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Old 09-18-2008, 10:01 AM
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Default World Economy in touble

Over the days,i hear a lot of american and english banks face bunkruptcy,whats goin on?
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Old 09-18-2008, 10:15 AM
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Quote:
Originally Posted by jtrek79 View Post
Over the days,i hear a lot of american and english banks face bunkruptcy,whats goin on?
Crappy money managment?
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Old 09-18-2008, 10:16 AM
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The 1930's were forgotten. Therefore they're starting to repeat themselves to remind us.
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Old 09-18-2008, 10:37 AM
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Yes, it does seem to be suffering quite a massive upheaval. I suspect from what I understand of what I've read, a lot of it is the financial institutions own fault. Like a massive hangover after the mother of all parties!
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Old 09-18-2008, 10:50 AM
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Lot of reasons, some believe the FED kept the interest rate to low after the dot-com bubble burst, some blame faulty regulations and some blame greedy capitalism in general
I believe that people simply acted irrational, like buying a house and financing it by selling it later because one believes that rising house prices is a natural law after it occured for a few months or years. Problem is that you can't allow too many banks to go bankrupt as the whole credit system could crush, that's why Fannie and Freddie have been taken under government control to prevent a bankrupt.
Thumbs up for this quick action, although Germany ain't in dire straits, the public agencies over here are much slower to take action and only assisted banks after it was already too late.

I'd vote an tighter-regulations fan as POTUS if I were a US citizen, not to indicate that other economic issues like health insurance are not relevant, but it's always the economy, stupid
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Old 09-18-2008, 10:55 AM
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There are some theories that the Freddie and Fannie bail out was a factor in the intense activity of the last two weeks as it encouraged investors to shortsell shares in order to make a profit buying them back later, when they were rewarded by the US government once, they went in search of other sound institutions to see if they could make more profit the same way, thus destabilising banks for profit.

The consensus is that the recent massive central bank donations to money markets has not had the positive effect intended, and worse is to come!!

I think a revamp of ALL money markets is likely after this calms down.
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Old 09-18-2008, 11:10 AM
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This behaviour is normal under these circumstances and speculation can also have a stabilizing effect, e.g. when stock markets crash like now, a speculator buys stocks. Of course betting on rising prices can also have a bubble effect like with oil and fodd prices.
Speculation is not the evil thing, faulty regulations are. Like being able to transform credits into bonds, selling them, rebuying them, not having to underlie them with liable equity unlike when the bonds were still credits.
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Old 09-18-2008, 11:12 AM
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The answer is liberalism. The government has made so many regulations that is almost imposible to do anything, and the proposed tax hikes will make our economy slump even futher. and the government bailouts of fredie mac and fannie may and AIG don't help, they need to fail, thats capitalism. but if we know that the government will back us up when we go bankrupted, then the business people won't make responsible dicisions because the government would back them out if things go sour.
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Old 09-18-2008, 11:26 AM
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I'm maybe yes, maybe no about Government backing, but I think the concern is more over so many of them being in crisis at the same time, it's not happened like this for some time, I mean you can argue capitalism is the survival of the fittest, but if everyone falls over at the same time, that's not really going to help the wider global economy.

By the same token these large firms need to be regulated (how much can be argued) but they cannot be trusted to operate without the regulations. That would have it's own dangers.
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Old 09-18-2008, 11:38 AM
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There are useless regulations like 'how large may a lemon be' and necessary regulations like forcing banks to underlie their credits with equity. Otherwise they would not keep enough money and give away too risky credits, in the good case they earn a lot of money with a high-interest-high-risk credit, in the bad case they lose money, but guess what? It is not their money, it is their customers deposits which they gamble with.
Lending money to credit-unworthy high-risk house-builders is a strong indication of faulty and too lax regulation.

Of course we can forget the Great Depression and try to pretend that financial markets need to be unregulated
I am liberal and pro free-markets, this does not imply that there are not supposed to be any rules which prevent that financial institutions over-leverage and thus prevent horrible recessions.

Last edited by horatio : 09-18-2008 at 11:43 AM.
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