6 ms·

How the U.S. Saved the World from Financial Ruin

52 points by chollida1 8y ago

rado 8y ago
The Onion, is this you?
- deleted 8y ago
  [deleted]
xeromal 8y ago
This is the key part of the article for those that don't read. ``` In early October 2008, the Dutch had suggested pooling the collective resources of the European Union’s economies to bail out their banks and guarantee deposits. The French, British, and even the boss of Deutsche Bank all supported the idea of a joint effort. This made sense, since most European banks had significant operations in neighboring countries. Regardless of whether their headquarters were in Paris or Amsterdam or Frankfurt, their exposures were pan-European. National borders should have been irrelevant for deciding who would bear the burden of saving a tightly integrated financial system. Then the German government and the ECB made one of the greatest policy mistakes since the 1930s. They insisted on national solutions led by national governments. French President Nicolas Sarkozy claimed German Chancellor Angela Merkel had told him, “Chacun sa merde”—she would not clean up others’ messes. This decision led directly to the European sovereign crises and to a lost decade for hundreds of millions of people. ```
- candiodari 8y ago
  You should not translate "Chacun sa merde" like that. That's hasn't got any of the original French flavor at all ! "To each their shit" is a bit better. I wonder how you could really get the feel for the statement though. It comes with a bit of "and you bloody well ain't going to change my mind about this !" feeling.
  - anoncoward111 8y ago
    It's a fun statement. If I were to translate it non-literally but to convey the mood intended, I would say something like "Everyone must lay down in the grave they've dug for themselves"
Analemma_ 8y ago
"How the U.S. Saved the World from the Financial Ruin the U.S. Created" The world could perhaps be pardoned for not being more grateful.
notveryrational 8y ago
Are we interpreting the bailout of a global US-created financial crisis "saving the world" now? Here's what happened: - The international market, particularly the Asian market, burst. - Investment went into the tech industry, which also burst. - To keep investment rates high, the Fed coordinated changes to regulations so that private mortages could be sold as investments. - The Fed pushed for other countries to adopt the same practices. - This new regulation regime was inherently designed to push investment earnings as much as possible, and new financial instruments were created to centralize risk from individual risk toward systemic risk. - It started to become clear that there were inherent structural issues with the investment scheme. - The Fed continuously lowered regulations to feed the market in an attempt to prevent it from crashing. - When no more regulations could be cut, the entire global market crashed. - This was all based on a philosophy that investment is a key indicator of economic health, and that driving up investment would drive up the health of the overall economy. - Regulators decided to distribute the costs of the mistake, and loan tax payer money to banks that had collapsed. - With rate exception, people in the financial sector made hand over fist. - Congress even evaluated making it legal to falsify accounting information in an effort to save the banks. - The U.S. and European economy is still recovering.
- dukoid 8y ago
  Sounds like a bad case of Goodhart's law
  - hentrep 8y ago
    "Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes." Source: https://en.wikipedia.org/wiki/Goodhart%27s_law https://en.wikipedia.org/wiki/Goodhart%27s_law
- news_to_me 8y ago
  Wasn't the bubble burst based on subprime loans in the housing market? That's all I've been told, and I'd be surprised if that's incorrect. (Citations would be appreciated)
onemoresoop 8y ago
Is it relevant here that Barrons is owned by NEWSCORP?
apo 8y ago
At some point it will become painfully obvious that flooding the world with cheap money has just been the setup for the next crisis, not a solution.
chriselles 8y ago
I recall attending a lecture with Ed Lazear at Stanford GSB about his front row seat to the GFC as chief economic advisor to the Bush White House. Talk about an incredibly frightening description of events as they unfolded. He even mentioned how Hank Paulson had been vomiting before having to front the nation/world on TV with the plan to keep the wheels from falling off the global economy. One thing I recall from the lecture was how the White House and entire government by extension were completely incapable of understanding the types of insanely complex financial instruments that had been created and used.
stuckinarut 8y ago
Kinda an interesting take given how the collapse in 2008 occured.

52 points by chollida1 8y ago

rado 8y ago

The Onion, is this you?

deleted 8y ago
[deleted]

xeromal 8y ago

This is the key part of the article for those that don't read. ``` In early October 2008, the Dutch had suggested pooling the collective resources of the European Union’s economies to bail out their banks and guarantee deposits. The French, British, and even the boss of Deutsche Bank all supported the idea of a joint effort. This made sense, since most European banks had significant operations in neighboring countries. Regardless of whether their headquarters were in Paris or Amsterdam or Frankfurt, their exposures were pan-European. National borders should have been irrelevant for deciding who would bear the burden of saving a tightly integrated financial system. Then the German government and the ECB made one of the greatest policy mistakes since the 1930s. They insisted on national solutions led by national governments. French President Nicolas Sarkozy claimed German Chancellor Angela Merkel had told him, “Chacun sa merde”—she would not clean up others’ messes. This decision led directly to the European sovereign crises and to a lost decade for hundreds of millions of people. ```

candiodari 8y ago
You should not translate "Chacun sa merde" like that. That's hasn't got any of the original French flavor at all ! "To each their shit" is a bit better. I wonder how you could really get the feel for the statement though. It comes with a bit of "and you bloody well ain't going to change my mind about this !" feeling.
- anoncoward111 8y ago
  It's a fun statement. If I were to translate it non-literally but to convey the mood intended, I would say something like "Everyone must lay down in the grave they've dug for themselves"

Analemma_ 8y ago

"How the U.S. Saved the World from the Financial Ruin the U.S. Created" The world could perhaps be pardoned for not being more grateful.

notveryrational 8y ago

Are we interpreting the bailout of a global US-created financial crisis "saving the world" now? Here's what happened: - The international market, particularly the Asian market, burst. - Investment went into the tech industry, which also burst. - To keep investment rates high, the Fed coordinated changes to regulations so that private mortages could be sold as investments. - The Fed pushed for other countries to adopt the same practices. - This new regulation regime was inherently designed to push investment earnings as much as possible, and new financial instruments were created to centralize risk from individual risk toward systemic risk. - It started to become clear that there were inherent structural issues with the investment scheme. - The Fed continuously lowered regulations to feed the market in an attempt to prevent it from crashing. - When no more regulations could be cut, the entire global market crashed. - This was all based on a philosophy that investment is a key indicator of economic health, and that driving up investment would drive up the health of the overall economy. - Regulators decided to distribute the costs of the mistake, and loan tax payer money to banks that had collapsed. - With rate exception, people in the financial sector made hand over fist. - Congress even evaluated making it legal to falsify accounting information in an effort to save the banks. - The U.S. and European economy is still recovering.

dukoid 8y ago
Sounds like a bad case of Goodhart's law
- hentrep 8y ago
  "Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes." Source: https://en.wikipedia.org/wiki/Goodhart%27s_law https://en.wikipedia.org/wiki/Goodhart%27s_law
news_to_me 8y ago
Wasn't the bubble burst based on subprime loans in the housing market? That's all I've been told, and I'd be surprised if that's incorrect. (Citations would be appreciated)

onemoresoop 8y ago

Is it relevant here that Barrons is owned by NEWSCORP?

apo 8y ago

At some point it will become painfully obvious that flooding the world with cheap money has just been the setup for the next crisis, not a solution.

chriselles 8y ago

I recall attending a lecture with Ed Lazear at Stanford GSB about his front row seat to the GFC as chief economic advisor to the Bush White House. Talk about an incredibly frightening description of events as they unfolded. He even mentioned how Hank Paulson had been vomiting before having to front the nation/world on TV with the plan to keep the wheels from falling off the global economy. One thing I recall from the lecture was how the White House and entire government by extension were completely incapable of understanding the types of insanely complex financial instruments that had been created and used.

stuckinarut 8y ago

Kinda an interesting take given how the collapse in 2008 occured.