The Global Financal Crisis In Simplistic Terms

[Setantii]

IMO it all boils down to this.

AT LEAST 97% of what we call money is infact just an IOU created by private banks. All savings accounts are merely promises to pay as are all pensions, mortgages, government bonds etc. What we are seeing is a battle betwen who's IOU's are honoured and who's IOU's are discarded. At the moment the bankers of the western world are using governments to ensure their IOU's are the ones honoured at the expense of the general public, who are seeing their savings disappear, their pensions cut and jobs destroyed.

Edited June 15, 2012 by Setantii

[Nuggets Mahoney]

IMO it all boils down to this.

AT LEAST 97% of what we call money is infact just an IOU created by private banks. All savings accounts are merely promises to pay as are all pensions, mortgages, government bonds etc. What we are seeing is a battle betwen who's IOU's are honoured and who's IOU's are discarded. At the moment the bankers of the western world are using governments to ensure their IOU's are the ones honoured at the expense of the general public, who are seeing their savings disappear, their pensions cut and jobs destroyed.

You don't believe that Western societies living beyond their means has anything to do with their current predicament then?

[mfp123]

The financial system is made up of 2 sides.

Trade surpluses and trade deficits.

Savers and borrowers.

Creditors and debtors.

Both sides balance each other out.

The financial crisis stems from the fact that the gulf between the 2 sides has become too wide and the gap has become too big, moving to the extremes.

Those with surpluses and cash are sitting on their gains and holding onto it.

Those that have borrowed have no cash and so cant spend anything.

Both sides are therefore not engaging in activity and the economic system grinds to a halt.

The solution is for people in surplus to spend money, moving it to those in debt. Or people with debts default, cutting out the surpluses. Or you print money which devalues both savings and debts.

This will narrow the gap between the 2 sides and the system is able to start moving again.

Edited June 15, 2012 by mfp123

[sleepwello'nights]

You don't believe that Western societies living beyond their means has anything to do with their current predicament then?

I always start from the naive premise that the earths resources exist, that we need to use them to exist on the planet, that money is an artificial human construct to control how we utilise those resources.

The global financial crisis has nothing to do with lack of resources it is about how the artificial construct to utilise those resources has distorted their distribution. It is less to do with living beyond ones means but more to do with the competence, corruption and fallibility of those who are able to exert control over its distribution.

How else can you explain how the emaciated economies of the world in the 1930's were able to develop and build such vast war machines that devastated large areas of the world and killed millions of people. The deprivation caused by the lack of money changed attitudes that allowed nations to be manipulated to satisfy the desires of those that were able to control but there was no lack of resources.

[Bloo Loo]

The financial system is made up of 2 sides.

Trade surpluses and trade deficits.

Savers and borrowers.

Creditors and debtors.

Both sides balance each other out.

snip

in an accounting book, it all cancels out...or rather, it doesnt...it balances....what you miss, as do all theories that are based just on the numbers, is wealth.

Trading food for rubber dogshit may give a perfect trade balance.

In a bank, the difference between the assets and the liabilities is called the banks CAPITAL..

so, a bank makes a loan to you....the interest and charges it makes on that loan, less what it pays to creditors, is now CAPITAL.

The imbalance is made worse when regulators say to the bank, you only need to keep 1/10th of that capital....its not money, its not spendable, so what do they do?...they borrow from someone who does have money and buy an asset....maybe another banking bond, maybe a Gilt...whatever....the bank never had the capital in cash to pay for it.

just run this little scam around the circle line for 30 years, add in off balance sheet scamming to make capital look even higher than it is so they can lever up their non cash even more with cash they donthave, et voila, we have max velocity meets the wall of debt and capital that needs to be paid off....

Edited June 15, 2012 by Bloo Loo

[mdman]

Banks made bad loans. Regulators let them.

Banks valued those loans fraudulently on their balance sheets. Regulators let them.

Banks packaged those toxic loans and their derivatives and missold them onto suckers. Regulators let them

Banks pretended they had more capital than they did using CDS sold by AIG. This allowed bankers to pay themselves bigger bonuses. Regulators let them.

Regulators allowed this orgy of fraud partly because bankers bribed them with jobs, and partly because governments relied on ponzi financing created by banks to maintain deficit spending on election promises. Government officials were also easily bribeable.

This led to bank collapse. They were bailed out because of bribes to governments. The bailouts and continued deficit spending leads to sovereign debt crises.

[mfp123]

in an accounting book, it all cancels out...or rather, it doesnt...it balances....what you miss, as do all theories that are based just on the numbers, is wealth.

Trading food for rubber dogshit may give a perfect trade balance.

In a bank, the difference between the assets and the liabilities is called the banks CAPITAL..

so, a bank makes a loan to you....the interest and charges it makes on that loan, less what it pays to creditors, is now CAPITAL.

The imbalance is made worse when regulators say to the bank, you only need to keep 1/10th of that capital....its not money, its not spendable, so what do they do?...they borrow from someone who does have money and buy an asset....maybe another banking bond, maybe a Gilt...whatever....the bank never had the capital in cash to pay for it.

just run this little scam around the circle line for 30 years, add in off balance sheet scamming to make capital look even higher than it is so they can lever up their non cash even more with cash they donthave, et voila, we have max velocity meets the wall of debt and capital that needs to be paid off....

see thread title.

[57percent]

10 words:

Money supply inflation > wage inflation ... for too long. Governments incompetent.

[Lewis Gordon Pugh]

I always start from the naive premise that the earths resources exist, that we need to use them to exist on the planet, that money is an artificial human construct to control how we utilise those resources.

The global financial crisis has nothing to do with lack of resources it is about how the artificial construct to utilise those resources has distorted their distribution. It is less to do with living beyond ones means but more to do with the competence, corruption and fallibility of those who are able to exert control over its distribution.

How else can you explain how the emaciated economies of the world in the 1930's were able to develop and build such vast war machines that devastated large areas of the world and killed millions of people. The deprivation caused by the lack of money changed attitudes that allowed nations to be manipulated to satisfy the desires of those that were able to control but there was no lack of resources.

This is ******ing good.

[scottbeard]

The crisis in simplistic terms? I'd say:

Too much borrowed.

Too much lent.

Not much earned.

Too much spent.

[JustYield]

1. Excess capital (built up over a generation or two) competitively and unrelentingly chases yield.
   
2. After a while risk is mis-priced and asset price bubbles form.
   
3. This continues because everyone in the process profits.
   
4. Until they don't: someone shouts "Fire!" in the proverbial crowded cinema.
   
5. We discover that debt is real whereas value is a matter of opinion. (Who knew?)
   
6. Now the unraveling begins - who owes what to whom?
   
7. Resultant risk of systemic collapse requires a bailout from the state (tax payer); we can argue about moral hazard later when we've averted the immediate disaster.
   
8. Disaster is averted (actually, it is merely delayed) and we forget about that talk we were going to have with those who got us into this mess (TWGUITM).
   
9. Meanwhile, TWGUITM are still there in privileged positions extracting excess rents from the economy and perpetuating the staus quo.
   
10. We discover too late that the financial sector has captured governments.
    
11. The solution to the problem is austerity for the plebs, of course:
    

Everyone is made to feel bad and guilty about their country’s predicament when they were merely doing what they were encouraged to do.

Those smart enough to abstain from indebting themselves are punished twice over.

[seymour]

Private Baldrick: Captain Blackadder, how did we get from a time when

there wasn't a Global Financial Crisis to a time when there was a Global

Financial Crisis?

Captain Blackadder: You mean “How did the Global Financial Crisis start”?

Lieutenant George: The Global Financial Crisis started, Baldrick, because of the vile,

lazy unemployed scroungers, the greedy public taking out debts which

they could not repay and the nasty Governments spending more than

they should have

Captain Blackadder: Nonsense George, I've told you before to stop

reading the “Daily Mail” and stick to “For King and Country”

You see Baldrick, it came to be accepted that the only way to avoid a

Global Financial Crisis was to give away all democratic controls over banks so that

they could flourish, free of restraint, and the market would self

regulate, giving stability and growth to the economy. The really big

clever banks set about developing a range of fantastic new products,

designed by whizz kid maths PhD's, which only a few people understood

(unfortunately, not the not-so-clever banks who bought them). These

not-so-clever banks used massive leverage to trade huge amounts of these

products, and because the market is always right, no-one dared to ask

any questions; anyway, how could there be a problem since all the banks,

not just the really big clever ones, were making shed loads of money

and, anyway, the products were given top ratings by “independent”

ratings agencies, who surely had nothing to gain by distorting the

valuations? Even the economists, who, it has to be said, were quite

secretly pleased that, at last, their voodoo nonsense was being made

respectable by the use of complex differential equations, proving it

must be a true science, not the useless tripe it was always thought to

be by those who lived in the real world. And, in any event, all the

banks were audited by super-duper high-integrity accountancy firms who

consistently found no cause for concern in the banks accounts, although

for some reason which no-one could quite explain, these accountancy

firms had recently tended to switch from their traditional

high-personal- responsibility role to limited liability status, almost

as if they anticipated a bit of flak in no-mans' land and they may need

the an extra escape route against the vile hun if a few awkward

questions were asked later.

You see Baldrick, that way, there could never be another Global Financial Crisis

Private Baldrick: But Captain, this is a type of Global Financial Crisis?

Captain Blackadder: Yes Baldrick, you see, there was a teensy flaw in

the plan.

Private Baldrick: What was that, Captain?

Captain Blackadder: It was Bollock$!

[cybernoid]

People with power are evil or incompetent. Sometimes both. Smart people don't want power because of all the evil and incompetent people trying to get it too.

Time passes... we're fked.

[Bloo Loo]

see thread title.

sure, but the implication you made that a trade balance has caused the financial crisis is just misleading.

The books always balance....but the banker marks his profits on that very imbalance....it IS his capital.

It is also not real...the banker has done nothing to earn it....yet with it he creates trillions of financial "assets" on which he expects the real world to payout.

Therefore, we have the financial crisis.

[Nuggets Mahoney]

I always start from the naive premise that the earths resources exist, that we need to use them to exist on the planet, that money is an artificial human construct to control how we utilise those resources.

The global financial crisis has nothing to do with lack of resources it is about how the artificial construct to utilise those resources has distorted their distribution. It is less to do with living beyond ones means but more to do with the competence, corruption and fallibility of those who are able to exert control over its distribution.

How else can you explain how the emaciated economies of the world in the 1930's were able to develop and build such vast war machines that devastated large areas of the world and killed millions of people. The deprivation caused by the lack of money changed attitudes that allowed nations to be manipulated to satisfy the desires of those that were able to control but there was no lack of resources.

I don't deny any of that. I still suspect that the majority of western populations have become accustomed to subsidised lifestyles.

Edited June 15, 2012 by Nuggets Mahoney

[wonderpup]

Ask yourself a simple question:

If you were able to make yourself very very rich by simply typing numbers on a keyboard in exchange for a signiture- the only limit on how rich you might become being the number of people you could persuade to sign up-

How motivated would you be to make sure those doing the signing were capable of fulfilling the obligations they were signing for?

The answer= Not very.

And that is why we now have a global financial crisis.

[Nuggets Mahoney]

Ask yourself a simple question:

If you were able to make yourself very very rich by simply typing numbers on a keyboard in exchange for a signiture- the only limit on how rich you might become being the number of people you could persuade to sign up-

How motivated would you be to make sure those doing the signing were capable of fulfilling the obligations they were signing for?

The answer= Not very.

And that is why we now have a global financial crisis.

Looking on the cheery side, it's an advance of sorts over doing it old school and just beating it out of people.

[winkie]

Ask yourself a simple question:

If you were able to make yourself very very rich by simply typing numbers on a keyboard in exchange for a signiture- the only limit on how rich you might become being the number of people you could persuade to sign up-

How motivated would you be to make sure those doing the signing were capable of fulfilling the obligations they were signing for?

The answer= Not very.

And that is why we now have a global financial crisis.

No accountability.........would it have been different if the ones that agreed the debt, then for the debt to be unrecoverable within the agreed terms had any profit/payment/bonus they made from creating the debt/money/credit recalled?.......

[switters]

Money decoupled from intrinsic value i.e. end of gold standard.

Money inflation created by dodgy banking, aided by inside men in the central banks, ignored by supine regulators,OK'd by cherry picked " experts", but considered too boring to merit attention by idiotic masses.

Ponzi style money inflation becomes so great that exhausts mugs, pyramid system collapses, banks allege world will implode if they go bust, inside men in government take on dodgy debt of banks. Masses still claim to be too busy watching x-factor to understand.

Inside men placed into governments claim nations will go bust and descend into anarchy unless banks are appeased by giving them real stuff in place of imaginary debt. Popular risings begin when masses understand that not understanding money supply makes you poor and "real stuff" means their islands and food. X-factor loses importance, issue no longer considered boring.

Battle between truth and lies becomes epic as Greeks vote to decide future of corrupt, undemocratic, fraudulent, and ultimately worthless "money"......

.....To be continued

[Lagarde's Drift]

Buy G***.

Do I win?

[Andy_K]

Money is a means of distributing the finite resources and labour that exist in the world at any one time.

Western economies discovered that by borrowing money into existence, backed only by a promise to repay, that they could take a much bigger slice of the pie than they deserved. They got more oil, more food, more cars, and the fruits of labour from other countries. All they had to do in return was get into debt and promise to repay. As production moved abroad, the western nations stopped making much for themselves, and imported almost all their goods from abroad whilst developing 'service' based economies which delivered no real productive value.

When the debt started to reach a critical mass, cracks started appearing. National deficits spiralled. Banks needed bailouts. People couldn't pay their mortgages or credit cards. There was simply too much debt in the system.

It is yet to be determined how the default happens and the big reset takes effect, but currency devaluation is a likely option. It may take some decades to set it, but ultimately no nation can consume more than it produces. This means we will move, painfully, towards a situation where the west produces a lot more and consumes a lot less.

We are all going to become a lot poorer.

[scepticus]

I'm about to compose the winning entry.

[Bloo Loo]

I'm about to compose the winning entry.

in plain English maybe?

[scepticus]

In the information age, there is only debt, no money. Debt is information. Only debt can be sent electronically.

Ergo, all social economic relations in technological society must be structured via debt.

Equity is just debt-information with no nominal zero lower bound. The only difference between them is rules, human constructs that are not absolute, but self-referential.

Once upon a time, there was money all agreed on because there was no technology to send it through the ether, it was a physical thing. Some decades ago that link finally ceased to exist.

Ergo, debt had to expand to fill the gap left by the absence of money so as to completely structure human economic relations. The mechanism by which it expanded is secondary to the inevitability of expansion. Any way would have done.

That debt expansion has now reached maximum extension, such that credit and debt stand on equal terms. Hence Zirp.

In a culture dominated by money-thinking, no-one knows what to do next now that there is no money absolute. We are no longer collectively constrained by money, so we seek alternative constraints to structure society. The GFC is the search for new constraints which are stable.

[Bloo Loo]

In the information age, there is only debt, no money. Debt is information. Only debt can be sent electronically.

Ergo, all social economic relations in technological society must be structured via debt.

Equity is just debt-information with no nominal zero lower bound. The only difference between them is rules, human constructs that are not absolute, but self-referential.

Once upon a time, there was money all agreed on because there was no technology to send it through the ether, it was a physical thing. Some decades ago that link finally ceased to exist.

Ergo, debt had to expand to fill the gap left by the absence of money so as to completely structure human economic relations. The mechanism by which it expanded is secondary to the inevitability of expansion. Any way would have done.

That debt expansion has now reached maximum extension, such that credit and debt stand on equal terms. Hence Zirp.

In a culture dominated by money-thinking, no-one knows what to do next now that there is no money absolute. We are no longer collectively constrained by money, so we seek alternative constraints to structure society. The GFC is the search for new constraints which are stable.

I like para 5....but ZIRP doesnt exist in the real world.