Wednesday, April 13, 2011

Wall Street and the Financial Crisis

Mandatory reading for financial economists and others interested in learning more about the events and circumstances that lead to America's worst financial crisis since the Great Depression.


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6 comments:

James McKibbin said...

Can you give a quick summary? What did they say about the Fed?

Dr William J McKibbin said...

James, the report details the evolution of the banking industry generally starting in 1990, and provides a fairly "gritty" discussion about how the emergence of "too big to fail" banking occurred, as well as the activities of the large banks that emerged after inter-state banking was authorized in 1992, and Glass-Steagal was repealed in 1999. The report is a good reference for researchers regarding the events and circumstances that lead to the financial crisis.

James McKibbin said...

But if they did not mention loose credit policies by the Fed they left out critical details. I fully expect them to do this and to argue that 'if only we had had more regulation we could have avoided the crisis' which of course is BS. They create regulations that create artificially low interest rates and next to no down payments on mortgages, that easy credit fueled by the Fed creates a bubble. The market will always try to readjust. Then all the securitization of the garbage mortgages are sold throughout the world. No one even knows now who owns these mortgages or how many times they were sold a piece. Then all the fraudulent loans that were mostly lender committed... what a god damn mess. And all they do is dump trillions of dollars into the TBTFs without addressing any of the real problems and create new bubbles only this time in food, energy, and other commodities. That inflation of course wipes out the poor and middle class while transferring wealth to the super rich. We need some people in jail for this before civil unrest explodes

Dr William J McKibbin said...

James, you said, "...inflation of course wipes out the poor and middle class while transferring wealth to the super rich..." In fact, the opposite is true about inflation, which tends to decrease the wealth of those with cash, and tends to transfer wealth to those in the middle-class who have fixed rate mortgages or other fix-rate debt (assuming they still have jobs)...

James McKibbin said...

Well no doubt those who have borrowed have their debts minimized. The dollar amounts represent much less in real terms than they used to.

But that does not mean the poor and middle class catches a break. They ARE the holders of cash. These people don't own too many investments. They have a few grand in the bank which unfortunately is not earning any interest because the Fed is keeping interest rates so low. So not only is their savings stagnant in nominal terms, but as the dollar is devalued their savings follows. As the price of food, gasoline, and clothing go up they are made destitute. Is that really any better than having a mortgage to pay?

The rich by contrast have extensive investments that for the most part will keep up with inflation. Unless their stupid and buying treasuries, their wealth is secure. This is a good thing, but it is a shame that only a few percent protect themselves like this.

Also, I would love to talk about this more in person. I am done with the semester soon.

James McKibbin said...

http://www.youtube.com/v/VL7V9BnJXO8&hl
Someone just shared this video with me. Its pretty good.

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