What caused the Economic recession/depression?

[Sweet Willy]

I'm not blaming borrowers and I'm not blaming lenders, I'm blaming the ones who made what they did possible.

I see what you are getting at and yes, if the rates aren't monkied with it will serve as a better gauge of risk. However, that still will not prevent fools from taking risk. People will always risk and lose, no matter.

The problem I see goes far beyond rates. Lenders have long made great profits from people who have nothing, but want something. Now we've begun with not only allowing lenders to profit from those with nothing, but transfer the risk to them too.

If interest rates were high as they should have been then the banks couldn't have lent as much and the people wouldn't have wanted to borrow as much. If someone wants to take the risk then that's their choice but less people would make that choice.

What would stop the banks from lending as much?

What I don't see, what doesn't add up with your argument, is that subprime lenders, payday type lenders, etc. , institutions that charge ridiculous rates, were not exercising any restraint on lending and the high rates sure as hell did not discourage borrowers. In the markets with high rates, where was this automatic check you are speaking about?

The bottom line is that you can set rates where ever you want, or just let the market set the rate. The only thing that will actually hold lending in check is the hard and fast realization of risk: LOSS.

 

[pete]

You are actually saying that after we have nearly lost the entire fucking ball of wax to bad loans that the problem is a lack of lending?

You're fucking cuckoo.

That isn't what caused it, but wasn't the purpose of bailing them out with billions was so they could lend it?

 

[Sweet Willy]

You are actually saying that after we have nearly lost the entire fucking ball of wax to bad loans that the problem is a lack of lending?

You're fucking cuckoo.

That isn't what caused it, but wasn't the purpose of bailing them out with billions was so they could lend it?

Whatever the stated purpose was, the reality is that we relieved the lenders of risk. Risk the US government didn't take.

 

[Douger]

Jooz.........Period.

 

[Kevin_Kennedy]

I see what you are getting at and yes, if the rates aren't monkied with it will serve as a better gauge of risk. However, that still will not prevent fools from taking risk. People will always risk and lose, no matter.

The problem I see goes far beyond rates. Lenders have long made great profits from people who have nothing, but want something. Now we've begun with not only allowing lenders to profit from those with nothing, but transfer the risk to them too.

If interest rates were high as they should have been then the banks couldn't have lent as much and the people wouldn't have wanted to borrow as much. If someone wants to take the risk then that's their choice but less people would make that choice.

What would stop the banks from lending as much?

What I don't see, what doesn't add up with your argument, is that subprime lenders, payday type lenders, etc. , institutions that charge ridiculous rates, were not exercising any restraint on lending and the high rates sure as hell did not discourage borrowers. In the markets with high rates, where was this automatic check you are speaking about?

The bottom line is that you can set rates where ever you want, or just let the market set the rate. The only thing that will actually hold lending in check is the hard and fast realization of risk: LOSS.

They would realize that they don't have the money to lend which would raise the interest rates which would discourage more people from borrowing until more people saved enough money to bring the interest rates down again.

They didn't exercise any restraint because none of their competition was exercising any restraint. If you did exercise restraint you'd be putting yourself at a disadvantage. There were no high rates as they were artificially made lower.

You can't just set rates because interest rates are a price and you can't just randomly set a price. The market needs to dictate where the interest rates are at.

 

[Sweet Willy]

If interest rates were high as they should have been then the banks couldn't have lent as much and the people wouldn't have wanted to borrow as much. If someone wants to take the risk then that's their choice but less people would make that choice.

What would stop the banks from lending as much?

What I don't see, what doesn't add up with your argument, is that subprime lenders, payday type lenders, etc. , institutions that charge ridiculous rates, were not exercising any restraint on lending and the high rates sure as hell did not discourage borrowers. In the markets with high rates, where was this automatic check you are speaking about?

The bottom line is that you can set rates where ever you want, or just let the market set the rate. The only thing that will actually hold lending in check is the hard and fast realization of risk: LOSS.

They would realize that they don't have the money to lend which would raise the interest rates which would discourage more people from borrowing until more people saved enough money to bring the interest rates down again.

They didn't exercise any restraint because none of their competition was exercising any restraint. If you did exercise restraint you'd be putting yourself at a disadvantage. There were no high rates as they were artificially made lower.

You can't just set rates because interest rates are a price and you can't just randomly set a price. The market needs to dictate where the interest rates are at.

I understand what you're getting at but there is also a terrible, common sense flaw above:

Using interest rates to determine how much money you have to lend?

DO you think it may be just a tad bit more.....I dunno.....SANE, to detrermine how much money you have to lend by actually determining how much money you have to lend?

This is one of many examples of how convaluded and twisted the system is. Rates, in real terms, in the real world of real things and real money, have exactly nothing to do with how much money you have to lend. You either have it or you don't. To guess at this based on formulas for expected returns or expected loses or expected anything is completely irresponsible.

The very first problem I cited here: Attempting to lend money you do not actually have.

 

[elvis]

I am curious how many people can explain what the understand our current economic problems to be without a partisan stance.

Here is what you need to do:

1) Using your own words, tell us why we are in Economic decline.
2) You cannot simply blame Bush, Obama, Democrats, Republicans or any other person. However, you can cite policies without specific reference to who authored them.

Good luck.

the repeal of the Glass-Steagall Act.

http://www.dailyfinance.com/2009/04...eagall-act-is-essential-for-functioning-safe/

 

[Sweet Willy]

I am curious how many people can explain what the understand our current economic problems to be without a partisan stance.

Here is what you need to do:

1) Using your own words, tell us why we are in Economic decline.
2) You cannot simply blame Bush, Obama, Democrats, Republicans or any other person. However, you can cite policies without specific reference to who authored them.

Good luck.

the repeal of the Glass-Steagall Act.

A revised Glass-Steagall Act is essential for functioning, safe banking

Which led to even more lending of money that wasn't actually there to lend. Once this Act was out of the way, there was no regulation about what kind of money was being pushed around. Deposit money and loan money were no longer distinguished from one another. It is what allowed banks to "bundle" and sell the loans they already had, to raise capital in order to make more loans.....and on and on. A pyramid scheme.

Loaning money they simply did not have. That is the simplest of terms to describe what happened.

 

[Avatar4321]

Im going to answer my own question. The cause of this economic recession/depression can be summed up in one word:

Dishonesty.

Lenders were dishonest. Borrowers were dishonest. Politicians were dishonest.

That is the problem.

 

[Sweet Willy]

Im going to answer my own question. The cause of this economic recession/depression can be summed up in one word:

Dishonesty.

Lenders were dishonest. Borrowers were dishonest. Politicians were dishonest.

That is the problem.

I have a hard time with putting borrowers in that same sentence. A borrower is the only honest person in the loan equation.

Borrower: "I have no money, I would like a loan." TRUTH

Lender: "No problem, we have money to loan." LIE

 

[Kevin_Kennedy]

What would stop the banks from lending as much?

What I don't see, what doesn't add up with your argument, is that subprime lenders, payday type lenders, etc. , institutions that charge ridiculous rates, were not exercising any restraint on lending and the high rates sure as hell did not discourage borrowers. In the markets with high rates, where was this automatic check you are speaking about?

The bottom line is that you can set rates where ever you want, or just let the market set the rate. The only thing that will actually hold lending in check is the hard and fast realization of risk: LOSS.

They would realize that they don't have the money to lend which would raise the interest rates which would discourage more people from borrowing until more people saved enough money to bring the interest rates down again.

They didn't exercise any restraint because none of their competition was exercising any restraint. If you did exercise restraint you'd be putting yourself at a disadvantage. There were no high rates as they were artificially made lower.

You can't just set rates because interest rates are a price and you can't just randomly set a price. The market needs to dictate where the interest rates are at.

I understand what you're getting at but there is also a terrible, common sense flaw above:

Using interest rates to determine how much money you have to lend?

DO you think it may be just a tad bit more.....I dunno.....SANE, to detrermine how much money you have to lend by actually determining how much money you have to lend?

This is one of many examples of how convaluded and twisted the system is. Rates, in real terms, in the real world of real things and real money, have exactly nothing to do with how much money you have to lend. You either have it or you don't. To guess at this based on formulas for expected returns or expected loses or expected anything is completely irresponsible.

The very first problem I cited here: Attempting to lend money you do not actually have.

Well market based interest rates are an indication of how much money you have to lend. If you don't have a lot of money to lend then you're naturally going to lend that money out at a higher rate of interest because you're taking a bigger risk. If interest rates are set artificially low then that means the Federal Reserve has been pumping out dollars, and creation of green pieces of paper does not create wealth. You're absolutely on the right track here, but you need to figure out how a distortion of interest rates plays into the equation.

 

[Sweet Willy]

They would realize that they don't have the money to lend which would raise the interest rates which would discourage more people from borrowing until more people saved enough money to bring the interest rates down again.

They didn't exercise any restraint because none of their competition was exercising any restraint. If you did exercise restraint you'd be putting yourself at a disadvantage. There were no high rates as they were artificially made lower.

You can't just set rates because interest rates are a price and you can't just randomly set a price. The market needs to dictate where the interest rates are at.

I understand what you're getting at but there is also a terrible, common sense flaw above:

Using interest rates to determine how much money you have to lend?

DO you think it may be just a tad bit more.....I dunno.....SANE, to detrermine how much money you have to lend by actually determining how much money you have to lend?

This is one of many examples of how convaluded and twisted the system is. Rates, in real terms, in the real world of real things and real money, have exactly nothing to do with how much money you have to lend. You either have it or you don't. To guess at this based on formulas for expected returns or expected loses or expected anything is completely irresponsible.

The very first problem I cited here: Attempting to lend money you do not actually have.

Well market based interest rates are an indication of how much money you have to lend. If you don't have a lot of money to lend then you're naturally going to lend that money out at a higher rate of interest because you're taking a bigger risk. If interest rates are set artificially low then that means the Federal Reserve has been pumping out dollars, and creation of green pieces of paper does not create wealth. You're absolutely on the right track here, but you need to figure out how a distortion of interest rates plays into the equation.

Kevin, that is exactly the kind of market double speak that defies logic. The amount of money you have has no bearing on what you risk.

If I have $300 and decide to loan $20, I risk $20.

If I have $3,000 and decide to loan $20, I risk $20.


To claim that I am taking a bigger risk in either of those scenarios is absolute bullshit.

 

[Kevin_Kennedy]

I understand what you're getting at but there is also a terrible, common sense flaw above:

Using interest rates to determine how much money you have to lend?

DO you think it may be just a tad bit more.....I dunno.....SANE, to detrermine how much money you have to lend by actually determining how much money you have to lend?

This is one of many examples of how convaluded and twisted the system is. Rates, in real terms, in the real world of real things and real money, have exactly nothing to do with how much money you have to lend. You either have it or you don't. To guess at this based on formulas for expected returns or expected loses or expected anything is completely irresponsible.

The very first problem I cited here: Attempting to lend money you do not actually have.

Well market based interest rates are an indication of how much money you have to lend. If you don't have a lot of money to lend then you're naturally going to lend that money out at a higher rate of interest because you're taking a bigger risk. If interest rates are set artificially low then that means the Federal Reserve has been pumping out dollars, and creation of green pieces of paper does not create wealth. You're absolutely on the right track here, but you need to figure out how a distortion of interest rates plays into the equation.

Kevin, that is exactly the kind of market double speak that defies logic. The amount of money you have has no bearing on what you risk.

If I have $300 and decide to loan $20, I risk $20.

If I have $3,000 and decide to loan $20, I risk $20.


To claim that I am taking a bigger risk in either of those scenarios is absolute bullshit.

Supply and demand effects everything in the market, including the price of money. If the bank has less money on hand to loan out then they're going to charge a higher rate of interest than if they had more money to loan out. That's the way all prices work on the market and prices are far more than just arbitrary numbers that people come up with.

 

[Sweet Willy]

Well market based interest rates are an indication of how much money you have to lend. If you don't have a lot of money to lend then you're naturally going to lend that money out at a higher rate of interest because you're taking a bigger risk. If interest rates are set artificially low then that means the Federal Reserve has been pumping out dollars, and creation of green pieces of paper does not create wealth. You're absolutely on the right track here, but you need to figure out how a distortion of interest rates plays into the equation.

Kevin, that is exactly the kind of market double speak that defies logic. The amount of money you have has no bearing on what you risk.

If I have $300 and decide to loan $20, I risk $20.

If I have $3,000 and decide to loan $20, I risk $20.


To claim that I am taking a bigger risk in either of those scenarios is absolute bullshit.

Supply and demand effects everything in the market, including the price of money. If the bank has less money on hand to loan out then they're going to charge a higher rate of interest than if they had more money to loan out. That's the way all prices work on the market and prices are far more than just arbitrary numbers that people come up with.

And I understand that. No problem.

The problem is that the banks are not using actual hard data to determine how much money they have to lend. They are speculating on this based upon the rate. A rate that they all know is artificial. They know the rate is not a true market rate. They know it is not a reliable indicator, and this is aside from the fact that deciding how much money you have by any means other than actually taking stock of how much money you have is irresponsible.

Let's say rates are at 6%.

Now tell me how much money is in your wallet.

It is not reliable, would not even be reliable without the Fed fixing rates. The banks are guessing at their worth based on expected returns at an expected rate, not their actual returns or cash on hand.

Loaning money they do not have.

 

[Kevin_Kennedy]

Kevin, that is exactly the kind of market double speak that defies logic. The amount of money you have has no bearing on what you risk.

If I have $300 and decide to loan $20, I risk $20.

If I have $3,000 and decide to loan $20, I risk $20.


To claim that I am taking a bigger risk in either of those scenarios is absolute bullshit.

Supply and demand effects everything in the market, including the price of money. If the bank has less money on hand to loan out then they're going to charge a higher rate of interest than if they had more money to loan out. That's the way all prices work on the market and prices are far more than just arbitrary numbers that people come up with.

And I understand that. No problem.

The problem is that the banks are not using actual hard data to determine how much money they have to lend. They are speculating on this based upon the rate. A rate that they all know is artificial. They know the rate is not a true market rate. They know it is not a reliable indicator, and this is aside from the fact that deciding how much money you have by any means other than actually taking stock of how much money you have is irresponsible.

Let's say rates are at 6%.

Now tell me how much money is in your wallet.

It is not reliable, would not even be reliable without the Fed fixing rates. The banks are guessing at their worth based on expected returns at an expected rate, not their actual returns or cash on hand.

Loaning money they do not have.

Well the problem is that they do have the physical money on hand. To artificially lower interest rates the Fed pumps in the money to the banks, the problem is that you can't create wealth by simply creating money. So for a while the system seems great and everyone's happy, but it's essentially a giant ponzi scheme just waiting to bust.

 

[manu1959]

you fail. bigtime.

Sure.....and borrowers hold the risk.

have you noticed what's wrong with the economy?? nobody willing to lend??

that isn't true.....there are willing lenders....there are no qualified borrowers.....

we are were we are because of worldwide hig risk lending / borrowing practices that were not properly securitised and those loans were bundled and resold over and over.....read about iceland

 

[Sweet Willy]

Supply and demand effects everything in the market, including the price of money. If the bank has less money on hand to loan out then they're going to charge a higher rate of interest than if they had more money to loan out. That's the way all prices work on the market and prices are far more than just arbitrary numbers that people come up with.

And I understand that. No problem.

The problem is that the banks are not using actual hard data to determine how much money they have to lend. They are speculating on this based upon the rate. A rate that they all know is artificial. They know the rate is not a true market rate. They know it is not a reliable indicator, and this is aside from the fact that deciding how much money you have by any means other than actually taking stock of how much money you have is irresponsible.

Let's say rates are at 6%.

Now tell me how much money is in your wallet.

It is not reliable, would not even be reliable without the Fed fixing rates. The banks are guessing at their worth based on expected returns at an expected rate, not their actual returns or cash on hand.

Loaning money they do not have.

Well the problem is that they do have the physical money on hand. To artificially lower interest rates the Fed pumps in the money to the banks, the problem is that you can't create wealth by simply creating money. So for a while the system seems great and everyone's happy, but it's essentially a giant ponzi scheme just waiting to bust.

They don't have the money. We are essentially saying the same thing in different words. To correct, loaning wealth they do not have.

 

[Sweet Willy]

Sure.....and borrowers hold the risk.

have you noticed what's wrong with the economy?? nobody willing to lend??

that isn't true.....there are willing lenders....there are no qualified borrowers.....

we are were we are because of worldwide hig risk lending / borrowing practices that were not properly securitised and those loans were bundled and resold over and over.....read about iceland

Exactly right. The lack of lending is a good sign for anyone that understands what happened. It means that despite the huge bailouts, banks still have decided to once again put risk back into perspective.

 

[Kevin_Kennedy]

And I understand that. No problem.

The problem is that the banks are not using actual hard data to determine how much money they have to lend. They are speculating on this based upon the rate. A rate that they all know is artificial. They know the rate is not a true market rate. They know it is not a reliable indicator, and this is aside from the fact that deciding how much money you have by any means other than actually taking stock of how much money you have is irresponsible.

Let's say rates are at 6%.

Now tell me how much money is in your wallet.

It is not reliable, would not even be reliable without the Fed fixing rates. The banks are guessing at their worth based on expected returns at an expected rate, not their actual returns or cash on hand.

Loaning money they do not have.

Well the problem is that they do have the physical money on hand. To artificially lower interest rates the Fed pumps in the money to the banks, the problem is that you can't create wealth by simply creating money. So for a while the system seems great and everyone's happy, but it's essentially a giant ponzi scheme just waiting to bust.

They don't have the money. We are essentially saying the same thing in different words. To correct, loaning wealth they do not have.

We are basically saying the same thing, and you're absolutely right that they don't have the wealth to loan. I should have made that distinction earlier, rather than saying money. However, you do need to realize that the interest rate is an important function in the process and how tampering with it causes the whole thing to go out of balance.

 

[Modbert]

What caused this Economic recession/depression?

Answer: It's a mixture of things. First off, deregulation across the board in the Financial Industry from 1980 to 2008 allowed many of these crooks to have the ability to steal this money. The only real piece of legislative that was seen to combat deregulation was after Enron and all of them were revealed for what they truly are.

Otherwise referred to as the Sarbanes-Oxley Act. The problem with that though is partly the costs that are inflicted upon the businesses under the act. Which causes several companies that would go public originally to stay private in order to save costs.

There are of course several other reasons, I recommend reading The Two Trillion Dollar Meltdown by Charles R. Morris that goes into great detail about how we got into this mess.