Wednesday, October 29, 2008
Updates below
I've added some updates and links to my previous post "Looking Into My Cynical Ball". If only I could predict the Melbourne Cup as accurately.
Thursday, October 16, 2008
False Economy
I’ve stated many times that I’m not very good with money. I’ve never understood the money market, banks or economics. One of the biggest barriers to my understanding was always that making money from interest, property investments, speculation and shares didn’t seem to make sense to me. There didn’t seem to be any explanation for where all the money would come from to fund all this ‘growth’. It all seemed like a dodgy magic trick. How do you make money from nothing? Physics tells us that matter cannot be destroyed it can only change form. Economics seemed to be based on the completely opposite principle, that is, more money can be created from less money. And so I resigned myself to the fact that greater minds than mine were obviously in control and I just felt stupid and avoided getting involved.
Now, as most of the world heads into recession it is revealed that the cause of the crisis was financial wizards who thought they could make money from nothing, selling bad loans as if they were worth something and convincing people to live beyond their means. It turns out the money to fund all this wasn’t actually there. Unbelievable! I was right. How is that possible?
If I, who know nothing about economics, could see a basic flaw in the system, how is it that all of the bankers, financial advisors, treasurers, economists, investors and stockbrokers in the world didn’t see this coming? Surely, anyone with a basic understanding of the system would have known this was going to happen. Surely the risk managers and insurance brokers would have a plan in place for such an eventuality. Apparently not. Everyone seems to have been blindsided by this. Could the entire worldwide financial industry really be that short sighted and stupid?
And even scarier is the response from governments around the world. A total knee jerk reaction throwing billions of dollars into a financial black hole. Each weekend a new ‘bailout’ package is proposed and the stock market jumps on Monday. Then on Tuesday it all falls again because the money isn’t really fixing the problem it’s just trying to stop people panicking. But does anyone ask where all these billions of dollars are going? I’m willing to bet it’s going into someone’s pockets and it won’t be the people who are losing their homes.
The US bailout package was fascinating. In order to get it through congress the bill evolved from a three page document outlining the allocation of funds to bolster the banking industry to a 450 page bill with hundreds of add-on deal sweeteners to win over voting congressmen. Sweeteners like tax breaks for makers of wooden arrows for children and tax breaks for motor racing tracks. Nothing to do with the bailout, just bribes to get the bill passed. And it worked.
Even crazier is that the bailout didn’t pay out the bad mortgages which were at the heart of the problem but rather the US government bought the debts which still have to be paid off. Effectively they are buying bad loans. If I’m not mistaken, it was the selling of bad loans that caused this mess in the first place? Clearly those ‘greater minds than mine’ have it under control.
So now governments everywhere are buying stakes in banks and centralising regulations. The ‘free market’ proponents and politicians who always argue that government should not interfere with business are clamouring for government help and taxpayer dollars and they’re not even pausing to feel like total hypocrites, even for a second.
How could all of these people really have been unaware of this crisis? How could people whose business it is to make money from this system really be caught short? How could a world banking system that has existed for hundreds of years drop the ball so badly? The only logical answer is that they didn’t drop the ball. They weren't unaware. The people in the know and who saw this coming won’t be losing their houses. They will be rolling in billions of dollars from taxpayer bailouts and clever accounting loopholes. They will rake in the money that everyone else is losing. They will gain power and profits from a new monetary system that will be hastily created to ‘avoid this happening again’ and they will get to work on the next big financial scam that will rob the world of any wealth it has left. Sound cynical and ridiculous? Well, what would I know? I don’t understand economics.
Now, as most of the world heads into recession it is revealed that the cause of the crisis was financial wizards who thought they could make money from nothing, selling bad loans as if they were worth something and convincing people to live beyond their means. It turns out the money to fund all this wasn’t actually there. Unbelievable! I was right. How is that possible?
If I, who know nothing about economics, could see a basic flaw in the system, how is it that all of the bankers, financial advisors, treasurers, economists, investors and stockbrokers in the world didn’t see this coming? Surely, anyone with a basic understanding of the system would have known this was going to happen. Surely the risk managers and insurance brokers would have a plan in place for such an eventuality. Apparently not. Everyone seems to have been blindsided by this. Could the entire worldwide financial industry really be that short sighted and stupid?
And even scarier is the response from governments around the world. A total knee jerk reaction throwing billions of dollars into a financial black hole. Each weekend a new ‘bailout’ package is proposed and the stock market jumps on Monday. Then on Tuesday it all falls again because the money isn’t really fixing the problem it’s just trying to stop people panicking. But does anyone ask where all these billions of dollars are going? I’m willing to bet it’s going into someone’s pockets and it won’t be the people who are losing their homes.
The US bailout package was fascinating. In order to get it through congress the bill evolved from a three page document outlining the allocation of funds to bolster the banking industry to a 450 page bill with hundreds of add-on deal sweeteners to win over voting congressmen. Sweeteners like tax breaks for makers of wooden arrows for children and tax breaks for motor racing tracks. Nothing to do with the bailout, just bribes to get the bill passed. And it worked.
Even crazier is that the bailout didn’t pay out the bad mortgages which were at the heart of the problem but rather the US government bought the debts which still have to be paid off. Effectively they are buying bad loans. If I’m not mistaken, it was the selling of bad loans that caused this mess in the first place? Clearly those ‘greater minds than mine’ have it under control.
So now governments everywhere are buying stakes in banks and centralising regulations. The ‘free market’ proponents and politicians who always argue that government should not interfere with business are clamouring for government help and taxpayer dollars and they’re not even pausing to feel like total hypocrites, even for a second.
How could all of these people really have been unaware of this crisis? How could people whose business it is to make money from this system really be caught short? How could a world banking system that has existed for hundreds of years drop the ball so badly? The only logical answer is that they didn’t drop the ball. They weren't unaware. The people in the know and who saw this coming won’t be losing their houses. They will be rolling in billions of dollars from taxpayer bailouts and clever accounting loopholes. They will rake in the money that everyone else is losing. They will gain power and profits from a new monetary system that will be hastily created to ‘avoid this happening again’ and they will get to work on the next big financial scam that will rob the world of any wealth it has left. Sound cynical and ridiculous? Well, what would I know? I don’t understand economics.
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