For a short, concise explanation of the financial crisis of the past 2 years, click here:
Malkiel: Market Risk-Taking Must Be Restrained - BusinessWeek
If you think that a Princeton economics professor can’t explain something as complex as the current financial crisis
— in a way that anyone can understand — you’re in for a pleasant surprise.
Yep…there you have it. Thanks for the post.
So, in my lifetime we had some 70s gas crisis, 1980s savings and loan (I’m too young to remember those), then we had the dot com bubble/911, then we had the housing/credit bubble…so what’s next?
I’ll take a guess for the record…
New technology bubble (Iphones and gadgets, computers etc.)?
Government debt/spending bubbles causing hyper inflation?
or, the same thing we just saw will happen again in 6 years…times 10, and a new world order? (probably).
I’m hoping none of these would happen.
“We have learned that our regulatory system must be more effective. Systemically important institutions can’t be allowed to assume so much leverage that they impose instability on the entire financial system. Improved regulation of capital standards also needs to be buttressed by imposing liquidity standards as well. Most credit default swaps should be fully collateralized and traded on organized exchanges. These kinds of changes are currently under consideration.”
I do not fully agree with this. Yes, regulatory systems must be more effective by being competent. There should be no restrictions on how much leverage institutions use. Under no circumstances do I want the idiots we elect and the idiots they appoint and the idiots they hire restricting anything that has to do with money. So long as we have a choice as to where to put our money, let the institutions use all the leverage they want.
[QUOTE=steveshelby2550;160030]I do not fully agree with this. Yes, regulatory systems must be more effective by being competent. There should be no restrictions on how much leverage institutions use. Under no circumstances do I want the idiots we elect and the idiots they appoint and the idiots they hire restricting anything that has to do with money. So long as we have a choice as to where to put our money, let the institutions use all the leverage they want.[/QUOTE
Scary statement there.
I totally agree with you that regulatory competence is a necessity, and that elected officials should never be a part of it.
However letting institutional leverage run out of control is what got the mess as big as it did.
Granted at the time, the leverage seemed to be safe amounts, but even a 15 percent decrease in housing prices would have caused a collapse.
The biggest issue were derivatives that came with it. CDSs were undoubtedly the primer on the bullet to the head of the housing market.
Interesting article on CDSs here. Deep, and extremely enlightening.
And thanks Clint. Great article.
Gotta love it when the jargon is gone, and it’s in plain english.
hi…
Will the forex trading industry decrease in potential with the current crisis in our economy?
Is it still a good idea to be in forex trading?
The market changes all the time, there’s not really a a better or worse time, about a year ago may have been the exception, I can’t see anything having such effect for a few years, it’s the Unknon that sends markets crazy, and at the moment things may be a bit glum but most of the bad news is known, even the Greek situation is not having that much of an impact compared to about 12 months ago.