- Due to the government, the financial system is one huge tragedy of the commons. (http://en.wikipedia.org/wiki/Tragedy_of_the_commons) That is: profits are individualized and losses are collectivised. When you have such incentives in place, a tragedy is bound to happen.

- The commercial banks with the support of the central bank create money by issuing loans out of thin air. There are two main negative consequences to this.
1. Creating money increases the money supply, which lowers the value of each unit of money. This is stealth: it is a transfer of resources from each owner of money units to the banks, the loan receivers, and the people in debt.
2. The increase in the money supply by the central bank is the source of the boom and bust business cycle. See the Austrian Business Cycle Theory: http://en.wikipedia.org/wiki/Austrian_Business_Cycle_Theory

- The solution is not giving even more power to the state (in the forms of bailouts or various regulations). The state IS the problem to begin with. In addition to the central bank, the state also created Fanny Mae and Freddy Mac, as well as the “Community Reinvestment Act”. The state is the root cause of the current mess.

Here is another informative video about the current crisis: http://www.youtube.com/watch?v=XBT052jHnmE&sdig=1

With the exception of those families who truly faced financial hardships beyond their control (medical emergencies, jobloss, etc.), a significant number of American Families willingly positioned themselves within a paycheck or two of bankruptcy due to their own greed.

I think this is the trouble with our fancy maths models. They take historical data and punch it into a computer and extrapolate it and voila…that’s the absolute future.

Unfortunately, in the process of inputting these data, the remove most of the outliers. Guess what? These outliers represent Black Swan events that are occurring more and more frequent, which causes havoc in this world.

I think The Black Swan by Taleb is a good book to read too especially for those who tend to trust these models too much.

What they forgot is that mortgage failures aren’t independent random events – that once mortgages start resetting, many may default, and that after a certain number of foreclosures prices are likely to come down leading to more foreclosures. They also failed to consider that real estate doesn’t always go up and once it starts going down many wouldn’t be able to refinance.

Additionally, the mathematicians didn’t think about human emotion – once some of these investment vehicles start losing money and their value drops, panic selling may set in causing their value to drop to nothing.

Interestingly, what the 60 minutes show said is that the default rate on mortgages is still only 5% overall. So without these fancy investment vehicles, there wouldn’t have been much of a crisis.

Chris Dunn

I had no idea some of those investment vehicles existed and couldn’t believe they were even legal. No wonder we’re in such a mess. It was a very sobering program without being doom and gloom, fear mongering.

Hmmm… where have I heard this before? Oh right – the “new economy” of the dot-com era…

It’s deja vu all over again.

http://freakonomics.blogs.nytimes.com/

The second good is that home prices are returning to normal in most of the country. The city I live in was never in a housing bubble, yet I won’t get as much for my home as I would have 2 years ago, that’s ok – I never thought it was worth that anyway. My home still has a steady increase over the 9 years we’ve owned it. On the flipside, I’m moving to a much smaller city that wasn’t on a bubble either, and I can get a WHOLE LOT of house for what I would consider a good price – much more than I could in the larger, but undervalued city I currently live in. This is what I consider the second “good” to come out of this crisis – the real estate market is becoming grounded again.

Just some food for thought here. In 1976 my parents built their house for $35k. In 2007 my mother paid $34k for a nice car. I’m about to buy a house for $300k, does that mean in 30 years I’ll be buying a nice car for $300k? I hope not – housing prices could still stand to come down a bit.

May I please choose a bank which would not get in bed with all this easy credit because they value customers? No? That’s right every bank is propped up on the Federal Reserve and their intrinsically flawed fractional-reserve system.

~35:00 “First of all, is it fair for me to be mad?”
What kind of nonsensical question is that? This kind of reasoning empowers the state over the individual. The interviewer seems to be asking a difficult(for the interviewee) question, but it is utterly ridiculous to even consider that people are not entitled to their property, that is, their money. I don’t need to question whether or not it is okay for the state to willingly debase my hard-earned savings despite an overwhelming disapproval of such an heinous action. It is unfair to steal property. I don’t need to consider, then, the fairness of how _much_ property will be stolen.

~48:00 “…and then he lists off the publications he reads”
Why does he not read the publications aloud instead of relegating them to an unimportant list? This just comes off as wanting to prevent people from exploring other options. Though this has nothing to do with the broadcast’s topic I found it awkward and odd.

Why is there no talk of the Federal Reserve? Though the host speaks calmly and politely, the urgency of this matter is unavoidable. Throughout the entire show I felt as though there was an encroaching forest fire and all he could do was wax pretentious on how fire spreads. He only seemed to suggest that all this fire is severely under-regulated but mentions nothing of the fact that the state is the one handing out the flame-throwers!

Systemic failure is inevitable. Anything we do, whether it is redistribution of wealth to the wealthy or printing more money, we are going to make the bubble *bigger* and we’ll all be deaf from its thunderous bursting. We must act now to end this boom-bust cycle by rejecting monopolization of credit issuance through central banking.

-Tabs

And these with Gretchen Morgenson
http://www.npr.org/templates/story/story.php?storyId=18942380

http://www.npr.org/templates/story/story.php?storyId=94928783

This American Life must have posted that episode just after I wrote the entry. (It wasn’t available when I posted it.) I’ve made the adjustment in my post. Thanks, everyone!

You said it right back in May “they were trying to get rich quickly instead of to get rich slowly”. Consumers, housing industry, financial institutions were all trying to get rich quickly using high leverage and the organizations such as rating agencies and government failed us miserably in regulating and protecting us.

It is good to see how crises get people to question their ways and to think out of the box. Plato was totally right there. Maybe Mr. Jacques Fresco’s ideas are a good contribution too. Challenge usually produces valuable results.

Direct MP3 link : http://podcast.thisamericanlife.org/podcast/365.mp3

Webpage and online media player:
http://www.thisamericanlife.org/Radio_Episode.aspx?episode=365