What Caused the Great Depression?
Filed Under (Accounting) by admin on 25-01-2010
25
banking grouping had daylong been ordered up as down jock thanks to the National Banking Act of 1862. It was banker JP moneyman who realized that he could attain money by providing liquidity to the system: he utilised his assets to attain low-interest loans to the banks and to the Treasury, lettered that defrayal would be bonded when the crisis was over. As a result, the whole banking crisis of 1907 lasted inferior than digit months. The frugalness recovered over the incoming year. In 1908, legislature passed …
By contrast, there’s nowhere in which the herd mentality is more prevalent than in politics. This is revealed in the fact that at the height of the housing bubble, the politicians (on the left and the right) were calling for even more credit expansion for home loans. Expecting such people to regulate the occasional irrational behavior of certain market actors is expecting the blind to lead the blind.
In a a free market (ie, no bailouts, inflation, etc), people who follow the “herd mentality” would do so to their own detriment, while the smart money would generally buy into undervalued assets, expecting the price to rise in the future. These people would get wealthier, and others would imitate their behavior, tending over time make people less likely to interpret a temporary price increase in an asset as a sign that they should put all their money into it.
And the South Seas company was essentially a corporatist institution with the backing of the British Parliament, kind of like Fannie and Freddie. Not really a good example of a “free market bubble”.
“What difference does it make if JPMorgan makes loans to failing banks or the US government?”
If the loans turn out to be bad investments, JP Morgan bears the cost, while if the government makes the loans and they go bad, the taxpayers bear the cost. Therefore, JP Morgan has more direct incentive to make sure that his “bailout” money is spent responsibly.
Is this really so difficult to understand?
…if applied to market actors when the government’s own economists (at the fed) didn’t see the crisis coming.
The wisdom of market actors only works if you don’t have a third party consistently mucking things up from the outside. It’s impossible for any one person to know what the “correct” interest rate is. The economically efficient answer is revealed on the free market through the price mechanism. But when someone screws with the price mechanism, no one can say just how distorted the market will be or where the distortions will occur. Saying “they should have known better” is an empty statement…
Look, how do bankers manage risks? INTEREST RATES.
How do they know when they’re getting riskier investments? INTEREST RATES.
What was the Fed making lower and lower, and what was the government making lower for low-income people? INTEREST RATES!!!
Get the picture now?
Who was it that promised to bail out the banks?
That… is and understatement.
Not only that, it spends the money that it does’nt have with both hands, tightly gripped to a shovel while it throws it out the window.
The government is partly responsible. But the bankers made the choices they did that caused the crisis. It takes two to tango! The bankers should known better since they’re the economic gurus. More of the blame is on them since politicians are generally economically illiterate and doing things for their own reasons.
The only problem with that is, government doesn’t save cash.
I know, you’re right. I was thinking if the Government didn’t spend so much on war, corporate welfare and the like to the point that we actually saved up the money. In principle, I don’t see any difference between a gov’t investing its saved cash to do the same job. No person has $1 trillion, and in such a crisis when there’s no time to try and negotiate between the world’s billionaire’s a deal.
No, the government did NOT have the cash. They had to create it out of thin air–taking it all from US in the form of inflation. THAT’S the difference: Morgan used his own money; the government uses OURS.
And that’s not even getting into the fact that there wouldn’t even have BEEN a crisis in the first place had it not been for government.
What difference does it make if JPMorgan makes loans to failing banks or the US government? No one had the cash to bail out this crisis except the US Government.
I think alot of it was / is Stupidity (no common sense)
What do you think of the Olduvai “theory”?
a little reason which creates it is stupid naive people who spend money when they have it like its water and when theres a recession they treat it as gold why dont people treat it like gold all of the time no matter what the problems we are in or arent
Absolutely….historically they are commonly inclusive. Socialist regimes often need to make use of corporatism to gain and hold power.
Leftist denials of their connection to, or full out use of , fascist tactics and techniques is simple propaganda…particularly the use of classic misdirection by constantly accusing others as being “fascist.” Actually quite brilliant as a propaganda tool.
It’s notable that prior to WWII…leftists proudly identified with fascism…and championed it in Italy.
Agreed.
Hitler and Mussolini’s regimes were fascist; which corporatism is a subtle form of.
Also noted is that fascism and socialism, despite the whining of many leftists, aren’t mutually exclusive.
It’s interesting to note, corporatism became the form of socialism put into place by both Mussolini and eventually Hitler. Both needed the productive power of large industry to produce their war machines…but had to control the population and to quash small business to obtain and retain power.
Corporatism is often a first step toward a totalitarian regime. Beware gov’t when it starts “investing” in firms and taking over corporations “for the public good.”
Excellent presentation sir…
I’ve taught about the depression for years…never summarized it as well or as concisely as you have in this video.
Great job!
Thanks for the explanation.
Yes.
Such as corn subsidies for farmers?
Corporatism is the government favoring of certain corporations, businesses or groups of people over others.
A free market would be where the government does not do this, but rather treats everyone equal under the law.