pumped up the housing bubble to mitigate the bursting of the tech bubble. He thought aggressive creative real estate financing could make up for all the cash that disappeared with tech blow up."As America likes to boast about how many millionaires and billionaires it has, remember what it does to get there and how many of its' citizens pay a price.
Transparent, sensible regulation is needed. I feel that is what will come when the Democrats run the show.
Source: Kevin Drum
No comments:
Post a Comment