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crash2006

Partying Like It’s 1929

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But what we should be asking is: How did we get here?

Why does the financial system need salvation?

Why do mild-mannered economists have to become superheroes?

The answer, at a fundamental level, is that we’re paying the price for willful amnesia. We chose to forget what happened in the 1930s — and having refused to learn from history, we’re repeating it.

Contrary to popular belief, the stock market crash of 1929 wasn’t the defining moment of the Great Depression. What turned an ordinary recession into a civilization-threatening slump was the wave of bank runs that swept across America in 1930 and 1931.

This banking crisis of the 1930s showed that unregulated, unsupervised financial markets can all too easily suffer catastrophic failure.

As the decades passed, however, that lesson was forgotten — and now we’re relearning it, the hard way.

To grasp the problem, you need to understand what banks do.

Banks exist because they help reconcile the conflicting desires of savers and borrowers. Savers want freedom — access to their money on short notice. Borrowers want commitment: they don’t want to risk facing sudden demands for repayment.

Normally, banks satisfy both desires: depositors have access to their funds whenever they want, yet most of the money placed in a bank’s care is used to make long-term loans. The reason this works is that withdrawals are usually more or less matched by new deposits, so that a bank only needs a modest cash reserve to make good on its promises.

But sometimes — often based on nothing more than a rumor — banks face runs, in which many people try to withdraw their money at the same time. And a bank that faces a run by depositors, lacking the cash to meet their demands, may go bust even if the rumor was false.

Worse yet, bank runs can be contagious. If depositors at one bank lose their money, depositors at other banks are likely to get nervous, too, setting off a chain reaction. And there can be wider economic effects: as the surviving banks try to raise cash by calling in loans, there can be a vicious circle in which bank runs cause a credit crunch, which leads to more business failures, which leads to more financial troubles at banks, and so on.

That, in brief, is what happened in 1930-1931, making the Great Depression the disaster it was. So Congress tried to make sure it would never happen again by creating a system of regulations and guarantees that provided a safety net for the financial system.

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What many people forget is that there were actually two bubbles in the 1920s. The Great Depression in 1929 was preceeded by the Florida Real Estate boom of 1924 - 1927.

Americans could buy choice real estate for only 10% down. Demand was such that house prices could be expected to rise by as much as 50% per month at the height of the bubble (and I thought Wandsworth was extreme at 30% p.a.). Rising prices encouraged more yet demand. People sold out, then bought multiple properties with their equity gains (BTL, sound familiar?). Demand was such that developers began to offer "prime beach front properties" that were up to 15 miles away from the sea! (ex-local anyone?). In 1926 the buyers ran out and prices peaked. Everyone rushed to get out of the market and prices crashed. By 1928 the market was down 85%. Interestingly the blame for the crisis was laid at the door of two hurricanes that blew through in 1927 (U.S. sub-prime debt) rather than the obvious cause of speculation and over-leverage.

Believe it or not, despite this boom and bust they went through it all again in 1929 (gold?, agricultural commodities?).

People don't learn!

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i loved her too, but she doesnt beleive me. she thinks im a flirt. maybe i am, but i wouldnt swap her.

RFD - get a grip, make yourself a Horlicks and go to bed - it'll all seem better tomorrow.

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This banking crisis of the 1930s showed that unregulated, unsupervised financial markets can all too easily suffer catastrophic failure.

********. This was nearly twenty years after the imposition of the Fed as a central bank.... and that's supposed to be an 'unregulated, unsupervised market'?

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********. This was nearly twenty years after the imposition of the Fed as a central bank.... and that's supposed to be an 'unregulated, unsupervised market'?

The crash was a manipulation and was intended the big boys got out just before it was meticulously supervsied.

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  • 294 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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