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We're Due For A Banking Crisis

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http://www.nzherald.co.nz/section/3/story....837&ref=rss

A colleague with a longer recollection of financial crises than mine says that, when he first came into financial journalism, there used to be something known as "the 40-year rule".

This had it that really serious banking crises only happened once every 40 years, because that was roughly the career lifespan of most bankers - in at 20, out at 60.

It therefore required a full 40 years to wipe out all institutional or salutary knowledge of the previous calamity, thereby creating the next one.

When you think about it, in rough terms the rule actually works.

The last big banking crisis was in the early to mid-1970s.

Prior to that, you have to go back to the Great Depression.

Further back in history, there was another really bad one in the late 19th century, and so on.

Certainly the current crisis is outside most people's experience.

Few of those who work in the City and on Wall Street even properly remember the downturn of the early 1990s, let alone the banking crisis of the 1970s.

George Soros, the billionaire speculator and philanthropist, has described it as the worst financial firestorm since the Great Depression, and we've every reason to believe him.

Yet that doesn't mean it is necessarily going to end in an equal economic implosion.

After another shocking day in stock markets yesterday, partially reversed on Wall Street later on as a result of a sudden fall in the oil price, Kevin Gardiner, equity strategist at HSBC, observed that there is no point in arguing with the market in this mood.

Despite corporate and economic fundamentals that are actually not that bad, if confidence in the financial system continues to erode at the present stomach-churning rate it will eventually bring the economy with it.

Markets are in danger of creating a self-fulfilling prophecy.

So far, the policy action taken in the US and elsewhere has failed to underpin confidence in our financial institutions in the manner intended.

Rumour, fear and hearsay continue to rule the roost.

For central bankers, it has been like spitting against the wind.

There are two ways it can go.

Either things will settle after a short and relatively mild downturn, and we'll eventually look back at what's occurred as just another of those temporary, and in some respects necessary, workouts that must always follow a period of excess.

Or it will turn into one of the really bad 40-year events with potentially catastrophic economic and political consequences lasting many years.

So is this the 40 year crisis???

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Trouble is, the "solutions" to the '30's depression, and the '70's was to brush the problems under the carpet - in essence store them up for the future.

the future is now here, and there's no more space under the rug.

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A colleague with a longer recollection of financial crises than mine says that, when he first came into financial journalism, there used to be something known as "the 40-year rule".

This had it that really serious banking crises only happened once every 40 years, because that was roughly the career lifespan of most bankers - in at 20, out at 60.

It therefore required a full 40 years to wipe out all institutional or salutary knowledge of the previous calamity, thereby creating the next one.

But that'd only work if all the bankers joined & left the banks at the same time in one block & no-one of different ages &/or levels of experience ever talked to each other.

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Trouble is, the "solutions" to the '30's depression, and the '70's was to brush the problems under the carpet - in essence store them up for the future.

the future is now here, and there's no more space under the rug.

They'll be a few carpet burns trying to get the basta*d hidden though. :rolleyes:

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Trouble is, the "solutions" to the '30's depression, and the '70's was to brush the problems under the carpet - in essence store them up for the future.

the future is now here, and there's no more space under the rug.

I beg to differ. The solution to the 1930's depression was WW2.

Unlike WW1 it wiped out a lot of spare industrial capacity.

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1837

1873

1907

1929

1973

The above credit crunches led to banking crises of greater or lesser severity. The 1873 crisis led to 23 years of problems

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But that'd only work if all the bankers joined & left the banks at the same time in one block & no-one of different ages &/or levels of experience ever talked to each other.

I think the theory is that all the bankers with experience of the last crisis will have left, just leaving the other bankers with folklore and the feeling that we are better than those idiots we know what we are doing watch this mentality. Clearly they don't know what they are doing are equally if not more stupid than there predecessors.

Just think if they can brush this one under the carpet image what will happen around 2050. That's my prediction for the next major banking crisis.

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I think the theory is that all the bankers with experience of the last crisis will have left, just leaving the other bankers with folklore and the feeling that we are better than those idiots we know what we are doing watch this mentality. Clearly they don't know what they are doing are equally if not more stupid than there predecessors.

Just think if they can brush this one under the carpet image what will happen around 2050. That's my prediction for the next major banking crisis.

Well maybe. If so, shouldn't the same cyclical disaster theory apply in other areas, like engineering or medicine or whatever?

Personally I don't know - just bouincing thoughts around. Finding out will mean testing this theory to destruction.

Amongst other things....

Edited by Shrink Proof

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I beg to differ. The solution to the 1930's depression was WW2.

Unlike WW1 it wiped out a lot of spare industrial capacity.

The solution to the 1929 banking crisis was to change the law instead of bankrupting all the banks. This lead to the depression and the welfare/warfare state and is why it was possible to have WW2.

With no central bank or income taxes a big international war is pretty damn near impossible.

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Well maybe. If so, shouldn't the same cyclical disaster theory apply in other areas, like engineering or medicine or whatever?

Personally I don't know - just bouincing thoughts around. Finding out will mean testing this theory to destruction.

Amongst other things....

The sort of distributions that apply to most engineering phenomena are not generally kurtotic, ie they do not have fat tails. Finance on the otherhand is replete with fat tailed distributions. Medicine also to some extent, if you consider, epidemics, pandemics etc

Edited by Tartaglia

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As the generation/execution of the boom takes time (in this case about 10 years) the gap is NOT 40 years

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Guest DissipatedYouthIsValuable

"What we gonna now eh, bro? Let's smoke some more Datura and tattoo our faces, eh?"

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  • 399 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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