4 ms·

> So this will be worse that 2008. 2008 was bad because the collective banks of the US realized trillions in mortgages were money on the books that wasn't real

by zanny 7y ago

> So this will be worse that 2008. 2008 was bad because the collective banks of the US realized trillions in mortgages were money on the books that wasn't real and was never going to be real. The correction involved resetting said books and taking a few banks and a trillion dollars of US taxpayer money along the way. What is the correction this time? All it would really be is a run on confidence in global financial markets. This has happened many, many times (and did happen in 2008 but it was a response to the insolvency of banks). It happened in 2000, it happened in 1993, it happened in 1980, etc. If its just a correction in overvalued stocks, futures, and a contraction in loans and interest rates thats just a normal recession. We're due to have one, they happen all the time, and since there shouldn't be an influx of millions of displaced / homeless suddenly because this isn't the result of mass foreclosures on defaulting home loans it shouldn't be as disruptive this time. A lot of theoretical stock value gets wiped out, some people lose a lot of money, and then you get to start the cycle over again with rates back under 1% and the DOW down a a few thousand points from its current cresting highs.

TuringNYC 7y ago
It is very hard to speculate about future crises since often the causes are only obvious in hindsight...but...here I go speculating anyway :-) Firstly, I totally agree with you on 2008 - bank failure driven recessions are always worse than regular recessions, so 2008 already takes a lead. However, there is another aspect -- the 2008 crisis was controlled by a combination of controlling interest rates and other QE measures. We're now still in ZIRP (zero interest rate policy) so one of our key tools for combating a crisis is gone (it is like being at the bottom of the hill and realizing you are already on low gear.) Of course, we have other QE as well as fiscal tools, but lowering rates wont be one of them.
- war1025 7y ago
  Seems like maybe it wasn't the best idea to use a "one time use" tool to battle the recession since we know they come on a more of less predictable basis over the long term...
  - eclipxe 7y ago
    Or maybe we used the tool too long and should have started raising rates much sooner.
- zanny 7y ago
  I'm not convinced financial institutions access to capital has anything to do with the current economic malaise. The federal rates had little impact on the recovery, their perpetuation at 0% didn't seem to produce meaningful small business creation, and all the major companies have been spending the better part of the last 5 years doing stock buybacks and avoiding expansion and investment at all costs. Dropping rates creates speculation of future economic growth that can make stocks go up and thus make the capital class happy their assets are accruing but it seems new business growth is fairly exclusively on the side of consumer demand pretty much this entire century. Increasing money supply isn't doing jack. If theres no money out there looking to buy goods and services you could be giving away money to banks with no meaningful economic benefit for it. Europe has been in this kind of glut longer than the US has but its infecting the whole world - too few people have enough money to create the real demand that stimulates real economic growth. Theres only so many yachts a billionaire wants or so many summer homes a millionaire stakes. Wealth inequality is the driving force behind the slowdown and none of the forces that participate in shaping policy are aligned with the goal of fixing it.
blindwatchmaker 7y ago
> 2008 was bad because the collective banks of the US realized trillions in mortgages were money on the books that wasn't real and was never going to be real An even larger amount of money was placed on bets on whether those mortgages were real, as opposed to the mortgages themselves.
throw0101a 7y ago
> 2008 was bad because the collective banks of the US realized trillions in mortgages were money on the books that wasn't real and was never going to be real. Don't forget the Europeans. The 'prudent' Germans of Deutsche Bank were in the thick of it too: * https://www.thelocal.de/20110415/34419 https://www.thelocal.de/20110415/34419 * https://www.reuters.com/article/us-deutschebank-suit-idUSBRE9BJ0OP20131220 https://www.reuters.com/article/us-deutschebank-suit-idUSBRE... See also: * https://en.wikipedia.org/wiki/List_of_writedowns_due_to_subprime_crisis https://en.wikipedia.org/wiki/List_of_writedowns_due_to_subp... Good book on how things went down and my who is Crashed: * https://en.wikipedia.org/wiki/Adam_Tooze#Books https://en.wikipedia.org/wiki/Adam_Tooze#Books
- graedus 7y ago
  > Good book on how things went down and my who is Crashed: Incredible book. Tooze's interviews and lectures on the subject can only scratch the surface of what the book covers, but they are worth a listen too. I can recommend his appearance on the podcast Talking Politics: https://www.talkingpoliticspodcast.com/blog/2018/113-crashed https://www.talkingpoliticspodcast.com/blog/2018/113-crashed
c3534l 7y ago
There would be no "correction," as in revaluing what already exists - there would be a decline in economic productivity and efficiency. The problem isn't that the bank added one too many zeroes and corrected it, but that you broke your arm and now you're out of a job.

by zanny 7y ago

TuringNYC 7y ago

It is very hard to speculate about future crises since often the causes are only obvious in hindsight...but...here I go speculating anyway :-) Firstly, I totally agree with you on 2008 - bank failure driven recessions are always worse than regular recessions, so 2008 already takes a lead. However, there is another aspect -- the 2008 crisis was controlled by a combination of controlling interest rates and other QE measures. We're now still in ZIRP (zero interest rate policy) so one of our key tools for combating a crisis is gone (it is like being at the bottom of the hill and realizing you are already on low gear.) Of course, we have other QE as well as fiscal tools, but lowering rates wont be one of them.

war1025 7y ago
Seems like maybe it wasn't the best idea to use a "one time use" tool to battle the recession since we know they come on a more of less predictable basis over the long term...
- eclipxe 7y ago
  Or maybe we used the tool too long and should have started raising rates much sooner.
zanny 7y ago
I'm not convinced financial institutions access to capital has anything to do with the current economic malaise. The federal rates had little impact on the recovery, their perpetuation at 0% didn't seem to produce meaningful small business creation, and all the major companies have been spending the better part of the last 5 years doing stock buybacks and avoiding expansion and investment at all costs. Dropping rates creates speculation of future economic growth that can make stocks go up and thus make the capital class happy their assets are accruing but it seems new business growth is fairly exclusively on the side of consumer demand pretty much this entire century. Increasing money supply isn't doing jack. If theres no money out there looking to buy goods and services you could be giving away money to banks with no meaningful economic benefit for it. Europe has been in this kind of glut longer than the US has but its infecting the whole world - too few people have enough money to create the real demand that stimulates real economic growth. Theres only so many yachts a billionaire wants or so many summer homes a millionaire stakes. Wealth inequality is the driving force behind the slowdown and none of the forces that participate in shaping policy are aligned with the goal of fixing it.

blindwatchmaker 7y ago

> 2008 was bad because the collective banks of the US realized trillions in mortgages were money on the books that wasn't real and was never going to be real An even larger amount of money was placed on bets on whether those mortgages were real, as opposed to the mortgages themselves.

throw0101a 7y ago

> 2008 was bad because the collective banks of the US realized trillions in mortgages were money on the books that wasn't real and was never going to be real. Don't forget the Europeans. The 'prudent' Germans of Deutsche Bank were in the thick of it too: * https://www.thelocal.de/20110415/34419 https://www.thelocal.de/20110415/34419 * https://www.reuters.com/article/us-deutschebank-suit-idUSBRE9BJ0OP20131220 https://www.reuters.com/article/us-deutschebank-suit-idUSBRE... See also: * https://en.wikipedia.org/wiki/List_of_writedowns_due_to_subprime_crisis https://en.wikipedia.org/wiki/List_of_writedowns_due_to_subp... Good book on how things went down and my who is Crashed: * https://en.wikipedia.org/wiki/Adam_Tooze#Books https://en.wikipedia.org/wiki/Adam_Tooze#Books

graedus 7y ago
> Good book on how things went down and my who is Crashed: Incredible book. Tooze's interviews and lectures on the subject can only scratch the surface of what the book covers, but they are worth a listen too. I can recommend his appearance on the podcast Talking Politics: https://www.talkingpoliticspodcast.com/blog/2018/113-crashed https://www.talkingpoliticspodcast.com/blog/2018/113-crashed

c3534l 7y ago

There would be no "correction," as in revaluing what already exists - there would be a decline in economic productivity and efficiency. The problem isn't that the bank added one too many zeroes and corrected it, but that you broke your arm and now you're out of a job.