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The best explanation I have heard of the financial crisis was in the book "The End of Alchemy: Money, Banking and the Future of the Global Economy" by the forme

The best explanation I have heard of the financial crisis was in the book "The End of Alchemy: Money, Banking and the Future of the Global Economy" by the former head of Bank of England. It makes the convincing case that there is no real single place to point fingers and that the crash was the logical consequence of people all doing the "right thing" I can highly recommend it as it also takes a historical view of money and what it is and how it's been used historically. A very interesting book. So yeah there is a real cost of 2008 but there is also real opportunities. These things can't be measured until decades later. However, the anti establishment movement didn't rise because of the financial crisis it rose because of globalization and the alliance between politicians and large international organizations to take away opportunities from its own citizens and start giving it to countries like China after the fall of Soviet Union. Mixed with that and the liberal social welfare system in Europe and PC culture which claimed any critical voice was facist, racist etc. That's why the antiestablishment came about not because of 2008 and wallstreet.

dhimes 8y ago
Without reading the book or even TFA, I'll comment on the concept of everybody doing the "right thing" leading to bad outcomes. I have a hunch that this is a pretty universal law, and the only way to mitigate it is through regulations that ban some of those "right things." I think that honest, moral players welcome good regulations because it keeps them from having to go down a slippery slope.
- pc86 8y ago
  I think most people are fine with regulations when they feel they're evenly applied, or that it's unlikely their competitors will be able to break them without consequence. It's when they feel that regulations will affect them more than others or that their competitors will be able to ignore them while they won't that people start getting loud.
- nostrademons 8y ago
  The other way to mitigate it is to incentivize some of the players in the system to ferret out and report wrongdoing on the part of other players. Think of short-sellers in a market: they can profit handsomely by identifying fraud or irrational exuberance, taking a position opposite it, and then loudly reporting the fraud so everyone knows about it. The legal system is also setup like this, as is the U.S. government: there's no one entity that regulates the U.S. government, but the government itself consists of a set of interlocking institutions, each of which has leverage to prevent the others from becoming too powerful.
  - dhimes 8y ago
    Now that's an interesting idea. I wonder if it could work in practice? If (a) fraud is obvious enough to invite this; (b) most fraud as such; and (c) the long-term downside to fraud is way worse than the upside?
  - pcwalton 8y ago
    > there's no one entity that regulates the U.S. government Well, in theory the voters do.
    - nostrademons 8y ago
      Hence checks & balances. It's a different sort of regulation than the grandparent was talking about, though - voters don't get to directly tell the government "You can do this and this, but you can't do this", they just get to vote the people who make up the government out if they start doing unpopular stuff.
- ThomPete 8y ago
  Problem is that you don't know what the good regulations is because you don't know their consequences in the long run. Clinton wanted to allow people to afford and buy a home because he knew for many of them that was the way out. That's why he put out executive orders back in the 90ies under his National Homeownership Strategy where they introduced more flexible underwriting rules. Among many other things he put out federal orders out and banks were required to allow people with questioble economic abilities to get approved. So it's not that simple.
  - dhimes 8y ago
    Just because a problem is hard doesn't mean we should abandon it. Maybe start with limiting the "instruments" available for <del>gambling</del> investing. Get rid of that one that bets on market volatility, for example (although that problem kind of solved itself as the investors in it lost their money).
    - ThomPete 8y ago
      I don't remember to have said anything about us abandoning it. On the contrary, my point is that we should, in fact, try to understand it so we can do something about it instead of just pointing fingers at people in the very system that supports them.
guelo 8y ago
Everybody gets their propaganda from different places but I'm pretty sure the European political upheaval was caused by the Syrian refugee crisis not the welfare system.
- majewsky 8y ago
  Check again. The financial crisis started the rise of the right-wing parties. The refugee crisis then exacerbated it. For instance, the German AfD was originally a euro-skeptic party lead by some economics professors. It later ousted those leaders and rebranded into a more plainly nationalist party when that became en vogue. I don't know exactly about other European countries since I'm German, but from what I've seen, the downfall of the classical parties started way before 2015 in many of them as a result of frustration over the handling of the 2008 financial crisis.
  - misja111 8y ago
    Don't know about Germany but in the Netherlands, Belgium and France the rise of the right wing parties started way earlier than 2008.
    - majewsky 8y ago
      Yes, we were late to the party. (Well, we had right-wing parties of course, but the AfD is the first nation-wide party right of the CxU that is sufficiently dissimilar from the NSDAP to attract a wide voter base.)
- ThomPete 8y ago
  That started long before the Syrian crisis and it wasn't the wellsystem in general but that it allows for people who come to the EU to get pretty solid benefits without anything in return which helps create ghettos and doesn't incentifies them to integrate with the rest of society. Again these are just some of the unintended consequences of good intentions.
Gys 8y ago
> the crash was the logical consequence of people all doing the "right thing" I did not read the book, but I highly suspect 'right thing' is misused in this context and that the writer actually means 'within the boundaries of the law'. To me that is a very different thing. Very interesting to see how a former head of Bank of England thinks those 'things' are the same. It also makes me pessimistic about the future of our civilization.
- pc86 8y ago
  Perhaps rather than assuming you know what the author meant you should actually read the book.
  - and0 8y ago
    Sounds like typical "rational actor" arguments. Everyone was trying to make the most money possible using the tools and information available, and if your political / moral philosophy can't distinguish that from "morally good" then all you can do is shrug. Surprise! The guy who heads a massive bank doesn't think all the crazy things banks do to make money are bad.
- ThomPete 8y ago
  I would highly recommend you read the book. It's not that simple. Keep in mind this is not just a question of greedy banks this is a question of politicians allowing for people to buy houses because they know for many that's the only way they will ever be able to save up for retirement. It's also a question of how Central Banks are run and used and attemps to keep the economy stable. In other words many many many factors are involved in this giant system. That there are people who were doing fraudulent things is obvious but those things do not explain the crash in itself. The mistake many do is put the moral analysis in front of the system analysis and yes then you will end up with moral solutions without addressing the underlying systemic problems with keeping a world economy going. The book dives deep into this and shows how it can be structured differently because it's more concerned with solving the systemic problem which one could argue is a more ethical position than pointing fingers at human nature. The point of the book is that the crash was not the result of some mastermind but rather a consequence of a lot of good intended decisions which simply had unintented conequences.
lotsofpulp 8y ago
I can point to all the underwriters that approved loans with no income verification, fraudulent paperwork, officially stating they did checks for a physically impossible number of mortgages.
- pas 8y ago
  Were these loan sharks prosecuted? Probably yes, but that won't bring back the lost percents of GDP.
  - lovich 8y ago
    >"We're these loan sharks prosecuted? Probably yes,..." How about definitely not, other than one guy?[1] Additionally, while it won't bring back the GDP it will send a message that the laws will be enforced and that this behavior has consequences. Currently the message we send is that if you do low level crime we'll be harsh on you to make an example. Crash the global economy and harm the entire country though? Ah, how could we hold you accountable for that? [1]https://www.nytimes.com/2014/05/04/magazine/only-one-top-banker-jail-financial-crisis.html https://www.nytimes.com/2014/05/04/magazine/only-one-top-ban...
    - pas 8y ago
      Those are not the guys I'm talking about. Sorry for misusing the term. The people (and companies) who enrolled folks into "predatory" mortgages (NINJA loans - no income, no assets, no job), the low level agents that should have done the paperwork for the credit check, and warned the wannabe clients about the risks (of default and so on).
  - pc86 8y ago
    A) That's not what a loan shark is B) No, they were not prosecuted, because for the most part they did not violate any laws (I'm sure you could find some that did) C) Let's avoid speaking of "percents of GDP" as if they're lives we've lost. The economy is doing better now than it was in 2008.
empath75 8y ago
> to take away opportunities from its own citizens and start giving it to countries like China after the fall of Soviet Union. Citation needed
- ThomPete 8y ago
  Read the book I recommend :)
Marazan 8y ago
The rating agencies absolutely did not do the right thing. There were contemporary pre-crash criticisms of their rating of mortgage backed securities so this is not Monday morning quarter backing
- madengr 8y ago
  The government also backed risky loans.
- ThomPete 8y ago
  I agree they didn't do the right thing but even if they had would most likely still have had a crash as the problems aren't just isolated to people buying houses. There were many bad actors in this the point is that it was the system in itself that's at fault not the fact that it was missused as that should be assumed (we are humans after all) Personally at least I think that's a much more fruitful position. That does not mean I think no one is at blame, there were obviously people doing wrong things and they should be punished but it's not necessarily the people we think that are guilty. Again just my personal opinion.
mercurysmessage 8y ago
"Mixed with that and the liberal social welfare system in Europe and PC culture which claimed any critical voice was facist, racist etc. That's why the antiestablishment came about not because of 2008 and wallstreet." Oh come on, this is ridiculous. Pointing out fascism and racism doesn't turn people fascist or racist. If you think there aren't some problems with racism and fascists I don't know what to tell you, because there is lots of evidence.
- claydavisss 8y ago
  how do you "point out fascism"? in today's culture, this term is used so broadly it has become meaningless. Can you point out some fascist behavior in the news? more inane is the related accusation "literal Nazi"....ugh, no unless you were a member of the Nazi Party of Germany between 1933 and 1945, you are not a "literal Nazi"
  - mercurysmessage 8y ago
    "how do you "point out fascism"?" By recognizing euphemisms/dog whistles, and rhetoric used by fascists. "in today's culture, this term is used so broadly it has become meaningless." It's not, as has been pointed out in the article, and by commenters here, there is a rise in far right political groups. "Can you point out some fascist behavior in the news?" Sure, news figures such as Tucker Carlson use white nationalist talking points, for one. The president calling human subhuman is troubling, and attacking the free press is also not a good sign. "more inane is the related accusation "literal Nazi"....ugh, no unless you were a member of the Nazi Party of Germany between 1933 and 1945, you are not a "literal Nazi"" This is a very bad take, and is used by neo-nazis to protect their views. The term is neo-nazi for a reason.
    - claydavisss 8y ago
      > By recognizing euphemisms/dog whistles, and rhetoric used by fascists. Wait, your serious definition of "fascism" is "things said by fascists"??? This is circular. Try a definition that doesn't reference itself. > news figures such as Tucker Carlson use white nationalist talking points So being a fascist means quoting people who are protecgted by the First Amendment? > The president calling human subhuman So being a fascist means being an insulting jerk? Sounds like you fit the present mold perfectly - you find something that offends you, slap "fascist" on it, and move on. (and for bonus points you apparently brigade and downvote opposing views)
rwmj 8y ago
Unlike the other replies, I did read this book based on an HN recommendation, and it's pretty terrible. If you know anything at all about economics you'll find it very dull, like a secondary-school level introduction to the subject. I found his analysis was either simplistic and obvious, or in a few places I recall it being obviously wrong. Also (and I didn't know this while reading the book) the author is a nutty Brexiteer.
- and0 8y ago
  No surprises there.
- ThomPete 8y ago
  Wrong in economics is a weird concept. Economics isn't a science in some right or wrong way. It's interpretation. You don't have to like his solution, but his ability to not point fingers was at least to me quite refreshing and seemed like a much more fruitful than ex. the "occupy Wallstreet" or the "current system works perfectly" extremes.
cycrutchfield 8y ago
>Mixed with that and the liberal social welfare system in Europe and PC culture which claimed any critical voice was facist, racist etc Sorry, what does the social welfare system have to do with any of that stuff? You may have some valid points somewhere in there but it is completely undermined by that rambling screed of a last paragraph.
- ThomPete 8y ago
  I was giving a counter to the claim that it was the 2008 financial crisis which led to the anti-establishment. I am not judging the merits of the anti-establishment. All I am saying is that those other factors played a much bigger and important role than the crash ever did and given that we are far way from that crash and still see a rise of anti-establishment I feel pretty confident that I am correct. If you look at the rise of the right-leaning nationalistic parties today one of their primary issues is that the welfare systems and political systems seem much more occupied with helping immigrants than it's own citizens. Again I am simply pointing to the actual rationale from these people which isn't about the 1% or any other such thing. They aren't against the rich they are against the cultural elite and politicians who support globalization without taking care of it's own citizens first (again in their mind)
maxsilver 8y ago
> However, the anti establishment movement didn't rise because of the financial crisis The financial crisis isn't the only cause, sure, but it's played a sizable part. (Arguably, it's still one of the leading causes of problems today). Wealth recovered from the financial crisis, but people didn't. Many actual humans still haven't recovered yet. Some never will. There's close to a whole generation of people who were permanently set back by that crash, and the financial scars of that will carry with them until the day they die. I don't disagree with the rest -- political corruption and globalization are major causes too. But it would be easier for people to be "ok" with that, if they weren't also directly struggling on the ground.
kakarot 8y ago
The "right thing" in a game theory sense?
- ThomPete 8y ago
  In "their mind" sense.
  - kakarot 8y ago
    So their actions weren't even the best thing for themselves?

dhimes 8y ago

Without reading the book or even TFA, I'll comment on the concept of everybody doing the "right thing" leading to bad outcomes. I have a hunch that this is a pretty universal law, and the only way to mitigate it is through regulations that ban some of those "right things." I think that honest, moral players welcome good regulations because it keeps them from having to go down a slippery slope.

pc86 8y ago
I think most people are fine with regulations when they feel they're evenly applied, or that it's unlikely their competitors will be able to break them without consequence. It's when they feel that regulations will affect them more than others or that their competitors will be able to ignore them while they won't that people start getting loud.
nostrademons 8y ago
The other way to mitigate it is to incentivize some of the players in the system to ferret out and report wrongdoing on the part of other players. Think of short-sellers in a market: they can profit handsomely by identifying fraud or irrational exuberance, taking a position opposite it, and then loudly reporting the fraud so everyone knows about it. The legal system is also setup like this, as is the U.S. government: there's no one entity that regulates the U.S. government, but the government itself consists of a set of interlocking institutions, each of which has leverage to prevent the others from becoming too powerful.
- dhimes 8y ago
  Now that's an interesting idea. I wonder if it could work in practice? If (a) fraud is obvious enough to invite this; (b) most fraud as such; and (c) the long-term downside to fraud is way worse than the upside?
- pcwalton 8y ago
  > there's no one entity that regulates the U.S. government Well, in theory the voters do.
  - nostrademons 8y ago
    Hence checks & balances. It's a different sort of regulation than the grandparent was talking about, though - voters don't get to directly tell the government "You can do this and this, but you can't do this", they just get to vote the people who make up the government out if they start doing unpopular stuff.
ThomPete 8y ago
Problem is that you don't know what the good regulations is because you don't know their consequences in the long run. Clinton wanted to allow people to afford and buy a home because he knew for many of them that was the way out. That's why he put out executive orders back in the 90ies under his National Homeownership Strategy where they introduced more flexible underwriting rules. Among many other things he put out federal orders out and banks were required to allow people with questioble economic abilities to get approved. So it's not that simple.
- dhimes 8y ago
  Just because a problem is hard doesn't mean we should abandon it. Maybe start with limiting the "instruments" available for <del>gambling</del> investing. Get rid of that one that bets on market volatility, for example (although that problem kind of solved itself as the investors in it lost their money).
  - ThomPete 8y ago
    I don't remember to have said anything about us abandoning it. On the contrary, my point is that we should, in fact, try to understand it so we can do something about it instead of just pointing fingers at people in the very system that supports them.

guelo 8y ago

Everybody gets their propaganda from different places but I'm pretty sure the European political upheaval was caused by the Syrian refugee crisis not the welfare system.

majewsky 8y ago
Check again. The financial crisis started the rise of the right-wing parties. The refugee crisis then exacerbated it. For instance, the German AfD was originally a euro-skeptic party lead by some economics professors. It later ousted those leaders and rebranded into a more plainly nationalist party when that became en vogue. I don't know exactly about other European countries since I'm German, but from what I've seen, the downfall of the classical parties started way before 2015 in many of them as a result of frustration over the handling of the 2008 financial crisis.
- misja111 8y ago
  Don't know about Germany but in the Netherlands, Belgium and France the rise of the right wing parties started way earlier than 2008.
  - majewsky 8y ago
    Yes, we were late to the party. (Well, we had right-wing parties of course, but the AfD is the first nation-wide party right of the CxU that is sufficiently dissimilar from the NSDAP to attract a wide voter base.)
ThomPete 8y ago
That started long before the Syrian crisis and it wasn't the wellsystem in general but that it allows for people who come to the EU to get pretty solid benefits without anything in return which helps create ghettos and doesn't incentifies them to integrate with the rest of society. Again these are just some of the unintended consequences of good intentions.

Gys 8y ago

> the crash was the logical consequence of people all doing the "right thing" I did not read the book, but I highly suspect 'right thing' is misused in this context and that the writer actually means 'within the boundaries of the law'. To me that is a very different thing. Very interesting to see how a former head of Bank of England thinks those 'things' are the same. It also makes me pessimistic about the future of our civilization.

pc86 8y ago
Perhaps rather than assuming you know what the author meant you should actually read the book.
- and0 8y ago
  Sounds like typical "rational actor" arguments. Everyone was trying to make the most money possible using the tools and information available, and if your political / moral philosophy can't distinguish that from "morally good" then all you can do is shrug. Surprise! The guy who heads a massive bank doesn't think all the crazy things banks do to make money are bad.
ThomPete 8y ago
I would highly recommend you read the book. It's not that simple. Keep in mind this is not just a question of greedy banks this is a question of politicians allowing for people to buy houses because they know for many that's the only way they will ever be able to save up for retirement. It's also a question of how Central Banks are run and used and attemps to keep the economy stable. In other words many many many factors are involved in this giant system. That there are people who were doing fraudulent things is obvious but those things do not explain the crash in itself. The mistake many do is put the moral analysis in front of the system analysis and yes then you will end up with moral solutions without addressing the underlying systemic problems with keeping a world economy going. The book dives deep into this and shows how it can be structured differently because it's more concerned with solving the systemic problem which one could argue is a more ethical position than pointing fingers at human nature. The point of the book is that the crash was not the result of some mastermind but rather a consequence of a lot of good intended decisions which simply had unintented conequences.

lotsofpulp 8y ago

I can point to all the underwriters that approved loans with no income verification, fraudulent paperwork, officially stating they did checks for a physically impossible number of mortgages.

pas 8y ago
Were these loan sharks prosecuted? Probably yes, but that won't bring back the lost percents of GDP.
- lovich 8y ago
  >"We're these loan sharks prosecuted? Probably yes,..." How about definitely not, other than one guy?[1] Additionally, while it won't bring back the GDP it will send a message that the laws will be enforced and that this behavior has consequences. Currently the message we send is that if you do low level crime we'll be harsh on you to make an example. Crash the global economy and harm the entire country though? Ah, how could we hold you accountable for that? [1]https://www.nytimes.com/2014/05/04/magazine/only-one-top-banker-jail-financial-crisis.html https://www.nytimes.com/2014/05/04/magazine/only-one-top-ban...
  - pas 8y ago
    Those are not the guys I'm talking about. Sorry for misusing the term. The people (and companies) who enrolled folks into "predatory" mortgages (NINJA loans - no income, no assets, no job), the low level agents that should have done the paperwork for the credit check, and warned the wannabe clients about the risks (of default and so on).
- pc86 8y ago
  A) That's not what a loan shark is B) No, they were not prosecuted, because for the most part they did not violate any laws (I'm sure you could find some that did) C) Let's avoid speaking of "percents of GDP" as if they're lives we've lost. The economy is doing better now than it was in 2008.

empath75 8y ago

> to take away opportunities from its own citizens and start giving it to countries like China after the fall of Soviet Union. Citation needed

ThomPete 8y ago
Read the book I recommend :)

Marazan 8y ago

The rating agencies absolutely did not do the right thing. There were contemporary pre-crash criticisms of their rating of mortgage backed securities so this is not Monday morning quarter backing

madengr 8y ago
The government also backed risky loans.
ThomPete 8y ago
I agree they didn't do the right thing but even if they had would most likely still have had a crash as the problems aren't just isolated to people buying houses. There were many bad actors in this the point is that it was the system in itself that's at fault not the fact that it was missused as that should be assumed (we are humans after all) Personally at least I think that's a much more fruitful position. That does not mean I think no one is at blame, there were obviously people doing wrong things and they should be punished but it's not necessarily the people we think that are guilty. Again just my personal opinion.

mercurysmessage 8y ago

"Mixed with that and the liberal social welfare system in Europe and PC culture which claimed any critical voice was facist, racist etc. That's why the antiestablishment came about not because of 2008 and wallstreet." Oh come on, this is ridiculous. Pointing out fascism and racism doesn't turn people fascist or racist. If you think there aren't some problems with racism and fascists I don't know what to tell you, because there is lots of evidence.

claydavisss 8y ago
how do you "point out fascism"? in today's culture, this term is used so broadly it has become meaningless. Can you point out some fascist behavior in the news? more inane is the related accusation "literal Nazi"....ugh, no unless you were a member of the Nazi Party of Germany between 1933 and 1945, you are not a "literal Nazi"
- mercurysmessage 8y ago
  "how do you "point out fascism"?" By recognizing euphemisms/dog whistles, and rhetoric used by fascists. "in today's culture, this term is used so broadly it has become meaningless." It's not, as has been pointed out in the article, and by commenters here, there is a rise in far right political groups. "Can you point out some fascist behavior in the news?" Sure, news figures such as Tucker Carlson use white nationalist talking points, for one. The president calling human subhuman is troubling, and attacking the free press is also not a good sign. "more inane is the related accusation "literal Nazi"....ugh, no unless you were a member of the Nazi Party of Germany between 1933 and 1945, you are not a "literal Nazi"" This is a very bad take, and is used by neo-nazis to protect their views. The term is neo-nazi for a reason.
  - claydavisss 8y ago
    > By recognizing euphemisms/dog whistles, and rhetoric used by fascists. Wait, your serious definition of "fascism" is "things said by fascists"??? This is circular. Try a definition that doesn't reference itself. > news figures such as Tucker Carlson use white nationalist talking points So being a fascist means quoting people who are protecgted by the First Amendment? > The president calling human subhuman So being a fascist means being an insulting jerk? Sounds like you fit the present mold perfectly - you find something that offends you, slap "fascist" on it, and move on. (and for bonus points you apparently brigade and downvote opposing views)

rwmj 8y ago

Unlike the other replies, I did read this book based on an HN recommendation, and it's pretty terrible. If you know anything at all about economics you'll find it very dull, like a secondary-school level introduction to the subject. I found his analysis was either simplistic and obvious, or in a few places I recall it being obviously wrong. Also (and I didn't know this while reading the book) the author is a nutty Brexiteer.

and0 8y ago
No surprises there.
ThomPete 8y ago
Wrong in economics is a weird concept. Economics isn't a science in some right or wrong way. It's interpretation. You don't have to like his solution, but his ability to not point fingers was at least to me quite refreshing and seemed like a much more fruitful than ex. the "occupy Wallstreet" or the "current system works perfectly" extremes.

cycrutchfield 8y ago

>Mixed with that and the liberal social welfare system in Europe and PC culture which claimed any critical voice was facist, racist etc Sorry, what does the social welfare system have to do with any of that stuff? You may have some valid points somewhere in there but it is completely undermined by that rambling screed of a last paragraph.

ThomPete 8y ago
I was giving a counter to the claim that it was the 2008 financial crisis which led to the anti-establishment. I am not judging the merits of the anti-establishment. All I am saying is that those other factors played a much bigger and important role than the crash ever did and given that we are far way from that crash and still see a rise of anti-establishment I feel pretty confident that I am correct. If you look at the rise of the right-leaning nationalistic parties today one of their primary issues is that the welfare systems and political systems seem much more occupied with helping immigrants than it's own citizens. Again I am simply pointing to the actual rationale from these people which isn't about the 1% or any other such thing. They aren't against the rich they are against the cultural elite and politicians who support globalization without taking care of it's own citizens first (again in their mind)

maxsilver 8y ago

> However, the anti establishment movement didn't rise because of the financial crisis The financial crisis isn't the only cause, sure, but it's played a sizable part. (Arguably, it's still one of the leading causes of problems today). Wealth recovered from the financial crisis, but people didn't. Many actual humans still haven't recovered yet. Some never will. There's close to a whole generation of people who were permanently set back by that crash, and the financial scars of that will carry with them until the day they die. I don't disagree with the rest -- political corruption and globalization are major causes too. But it would be easier for people to be "ok" with that, if they weren't also directly struggling on the ground.

kakarot 8y ago

The "right thing" in a game theory sense?

ThomPete 8y ago
In "their mind" sense.
- kakarot 8y ago
  So their actions weren't even the best thing for themselves?