Hello and welcome to the Think Tank.
I am writing now because I wish to make a prediction. This prediction will contradict every economist you hear on the news, and everything you hear on CNBC. I was getting home from this weeks thanks giving trip and thought I would catch up on the financial news. I was immediately bombarded with a singular message: the recession is over. I heard the beating of drums, the excited reporters talking about how sales have gone up, housing prices returning to normalcy. A quick glance at the bottom of the screen reveals the title of the story they are reporting on. It reads "Recession over?" I roll my eyes.
The economic growth that we are seeing today is due to the same unstable, dangerous practices that led us into the recession. When Obama took office he promised regulation of the dangerous derivative market (something to be explained another day), increased regulation on the dangerous amount of leveraging banks were doing, and promised to make this country about Main street instead of Wall street. This has not happened and as a result the corporate business practices have returned.
The thing about these practices is that they are incredibly profitable. That is until somebody goofs up. When somebody does mess up the whole thing collapses. We are likely seeing the result of one or more of these derivative bets going sour, and the resulting collapse of all companies that were involved in the bet.When these derivatives do work however they skyrocket profits and we see the same result we saw before the recession: rapid economic growth.
My prediction is that in a matter of time we will see another collapse of the market. This is because nothing has changed, the same practices that got us into this mess are happening all over again and no one seems to care. In the meantime however the stock market will soar and it will appear that the recession is over, but as long as regulation is not introduced we will see the exact same results.
6 comments:
I am a little confused actually at this post. It seems to make sense but I have no idea what a derivative bet is...
I have been told that the recession was the result of too much regulation. That the people as a whole are to blame for wanting to buy the houses that they couldn't afford. I was told that the practices were the American practices of spending 101% of our budgets annually during the run-up and an increase in the amount of debt. This article seems to place the blame on companies and government. This seems to contradict what I have learned. However the economy is not exactly my strong point.
To Jake:
I have been reading your other arguments and really appreciate what you have brought to The Think Tank.
I am planning on doing a specific article on what a derivative is and how they caused this financial mess.
As for the regulation argument. I have to say that in fact, the opposite is the case. This bubble began with Allan Greenspan advising Ronald Regan to "allow the free markets to work." However this translated over to deregulation of nearly every sector of our economy.
Allan Greenspan, and many others basically oversaw the U.S departments that regulated the market. Following Ayn Rand's philosophy that the free markets should be completely autonomous they began pulling down department that tried to assert their regulating authority over the marketplace (ex: Brooksley Born). We are now seeing the result of nearly thirty years of very little regulation.
This new idea that its really "the citizen's fault" is completely false. Look at what we are taught from the beginning of our lives: "you can be anything, you can have anything, you deserve everything." This is the very foundation of the American Dream. I still believe that that is true, however, through credit cards, and most importantly home equity loans we were all told that we could have the American dream without working for it. We were told that our house was really a bank, loaded with money. We were told that taking out this money in the form of a loan was a completely safe investment. It was blatant manipulation of the ideas in this country and the ideas of capitalism. I can't tell you how many people do not know what to do or who to turn to. But I can tell you that we have to make sure it doesn't happen again.
Essentially if American consumerism culture/American dream has a fault in this whole fiasco it is that it was there for these people to manipulate it. These people, bankers and corporate CEOs, have embedded themselves into our political system, and essentially control most of our economic culture. There have been huge banking company's CEOs "advising" presidency since Reagan, and even Obama "savior of the US" has not broken this trend.
Also, I'm kinda missing the blue background mate. The white is so empty.
That is very interesting. I have not read any of Ayn Rand's books so I only know what I hear. I looked up Brooksley Born too it looks like she was right. I hope you do a post explaining how the free market theory didn't work and why it has to be regulated.
Coming right up!
Post a Comment