Whoever wins on Nov. 4 may restructure this country’s financial system. But what happens if they don’t, or if they get it wrong?
This financial crisis is NOT a “once-in-a-century credit tsunami” as Alan Greenspan recently described it. At least not according to Gary Richardson, a UC Irvine economics professor.
The Orange County Register and its Web site (which hosts this blog) recently ran an opinion piece by Richardson in which he argues that with the current regulatory framework “we should expect financial cataclysms like the current crisis to occur, on average, every 15 years.”
His logic is easy to follow. He writes that after the financial crisis of 1929-1933, “financial regulations emphasized stability and prohibited banks from behaving in ways that risked market meltdowns.” (Photo by Bloomberg’s Jin Lee taken on Sept. 29 of the Dow Jones ticker in Times Square. That day U.S. stocks plunged and the Standard & Poor’s 500 Index tumbled the most since the 1987 crash after the House of Representatives rejected a $700 billion plan to rescue the financial system.)
Here’s more from Richardson (emphasis added):
Congress began dismantling that safety-first system in the late 1980s and overturned the last significant Depression-era restrictions in 1999. In other words, the current financial system – which emphasizes efficiency and innovation – has been in place for less than 20 years. The bulk of the system came into operation in the mid-1990s, a little more than 10 years ago.
If we take 1987 as the starting point of the current financial system, then the average time to failure – which is what statisticians mean when they say a “once in a something event” – is 20 years. If we date the starting point of the system in the mid-1990s and recognize that the subprime-meltdown began in 2007, then the average time to failure is little more than 10 years.
No matter how you arrange the data, the message is the same: The modern American financial system is unstable. During the life of the current system, it has been beset by recurrent booms and busts (e.g. the Internet-stock bubble, the housing boom and the subprime mortgage bust) and by events that might have triggered a system-wide shutdown (e.g. the collapse in the late 1990s of the hedge fund Long Term Capital Management). The system recently hovered near the edge of a catastrophic meltdown. Only government intervention of hitherto unimagined magnitude kept the system afloat.
Yikes. Still not convinced? Richardson gives us a history lesson (again I bold):
Under the post-Depression financial regime, which lasted approximately 1934-84, our nation experienced no financial panics.
Under the national and Federal Reserve banking regimes, which lasted about 70 years, from approximately 1863-1933, our nation experienced four panics that afflicted the central money market (1873, 1893, 1907, and 1933).
Read the entire opinion piece HERE.
And in other mortgage news…
- Chase-WaMu to help 400,000 avoid foreclosure
- Gov’t actions fail to ease O.C. mortgage rates
- First American swings to loss, cuts jobs
- Massive mortgage aid planned
- Wells Fargo gets $25 billion from U.S. Treasury
- More homeowners get help to avoid foreclosure
All we have to do is call Ben Bernanke. Ben can fix anything.
Oh, that makes everything okay now. Guess I’ll go out and buy a house, once I can find a new job.
In an overly automated and regulated system, there is not enough personal accountability to drive rational decisions. Our system is far from a ‘free market,’ and until we return to minimal regulation and maximum accountability we will not have a stable credit system.
For the average American, I think the answer is to remain outside the system: it can’t hurt you if you don’t play along. Live below your means, save money, don’t finance cars or homes, avoid credit cards, and always be prepared for unemployment. If nothing else this will motivate all corporations to lobby congress for a stable, minimally regulated system so they can get your business back.
we are seeing the decline of the american empire.
damn right were gonna see a decline. When the rest of the US started to watch that show about a county named after a fruit, you knew people were gettin out of hand.
Dont count on Barack to ‘change’ things.
It will be all of you, who will be doing the changing.
It’s obvious that the ones in charge of this mess have no idea what they’re doing. When the bailout bill was passed on Oct 3 the geniuses running the show said they were going to purchase the toxic investments with our money, let them appreciate in value and then return a profit for the taxpayer. That plan was apparently scrapped without congressional review and now they infusing our tax dollars directly into the banks. The banks are using the money to pay CEO bonuses, make acquisitions and shore up their books. Barney Frank claims this is in violation of the legislation. No it’s not. There is nothing in the legislation that forbids it. Barney Rubble is LYING! He promoted legislation that exaccerbated this financial mess against the will of his constituents and the american people 90-1. Now he has to lie to cover his tracks. This will only get worse. You can’t argue with math. In the end math always wins. It may take a little time. But it will all coming crashing down. I suspect sooner rather than later.
You can’t fix the economy until you get rid of the Fed and fractional lending. That will never happen as the Fed funds all of the government’s spending through inflation. Neither of the 2 stooges running will end the Fed or even talk about their role in this meltdown.
So, expect even more hardship and a reduction in your standard of living going forward.
The first president to call out the Fed gets my vote. Otherwise, meet the new boss, same as the old boss….
My degrees are in economics. What you learn from studying development economics is that the three most important aspects of developing a nation’s economy are education, infrastructure and healthcare. If those don’t work, your nation does not development, or it’s development is arrested.
The idea behind a stimulus is to put money in the hands of consumers who will then spend this on food for their families and to put a roof over their heads. Deficit spending in a downturn is used to reduce the misery and to keep some sort of cash flow in the economy so fewer businesses fail. In good times a nation is supposed to raise taxes to pay off this debt. The US never does this last step, we have a pathological aversion to paying taxes. Sorry folks, but taxes are the cost of a civilized society.
Rather than throwing three quarters of a trillion dollars at the finance industry, I will offer the money would be far better spent rebuilding worn out infrastructure and funding educational and health care improvements. Money given to the finance industry is lost. We will never see it again. It doesn’t put money into the hands of people who need it to pay mortgages or for food. Using that money to build infrastructure immediately puts money into workers hands, increases the GDP and prepares the nation for the day when the inevitable economic upturn begins. Rebuilding and funding schools should be a priority. I fear instead we will cheap out further on education and infrastructure and be ill prepared for good times in the future.
The soon-to-be retired are screwed. Of course, they are the same people who voted time and again to give themselves free stuff.
Too bad most of the boomers will end up elderly, destitute and homeless and/or shelter bound.
Fortunately, we don’t need to feel bad for them. They only think of themselves any way.
Phil,
I’m not an economics major, only took 4 Econ classes in college. You hit the nail on the head. It’s not a good time to raise taxes. I hope Obama rethinks his position, as he will likely be in that position. Look at our current political lackies in California to see what’s next for this great State. That’s why I’m looking to move out of State. We’re scre’wed. No ba’lls om either side.
We can start fixing this by voting EVERYONE out of office this Tuesday.
Also plan to take care of yourself and family. Do your grocery shopping 3 to 4 months in advance. By only what you will be using anyway. Pasta, rice and canned foods will last 2 years on your shelf. If things go bad you’ll be ready, if they don’t, then you don’t have to go shopping for awhile. It’s a win win. At least take the time to store up on groceries, what you have on your shelf becomes more important in hard times.
Just more unpatriotic negativism from liberals who hate America, and the troops.
“Sorry folks, but taxes are the cost of a civilized society.”
Most of the Country does not have a problem paying taxes. I for one hate giving our taxes to a bunch of thieves like Mozillo, Gross, Paulson, Bernanke, Bush, Cheney, Palosi and Frank.
John “Bailout” Campbell who lied and said he had fiscal discipline before voting for 3 bailout bills. Campbell is the true criminal who betrayed his nation.
I HATE you John Campbell.
I think that any government figure that voted to decrease regulation or somehow contributed to this system that we now have, which self-destructs every 10 years, should be voted out of office. Whatever happened to protecting the common good? Our political figures better fix this now since they’re the ones that caused this thru deregulation and tampering with a system that used to work.
Matt,
What was governments role in causing this mess? That would be a good book topic.
R.A.T
I just got an add in the mail for Campbell. It reads in part: “Named ‘Taxpayer Hero’ by citizens against government waste.” I emailed him twice; I told him that if he voted for the bill, I would vote against him. I also told him I’d convince everyone I possibly could to vote against him. I received a generic condescending email reply from him (probably send to thousands of us) explaining that I was probably against the bailout because I didn’t understand it. It’s becoming increasingly obvious that it was congress who didn’t understand their own bill.
I am voting against Campbell, and I have convince at least 5 other people to do so as well (so far). I encourage everyone else to do the same.
Oh, btw, where is Bill Gross from Pimpco? Naturally, a Wall Street advocate, he was for the bailout. Has he commented lately? I must have missed it. What happened to that plan to buy the toxic paper and to profit from it? ha-ha. Is there anyone out there who still takes these talking heads seriously? They are hit men for Wall Street. The entire system is rigged. Next time they talk watch their lips move. blah, blah, blah…….
Another sell out is Ken Calvert, U.S. Congressman for my district. He voted for the bail out as well, although he calls himself a fiscal conservative. He is a disgrace. He will NEVER get my vote again, and I hope that he LOSES this election.
Vote all these idiots out! Clean the slate! Vote for the new guy.
“Dont count on Barack to ‘change’ things.
It will be all of you, who will be doing the changing.”
Prepare to live in a third world country. Our once-prosperous nation is no more.
The crisis began in mid 1990s. Who was the president back then? Now, those same democratic (or demolition) people blame it on Bush. They have set up for the market to crash not Bush. Remember the dot com boom and bust? Who set it up? It was the same Demolition People. Go ahead and vote for Demolition man again. You know the consequence.
I blame all this on the baby boomers. We made too much money in our peak earning years and all this money had to be invested somewhere. So all these innovative investments like mortgage backed securities and other deriviatives, hedge funds, assorted tax-deferred retirement funds, etc. were developed to invest the baby boomer’s money. In this new unregulated environment, the money went where the highest (and riskiest) returns were. Little thought went into the consequences from that risk.
President George W. Bush and Alan Greenspan will rescue us all. Thanks God.
I blame, in no particular order: Abe Lincoln, Mosses, Bill Clinton, Vince Lombardi, George Bushes, Martha Washington, Martha Stewart, Britney Spears, my cub scout leader, the catholic church, Hilter, John Q. Public, Bill Gross, Realtors, Joe the plumber, Joe six-pack, Barak Obama’s children, Wall Street, Main Street, Picolo Street, the street repair man, Elizabeth Taylor, Brad Pitt, Reggie Bush, OJ, Einstein, God, the devil, birds, beatles, and everyone else except me.
King Obama will fix everything……..
Yes, when I received the John “Bailout” Campbell flyer, I became sick to my stomach. I wish I had the money to sue him for false advertising. I can put up with a lot, but I hate a liar. Campbell, Cox , Bernanke and Greenspan have done more harm to our Country than anyone in history.
John “Bailout” Campbell stole my vote in the past because he lied and he said he would protect the public trust. Now we know better. I tell everyone, don’t just vote republican because the republicans in power don’t follow the republican platform. I tell everyone to vote against John “Bailout” Campbell. Vote for anyone but Campbell.
Bill-1a, that was hilarious! Thanks for the good laugh.
I was just thinking now would be the perfect time for the San Andreas fault to slip and the “Big One” to happen, Calif is in bad shape financially as it is, that would be the cherry on top to finish off this fiancial Sundae.
I guess the one good thing that would come from this is the construction industry would get a big business boom.
Phil,
$ is not the problem with education. We spend way more per student than other countries and states who do way better. I think until we get over the ‘we need more $ for education’ tag line, nothing will improve in that area.
i also got the insulting email from Campbell, AND the flier. what a joke. the very mildly comforting fact is that i never voted for him. the un-comforting fact is that this time around i might actually vote for a winner, and then they’ll turn out just as bad as all the jokes that have gone before.
I think financially speaking, everyone needs to plan for the future and stop worring about the present. Best investment for the future is single family housing….yes, you heard it first here, single family housing with a 60 month escrow.