part 2...
part 3...
my take? its a witch hunt. i mean i watched the whole thing so obviously i think its an entertaining witch hunt, but still.
heres a good article that i think explains it...
Who’s to blame for the current crisis? As usually happens after a crash, the search for scapegoats has been intense, and many contenders have emerged: Wall Street swindled us; predatory lenders sold us loans we couldn’t afford; the Securities and Exchange Commission fell asleep at the switch; Alan Greenspan kept interest rates low for too long; short-sellers spread negative rumors; “experts” gave us bad advice. More-introspective folks will add other explanations: we got greedy; we went nuts; we heard what we wanted to hear.
All of these explanations have some truth to them. Predatory lenders did bamboozle some people into loans and houses they couldn’t afford. The SEC and other regulators did miss opportunities to curb some of the more egregious behavior. Alan Greenspan did keep interest rates too low for too long (and if you’re looking for the single biggest cause of the housing bubble, this is it). Some short-sellers did spread negative rumors. And, Lord knows, many of us got greedy, checked our brains at the door, and heard what we wanted to hear.
But most bubbles are the product of more than just bad faith, or incompetence, or rank stupidity; the interaction of human psychology with a market economy practically ensures that they will form. In this sense, bubbles are perfectly rational—or at least they’re a rational and unavoidable by-product of capitalism (which, as Winston Churchill might have said, is the worst economic system on the planet except for all the others). Technology and circumstances change, but the human animal doesn’t. And markets are ultimately about people.
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Why did Bear Stearns, Lehman Brothers, Fannie Mae, Freddie Mac, AIG, and the rest of an ever-growing Wall Street hall of shame take so much risk that they ended up blowing their firms to kingdom come? Because in a bull market, when you borrow and bet $30 for every $1 you have in capital, as many firms did, you can do mind-bogglingly well. And when your competitors are betting the same $30 for every $1, and your shareholders are demanding that you do better, and your bonus is tied to how much money your firm makes—not over the long term, but this year, before December 31—the downside to refusing to ride the bull market comes into sharp relief. And when naysayers have been so wrong for so long, and your risk-management people assure you that you’re in good shape unless we have another Great Depression (which we won’t, of course, because it’s different this time), well, you can easily convince yourself that disaster is a possibility so remote that it’s not even worth thinking about.
great analysis, chris.
ReplyDeleteI especially agree with this part:
"Alan Greenspan did keep interest rates too low for too long (and if you’re looking for the single biggest cause of the housing bubble, this is it)."
I would take this a step farther and say that it was part of a plan to have massive tax cuts take the credit for stimulating the economy. Of course keeping the interest rates so low for low long was the real main factor for stimulating the economy (in the short run...) because it encouraged people to borrow to the point of recklessness. Think about it... if you've already have a sucessful big company, and you get a tax cut with interest rates racing down to hell, are you going to invest in production and labor and stabilizing your business or are you going to use it to find a way to make even more money without having to produce anything at all?
Despite this (which should be self-evident), you don't hear many voices even among democrats carefully articulating it. Probably because, if someone in a high government position links the bad economy to sustained low interest rates, then it could indirectly signal to the market that interest rates may/might/possibly go up in the short term/long term/some term/we don't know what term but we're scared as shit/, and people would sell, sell, sell. Then, whatever gains the market has fared in the near past would immediately crumble, and the fortress walls of consumer confidence would be left in shambles.
Maybe that's also why Bernanke is currently saying if we save the banks (just one last time...), then the recession might end by the end of the year. Clearly monetary policy hasn't destroyed itself..just yet.. it's merely switched landscapes.
-Peter from the Hermit Kingdom (Korea)