Ask HN: Are we in trouble?
47 comments
This is an excellent question. I think the truth is that no one knows. However the fact that many people are asking this question (not just crazy reddit folk) implies to me something bad could be afoot. Thoughts, HN?
No one knows, and unless you have mountains of cash to invest, there's no reward for being right either way. The only thing you can do is think through the absolute worst that can happen (to 1% or whatever your level of paranoia) and plan to deal with that. ie, your income is X, can you live on 0.5X? Better to find out now and not when your personal trapdoor opens. But take it calmly, like a game. If you spend all of your energy in Holy Shit Mode you stop moving forward.
Some friends of mine today got two messages from their employers: their pay was cut 18% and their insurance premiums went up 23%. It's going to hurt but the worst thing they can do is let the fear sap their energy.
I personally think it's going to be bad for 12-18 months then a slow recovery. The financial assumptions for many businesses and people will fall away. If you are in some business that depends on consumer discretionary funds, I would look for alternatives (not jump like a spooked cat, look for for alternatives ahead of time).
If it's any consolation my Brasilian, Venezuelan and Argentinian friends think we're all a bunch of pussies for worrying so much and not preparing rationally.
Some friends of mine today got two messages from their employers: their pay was cut 18% and their insurance premiums went up 23%. It's going to hurt but the worst thing they can do is let the fear sap their energy.
I personally think it's going to be bad for 12-18 months then a slow recovery. The financial assumptions for many businesses and people will fall away. If you are in some business that depends on consumer discretionary funds, I would look for alternatives (not jump like a spooked cat, look for for alternatives ahead of time).
If it's any consolation my Brasilian, Venezuelan and Argentinian friends think we're all a bunch of pussies for worrying so much and not preparing rationally.
We might experience something like Japan's "lost decade" of the 1990s. I expect that, actually. But we'd live through it. My all-time favorite pair of HN comments was the question and answer I saw I think before I signed up here, when I was lurking for interesting discussions.
Q: Anyone here lived through the Japan depression care to share their experiences with us?
A: It was terrible. People were forced to eat raw fish for sustenance. They couldn't get full-sized electronics, so they were forced to make tiny ones. Unable to afford proper entertainment, folks would make do by taking turns to get up and sing songs.
http://news.ycombinator.com/item?id=328685
Q: Anyone here lived through the Japan depression care to share their experiences with us?
A: It was terrible. People were forced to eat raw fish for sustenance. They couldn't get full-sized electronics, so they were forced to make tiny ones. Unable to afford proper entertainment, folks would make do by taking turns to get up and sing songs.
http://news.ycombinator.com/item?id=328685
The current situation is much worse than Japan's "lost decade." Unfortunately, the crisis today is global in scope. When Japan went through its "lost decade," it was eventually able to export its way back to growth. That option does not exist today. Europe - particularly Eastern Europe - is contracting faster than the US; Japan is falling off a cliff; China is most likely already technically in recession. Trade and industrial production are actually contracting at faster rates than they did at any point during the Great Depression. It's not at all clear where global growth will come from at this point.
Obviously, we will have growth at some point in the future - maybe even in a year or so if we fix the financial system. But it might be five years from now. It might be ten. It might be longer. But there are social factors at work here complicating the picture. There is most likely going to be substantial social unrest around the world in the next few years. Eastern Europe and China are probably the most immediately vulnerable areas. It's impossible to predict what the consequences of potential social unrest or governments collapsing (like Latvia last week) would be, but they need to be considered in assessing how bad this current crisis could become.
This is not to say that we're all going to start living in a Steinbeck novel, or that shanty towns will start propping up everywhere. Our standard of living will go down, but we'll still live better than we did thirty or forty years ago. But we are going through an economic reset. This will be much worse than the mild recessions we've become accustomed to.
Obviously, we will have growth at some point in the future - maybe even in a year or so if we fix the financial system. But it might be five years from now. It might be ten. It might be longer. But there are social factors at work here complicating the picture. There is most likely going to be substantial social unrest around the world in the next few years. Eastern Europe and China are probably the most immediately vulnerable areas. It's impossible to predict what the consequences of potential social unrest or governments collapsing (like Latvia last week) would be, but they need to be considered in assessing how bad this current crisis could become.
This is not to say that we're all going to start living in a Steinbeck novel, or that shanty towns will start propping up everywhere. Our standard of living will go down, but we'll still live better than we did thirty or forty years ago. But we are going through an economic reset. This will be much worse than the mild recessions we've become accustomed to.
Direct comment link:
http://news.ycombinator.com/item?id=328819
http://news.ycombinator.com/item?id=328819
no need to look to Japan for this.
"Roger & Me is a 1989 American documentary film directed by independent filmmaker/author Michael Moore. With sarcasm and irony, Moore illustrates the negative economic impact of the late General Motors CEO Roger Smith's summary action of closing several auto plants in Flint, Michigan, costing 30,000 people their jobs and economically devastating the city.
[...]
The most famous resident that appears in the film is Rhonda Britton, who sells rabbits for "Pets or Meat" (The scene many believe was the reason Roger & Me received an R-rating features Britton killing a rabbit by beating it with a lead pipe. The rabbit fights back before and during the early part of the beating.)"
http://en.wikipedia.org/wiki/Roger_%26_Me
"Roger & Me is a 1989 American documentary film directed by independent filmmaker/author Michael Moore. With sarcasm and irony, Moore illustrates the negative economic impact of the late General Motors CEO Roger Smith's summary action of closing several auto plants in Flint, Michigan, costing 30,000 people their jobs and economically devastating the city.
[...]
The most famous resident that appears in the film is Rhonda Britton, who sells rabbits for "Pets or Meat" (The scene many believe was the reason Roger & Me received an R-rating features Britton killing a rabbit by beating it with a lead pipe. The rabbit fights back before and during the early part of the beating.)"
http://en.wikipedia.org/wiki/Roger_%26_Me
Link to actual comment: http://news.ycombinator.com/item?id=329218
That comment is funny, but not actually useful. Sushi, consumer electronics, and karaoke were all a part of Japan become their economic turmoil. Since this is HN (as opposed to say, Reddit), I would like to see actual facts suggesting that the situation in Japan in the 1990s was not that bad, as opposed to snarky comments.
That comment is funny, but not actually useful. Sushi, consumer electronics, and karaoke were all a part of Japan become their economic turmoil. Since this is HN (as opposed to say, Reddit), I would like to see actual facts suggesting that the situation in Japan in the 1990s was not that bad, as opposed to snarky comments.
Perhaps the useful comment would take the form that even though Japan suffered a lack of forward progress that was remarkable after its several postwar decades of rapid economic growth, it was still a country with a traditional culture, advanced technology, and consumer-driven popular entertainment. In other words, things weren't so bad. And that is what I think the quoted comment said, in memorably humorous form that made the point very well for people like me who are familiar with Japan.
The fact that might appeal to other ways of looking at the issue would be a fact about immigration to Japan from other areas of Asia.
"The growing status of Japan as a major global and regional economic player was the background for the arrival of newcomers. The rise in the value of the yen, labor shortages, and the development of transnational networks (including the activities of migrant brokers) all contributed to a marked increase in foreign migrant workers in the late 1980s.
"The number of visa overstayers, who comprised the bulk of immigrant workers, grew from 100,000 in 1990 to 300,000 in 1993, and stood at around 207,000 as of January 2005. They have come mostly from other Asian countries, such as Korea, China, the Philippines, Thailand, Malaysia, and Indonesia."
http://www.migrationinformation.org/Profiles/display.cfm?ID=...
"However, two channels were available for de facto 'unskilled' labor migration. One was the trainee system, which subsequently expanded with the launching in 1993 of the Technical Internship Trainee Program. As of 2004, there were over 75,000 foreign workers in Japan under this program, marking the largest number ever. They found opportunities in agriculture, fishery, construction, food manufacturing, textile, machinery and metal, and other industries.
"The other channel was the recruitment of Nikkeijin (descendants of Japanese emigrants), who were given access to residential status with no restriction on employment. The most important visible impact of the legal reform was the influx of Japanese Brazillians.
"Whereas the aggregate number of visa overstayers began to decrease in 1993, according to Immigration Bureau statistics, the Brazilian population more than tripled from 56,000 in 1990 to over 176,000 in 1995, and to over 286,000 in 2004."
The fact that might appeal to other ways of looking at the issue would be a fact about immigration to Japan from other areas of Asia.
"The growing status of Japan as a major global and regional economic player was the background for the arrival of newcomers. The rise in the value of the yen, labor shortages, and the development of transnational networks (including the activities of migrant brokers) all contributed to a marked increase in foreign migrant workers in the late 1980s.
"The number of visa overstayers, who comprised the bulk of immigrant workers, grew from 100,000 in 1990 to 300,000 in 1993, and stood at around 207,000 as of January 2005. They have come mostly from other Asian countries, such as Korea, China, the Philippines, Thailand, Malaysia, and Indonesia."
http://www.migrationinformation.org/Profiles/display.cfm?ID=...
"However, two channels were available for de facto 'unskilled' labor migration. One was the trainee system, which subsequently expanded with the launching in 1993 of the Technical Internship Trainee Program. As of 2004, there were over 75,000 foreign workers in Japan under this program, marking the largest number ever. They found opportunities in agriculture, fishery, construction, food manufacturing, textile, machinery and metal, and other industries.
"The other channel was the recruitment of Nikkeijin (descendants of Japanese emigrants), who were given access to residential status with no restriction on employment. The most important visible impact of the legal reform was the influx of Japanese Brazillians.
"Whereas the aggregate number of visa overstayers began to decrease in 1993, according to Immigration Bureau statistics, the Brazilian population more than tripled from 56,000 in 1990 to over 176,000 in 1995, and to over 286,000 in 2004."
Anyone who could predict whether the market would be up, down, or in the same place in six months time - or one month's time for that matter - could become very rich in a very short time.
Unfortunately there are many people making predictions about where the market will be. The real question is can someone make a prediction, commit capital, and realize a gain based on those predictions. Only time will tell, and for those of use watching from the sidelines, it's virtually impossible to tell who will be right, and if they are right that it's because they deeply understand the fundamentals of the problem versus just randomly having the right prediction for the wrong reasons.
The following NH comment thread has predicted current recession http://news.ycombinator.com/item?id=102176 but I doubt anyone has became rich because of that.
Yeah, probably. But while you're slogging through it remember this: It will get better.
"The Greatest Generation" emerged from the Depression, the dot.com boom followed the Gen-X "McJob" years and the "something-something" will follow whatever we end up calling this mess.
Ask any unlucky sod who finished school just in time for the last nasty recession and they may tell you how unbelievably bleak and hopeless things felt while they took any odd job they could find just to pay rent and eat (my own situation, fwiw). Still, they were able to enjoy the magical tech boom just a few years later and, during that boom, it was hard to believe there was ever a time of job and capital scarcity.
The economy is cyclical, fortunes rise and fall, and you have to work with the hand you've been dealt. Times will be tough (for some, even worse than you're picturing) but things will get better and the good times will return.
Then, when they do, remember that it'll crater again some day and prepare accordingly, because almost everyone else will have forgotten.
"The Greatest Generation" emerged from the Depression, the dot.com boom followed the Gen-X "McJob" years and the "something-something" will follow whatever we end up calling this mess.
Ask any unlucky sod who finished school just in time for the last nasty recession and they may tell you how unbelievably bleak and hopeless things felt while they took any odd job they could find just to pay rent and eat (my own situation, fwiw). Still, they were able to enjoy the magical tech boom just a few years later and, during that boom, it was hard to believe there was ever a time of job and capital scarcity.
The economy is cyclical, fortunes rise and fall, and you have to work with the hand you've been dealt. Times will be tough (for some, even worse than you're picturing) but things will get better and the good times will return.
Then, when they do, remember that it'll crater again some day and prepare accordingly, because almost everyone else will have forgotten.
Yeah, probably. But while you're slogging through it remember this: It will get better.
"The Greatest Generation" emerged from the Depression, the dot.com boom followed the Gen-X "McJob" years and the "something-something" will follow whatever we end up calling this mess.
That's like saying the day follows the night. It's true though.
"The Greatest Generation" emerged from the Depression, the dot.com boom followed the Gen-X "McJob" years and the "something-something" will follow whatever we end up calling this mess.
That's like saying the day follows the night. It's true though.
> something-something" will follow whatever we end up calling this mess.
The boom that follow this shitcan of an economy will favor the operationally frugal and those who know how to turn a dollar out of fifteen cents. No doubt some clever writer at WIRED magazine will coin some catchy term for this generation of people in the year 2011. It will coincide conveniently with the rise of Green revolution, no doubt.
The boom that follow this shitcan of an economy will favor the operationally frugal and those who know how to turn a dollar out of fifteen cents. No doubt some clever writer at WIRED magazine will coin some catchy term for this generation of people in the year 2011. It will coincide conveniently with the rise of Green revolution, no doubt.
Has anyone seen any economic case studies, predictions, or articles...?
Calculated Risk: http://www.calculatedriskblog.com/
The sidebar should have all the analysis you could possibly want. Try not to overdose on it while drinking; alcohol is a depressant.
Calculated Risk: http://www.calculatedriskblog.com/
The sidebar should have all the analysis you could possibly want. Try not to overdose on it while drinking; alcohol is a depressant.
Has anyone seen any economic case studies, predictions, or articles, that can shed some light on what is REALLY going on here.
I do not think that studies or predictions are what you/we really need.
What are the odds that a prediction, based on past/future assumptions, modeled by some economist is really going to help anyone out? I'll answer my own question - the odds are VERY VERY low.
Hunker down - work hard and put a band aid on what ails you and stop relying on Donny Deutch or Bill Maher to shed light on what is REALLY going on.
If my company is struggling and I cant make it work out, I'll have to figure something out and so will everyone else who is in a tough spot. Whatever your worst case scenario is, you'll be able to deal with it and it will not be as bad as you imagined it (God/Buddha/Spaghetti Monster willing)
I do not think that studies or predictions are what you/we really need.
What are the odds that a prediction, based on past/future assumptions, modeled by some economist is really going to help anyone out? I'll answer my own question - the odds are VERY VERY low.
Hunker down - work hard and put a band aid on what ails you and stop relying on Donny Deutch or Bill Maher to shed light on what is REALLY going on.
If my company is struggling and I cant make it work out, I'll have to figure something out and so will everyone else who is in a tough spot. Whatever your worst case scenario is, you'll be able to deal with it and it will not be as bad as you imagined it (God/Buddha/Spaghetti Monster willing)
The economy lost an enormous chunk of itself. It will need to correct for this change - whether now or later. The world will have to call USA's debt some time.
My big question: will the rest of the world continue to use USA's economy and currency as the global economic focal point and medium? -or will it abandon them for alternatives?
My big question: will the rest of the world continue to use USA's economy and currency as the global economic focal point and medium? -or will it abandon them for alternatives?
> My big question: will the rest of the world continue to use USA's economy and currency as the global economic focal point and medium? -or will it abandon them for alternatives?
Here's the crux of the matter: there are no alternatives. The US is a meta-country that drives the rest of the world. It's a proxy for the world.
Here's the crux of the matter: there are no alternatives. The US is a meta-country that drives the rest of the world. It's a proxy for the world.
Exactly.
Countries such as India and China have done very well in large part due to investments by Americans and American companies. Even during Japan's recession, the US economy helped keep Japan going. People and countries all over the world invest in the US dollar - Even today, when interest rates are at an all time low, T-Bills are still considered safe investments.
Will the economy continue to change and evolve? Of course. But America's place in the world economy is not likely to change in the near future.
Countries such as India and China have done very well in large part due to investments by Americans and American companies. Even during Japan's recession, the US economy helped keep Japan going. People and countries all over the world invest in the US dollar - Even today, when interest rates are at an all time low, T-Bills are still considered safe investments.
Will the economy continue to change and evolve? Of course. But America's place in the world economy is not likely to change in the near future.
The unusually huge volatility (large price movements) in many financial markets essentially means that nobody is certain of the future (providing you believe in 'the wisdom of markets', which despite Gladwellian overtones, is not necessarily a bad idea).
To my knowledge, nobody out there has anything approaching a realistic model of the current economy, either. It has countless variables that interact in countless ways, and producing results that have never been seen before.
Talking heads/pundits are for entertainment value only (depending on your definition of entertainment).
The only way to have confidence in a prediction for the future, at the moment, is by failing to understand the uncertainty of the situation.
To my knowledge, nobody out there has anything approaching a realistic model of the current economy, either. It has countless variables that interact in countless ways, and producing results that have never been seen before.
Talking heads/pundits are for entertainment value only (depending on your definition of entertainment).
The only way to have confidence in a prediction for the future, at the moment, is by failing to understand the uncertainty of the situation.
Peter Schiff has an interesting take on things. As does Ron Paul. Both seem to understand what is really going on.
The problem isn't really all that complicated to explain. However, no simple solutions have been presented yet. Instead, the US government and others are opting to push for much more of the same stuff that got us into this mess to begin with.
The problem isn't really all that complicated to explain. However, no simple solutions have been presented yet. Instead, the US government and others are opting to push for much more of the same stuff that got us into this mess to begin with.
FYI Peter Schiff is the economic advisor behind the politician, Ron Paul. [EDIT: for the 2008 Presidential Campaign]
Much of what Schiff predicts are dependent on the rest of the world 'cutting us off' by depegging their currencies from the dollar and turning away from treasury bonds -- both of which are not happening, and to the contrary, much of the world is turning toward our treasury bonds in this crisis. Oil being down and perceived weakness in the euro are definitely helping us right now, too.
Much of what Schiff predicts are dependent on the rest of the world 'cutting us off' by depegging their currencies from the dollar and turning away from treasury bonds -- both of which are not happening, and to the contrary, much of the world is turning toward our treasury bonds in this crisis. Oil being down and perceived weakness in the euro are definitely helping us right now, too.
I've never heard of Peter Schiff being related to Ron Paul in any particular way (not saying he isn't, but "behind the politician" seems extremely implausible). I'll point out that Ron Paul's basic premises are what he's been espousing since the 1970s, when Peter Schiff was about ten years old.
Wikipedia says "Schiff was an economic adviser to Ron Paul's 2008 presidential campaign." Sounds like he was one of multiple economic advisers, and it sounds like they aren't associated in any official capacity today.
Wikipedia says "Schiff was an economic adviser to Ron Paul's 2008 presidential campaign." Sounds like he was one of multiple economic advisers, and it sounds like they aren't associated in any official capacity today.
You're right, I overreacted. I just don't like seeing a politician trained in medicine given the same credibility on economic analysis as someone with a technical background in finance. Not to downplay Ron Paul's solutions to our economic problems, but I've never seen him make an in depth case for why we are where we are today like Schiff has -- his job doesn't call for it.
and I don't like to see people well trained in finance completely screw up the economy...as they have.
Most "experts" have no more credibility now than the masses who can barely calculate simple interest. They are a bunch of paid-for shills. Just because you understand the math behind derivatives does not mean they should have ever been allow to exist.
Most "experts" have no more credibility now than the masses who can barely calculate simple interest. They are a bunch of paid-for shills. Just because you understand the math behind derivatives does not mean they should have ever been allow to exist.
I'm not worried. I've been saving adequately for a while now and I have a good job. Even if the job goes away I'll be alright, because I'm not afraid to wait tables (or perform any other type of manual labor).
I didn't buy a house I couldn't afford and I went without when I could (even went so far as to live in a small room rented from a friend, where I slept on a $150 futon from Ikea for over a year and a half [this was during 'good times']).
All this talk about bailouts is very upsetting to me. I never asked for anything when I didn't have anything.
A very small bitter part of me wants the country to fall apart. If it does maybe people, will stand to the challenge, by standing with one another and overcoming. If not then maybe at least the glow of their reality tv will keep them warm.
There is no rational in going into a panic. This is a financial problem. It's not like people are dying en masse as a direct result from this.
I didn't buy a house I couldn't afford and I went without when I could (even went so far as to live in a small room rented from a friend, where I slept on a $150 futon from Ikea for over a year and a half [this was during 'good times']).
All this talk about bailouts is very upsetting to me. I never asked for anything when I didn't have anything.
A very small bitter part of me wants the country to fall apart. If it does maybe people, will stand to the challenge, by standing with one another and overcoming. If not then maybe at least the glow of their reality tv will keep them warm.
There is no rational in going into a panic. This is a financial problem. It's not like people are dying en masse as a direct result from this.
"Even if the job goes away I'll be alright, because I'm not afraid to wait tables (or perform any other type of manual labor)."
I think the unskilled labor jobs would be even more scarce than other jobs in a depression. It would work if you own a farm, so that you could turn manual labor into food directly, I suppose.
I think the unskilled labor jobs would be even more scarce than other jobs in a depression. It would work if you own a farm, so that you could turn manual labor into food directly, I suppose.
Bravo, it's good to know I'm not the only one who knows the value of a cheap house and ikea futon (I still sleep on mine, and love it).
In fact, I have two kids who don't mind all the missing furniture, they still seem to be able to build just about anything out of their mattresses and a few sheets.
In fact, I have two kids who don't mind all the missing furniture, they still seem to be able to build just about anything out of their mattresses and a few sheets.
And here I thought I was alone in my thoughts and perception of the current situation :)
How can we help but go through a slow period while households and banks repair their balance sheets? Just increasing the savings rate from the current 5% in January to a more sustainable 10-14% means people will need to forgo a of consumption. I doubt the wheels will fall off completely.
You younger folks on HN have a great opportunity to save your money now and make a killing in 25 years. The stock market could lose another 30% and then move laterally for several years. But over a few decades, you might average 8% returns annually. Just remember to sell out before the great crash of 2049.
You younger folks on HN have a great opportunity to save your money now and make a killing in 25 years. The stock market could lose another 30% and then move laterally for several years. But over a few decades, you might average 8% returns annually. Just remember to sell out before the great crash of 2049.
One depressing take: Jim Kunstler's The Long Emergency (a book, summarized here: http://www.rollingstone.com/news/story/7203633/the_long_emer...).
I'm afraid I think he's right (even if he's indulging in a lot of schadenfreude)--it's just a matter of timing. Our society isn't going to survive the peak oil crash intact.
The bright side is that we'd have to become hyper-local in our economy, give up the hyperconsumerist dreamland of suburbia, big box stores and electronic entertainments, and deal with the real world.
I'm afraid I think he's right (even if he's indulging in a lot of schadenfreude)--it's just a matter of timing. Our society isn't going to survive the peak oil crash intact.
The bright side is that we'd have to become hyper-local in our economy, give up the hyperconsumerist dreamland of suburbia, big box stores and electronic entertainments, and deal with the real world.
What you call a bright side of hyper-locality and the "real world," I call a civil war in which religious and sexual minorities will be left without a side and mercilessly slaughtered.
I think the better question is to look in the mirror and ask myself "Am I in trouble?"
It is an especially good time to be a pragmatist. Communities can help us interpret the wake-up call but at some point the individual must do his own research, think hard and execute on a solid vision.
hmm... you've been listening to Donny Deutch and Bill Maher, and you still don't know what's going on? Obviously, the problem is you didn't pay enough attention to Suzy Orman.
I, for one, find a dosage of both Glenn Beck and Nancy Grace really gets me a better grounding to how to live my life.
Shout out to Larry Winget. The economy went down the tubes after they canceled Big Spender.
http://video.google.com/videosearch?hl=en&q=larry-winget...
http://video.google.com/videosearch?hl=en&q=larry-winget...
What the future will bring us: nobody knows, there has never been anything really similar in history...
The causes are very simple to describe: our (temporary) so successful economic system didn't follow many moral rules. And now we are all (the responsible and non) forced to pay for that (silly) mistake.
You may not agree with me, but I'm convinced that this will be the summary of our current situation, reviewed in about 50 years.
The causes are very simple to describe: our (temporary) so successful economic system didn't follow many moral rules. And now we are all (the responsible and non) forced to pay for that (silly) mistake.
You may not agree with me, but I'm convinced that this will be the summary of our current situation, reviewed in about 50 years.
I'm not sure how morality plays into the mistake. A lot of people deluded themselves into believing that housing prices would never go down. Some people did that because they worked for investment banks and wanted to earn large profits on bonds and some people did that because they wanted to live in California or Florida or Nevada. The only immorality that I have seen is people who lied about their finances on their mortgage applications and brokers who originated mortgages that were clearly unsuitable for the borrowers. There were plenty of people who did neither of these things who are just as much at fault in what happened because they made an honest mistake while trying to make a better life for themselves. What sort of moral rules should our economy follow to prevent this sort of thing from happening in the future?
The repackaging and reselling of worthless loans, creating money out of thin air, seems pretty immoral to me, and was arguably one of the triggers of the crisis.
> The repackaging and reselling of worthless loans, creating money out of thin air, seems pretty immoral to me, and was arguably one of the triggers of the crisis.
The loans aren't worthless now and weren't worthless then. They're just worth less.
Combining loans into a fund doesn't "create money". It merely allows folks to spread their risk over more loans, to diversify.
What happened was that the collective risk was misunderstood. When folks figured that out, they stopped buying those packages. Since US regs require mark-to-market, 0 buyers means 0 "value". Since US regs also require that banks have sufficient assets, marking huge portions of their portfolios to 0 made them technically insolvent.
Note that most of these loans are still performing and the funds are still producing cash, so they're clearly not worth 0.
The other thing that happened is that a lot of folks decided to insure that risk. These folks thought that being paid to cover losses beyond some threshold was free money. Since they didn't get paid enough to compensate them for their actual risk, they're losing gobs of money.
Which is as it should be. If you're willing to take the profit, you should take the loss.
The loans aren't worthless now and weren't worthless then. They're just worth less.
Combining loans into a fund doesn't "create money". It merely allows folks to spread their risk over more loans, to diversify.
What happened was that the collective risk was misunderstood. When folks figured that out, they stopped buying those packages. Since US regs require mark-to-market, 0 buyers means 0 "value". Since US regs also require that banks have sufficient assets, marking huge portions of their portfolios to 0 made them technically insolvent.
Note that most of these loans are still performing and the funds are still producing cash, so they're clearly not worth 0.
The other thing that happened is that a lot of folks decided to insure that risk. These folks thought that being paid to cover losses beyond some threshold was free money. Since they didn't get paid enough to compensate them for their actual risk, they're losing gobs of money.
Which is as it should be. If you're willing to take the profit, you should take the loss.
It's funny that you ask for case studies, because many people argue that what is happening right now has never happened before.
I'm studying business with a healthy dose of economics, and when we ask Professors, they even don't know what is going on, and everyone who says so is just guessing. IMHO no one knows what's really going on!
We have to just let it play out. If you want to be somewhat prepared be flexible and adapt quickly to new situations as you see them developing. Not very useful and very generic but the only thing you and I can do.
I'm studying business with a healthy dose of economics, and when we ask Professors, they even don't know what is going on, and everyone who says so is just guessing. IMHO no one knows what's really going on!
We have to just let it play out. If you want to be somewhat prepared be flexible and adapt quickly to new situations as you see them developing. Not very useful and very generic but the only thing you and I can do.
Many days of reading here:
http://market-ticker.denninger.net http://globaleconomicanalysis.blogspot.com
Most of what you see in the msm (CNBC, Cramer, newspapers) is either uninformed opinion at best, or deliberate lies.
By the way, Japan's lost decade is now two decades, note the current stock market level and recent 12% drop in GDP. Although to visit there, you would never know, it is an awesome country and everything seems perfectly fine on the surface.
http://market-ticker.denninger.net http://globaleconomicanalysis.blogspot.com
Most of what you see in the msm (CNBC, Cramer, newspapers) is either uninformed opinion at best, or deliberate lies.
By the way, Japan's lost decade is now two decades, note the current stock market level and recent 12% drop in GDP. Although to visit there, you would never know, it is an awesome country and everything seems perfectly fine on the surface.
Has anyone seen any economic case studies, predictions, or articles, that can shed some light on what is REALLY going on here.
Look, this is all wrapped up in politics. You're not going to get any light shed on this because it is against the interests of the parties involved for that to happen. And watching the news, you can see that one party wants the other one to fail so much that they'd let the country crash and burn.
Some people are going to do fine. Some people are going to end up living under a bridge, or having to make the decision to sell their gun or eat it (weasel words: when I got to that point, I sold mine). 2001 and 2003 were good for some people, and horrible for some (like me).
Read Calculated Risk if you want case studies (look for the Ubernerd series) on why this happened.
Look, this is all wrapped up in politics. You're not going to get any light shed on this because it is against the interests of the parties involved for that to happen. And watching the news, you can see that one party wants the other one to fail so much that they'd let the country crash and burn.
Some people are going to do fine. Some people are going to end up living under a bridge, or having to make the decision to sell their gun or eat it (weasel words: when I got to that point, I sold mine). 2001 and 2003 were good for some people, and horrible for some (like me).
Read Calculated Risk if you want case studies (look for the Ubernerd series) on why this happened.
Has anyone seen any economic case studies, predictions, or articles, that can shed some light on what is REALLY going on here.