What killed the economy?

from JoeUser Forums

I know it might be a little early to be doing the post-mortem on the U.S. (and the world for that matter) economy, but I'm gonna try anyway and would also, of course, like your input on what you think was the main cause of the slowdown we're all now experiencing.

Now I'm sure that some will say it all started with the housing industry and the below prime mortgage debacle, but personally, I don't think that was the cause.  If you disagree, please take the space below to offer your reasoning, but bear with me for a bit first if you would and see if perhaps my own argument convinces you differently.

I don't want to dismiss the sub-prime mortgage bubble completely, but I think something else was a prime contributor and perhaps the catalyst for it all.  Perhaps those with short memories forget that over the course of the spring of 2008, and well into the summer of 2008 the world economy took a direct hit from the oil producing nations that decided that was the prime time to get incredibly greedy.  Oil shot up in price to what can only be called insane levels, and almost as quickly, if not even quicker, gasoline prices around the world reached stratospheric levels.

Many people, this writer included, pretty much live paycheck to paycheck.  When the price of gasoline went through the roof many of us were forced to cut back on discretionary spending.  Instead of going out to eat we started eating less, or eating at home.  Instead of Starbucks, we skipped our daily cawfee or went with less expensive sources such as Dunkin' Donuts or Mickey D's (or 7 Eleven or Wawa type places).  We cut back on going out for movies, and also cut back on buying DVDs, CDs, and other electronics.  And compliments of the ever increasing fees that airlines found ways to zap us with, many people cut back on travel or cut back on other things just so they could pay for the travel they couldn't avoid.

At about the same time, well, there was the sub-prime mortgage bubble and the brilliance (that said with major sarcasm!) of Ben Bernanke's efforts at poking a hole in the bubble to let the air out.  Nope, I'm not going to dismiss Fed chairman Bernanke (and his predecessor) as a potential accessory to what could be called the murder of the U.S. economy, but I don't think they necessarily fired the shots that were fatal or at least the most nearly fatal ones.

Even with tax pre-bates stimulus checks sent out to bribe, uh, I mean stimulate tax-payers the damage was being done in great effect by our oil producing 'friends'.  Oh we got the checks, and in some cases people did spend the checks to buy TVs or other goodies, but as the gasoline prices shot up, well our spending went down.  As our spending went down there was a negative impact upon the companies that produce the things we buy (auto manufacturers, electronic manufacturers, etc.) and/or the companies that provide the services we buy.

Eventually that negative impact turned back on the employees of the companies that saw their bottom lines taking these hits, and as the financial markets tightened up thanks to the sub-prime crisis, even companies that didn't want to cut back were somewhat forced to do so because they could no longer borrow the money they needed to help tide them over.

In reality, the economy in the U.S.A., and in the world, took several blasts in what many would call a perfect storm of negativity.

Am I wrong in my hypothesis?  You tell me.

1,855 views 10 replies
Reply #1 from Stardock Forums Top

I agree it was more of a cake mix than a single hit. The combination of the housing market, credit debt catching up, oil skyrocketing and the greed of the average American was the perfect recipe for disaster. But I am a firm believer that all good things must come to an end in order for better things to take it's place. The average person believes certain bad things will never happen to them and will only learn when it does happen to them. This is a learning lesson.

Reply #2 from Stardock Forums Top

Perhaps those with short memories forget that over the course of the spring of 2008, and well into the summer of 2008 the world economy took a direct hit from the oil producing nations that decided that was the prime time to get incredibly greedy.
End of quote

Perhaps your short memory forgot that the sharp and sudden rise in oil prices had nothing to do with those greedy producers ... they didnt start nor end that ....

by all accounts, it was all mere specualtions ... pure and simple greed of wall street.... the subprimes and derivatives schemes were not enough for them ... they had to do that too...

it was a repeat of Enron's energy speculation scheme ..... remember that?  they named the scheme after it, now called "Enron's Loophole"

the 8 miserable years started by Enron's disaster and ended with the financial system disaster ..... with all kinds of other disasters lining the road .... what a legacy !!!!

and now you trying to blame others???!!!!

 

Galactic Civilizations III
Reply #3 from Stardock Forums Top

The problem is the system as a whole, but of course, you have some who still can't get beyond blaming Bush. 

Reply #4 from Stardock Forums Top

I think it was a loose alliance of speculators, protected by government protection for corporations and limited companies, and do-gooders who were "helping the poor" get mortgages.

That combination made property prices go up and gave everyone an illusion of wealth that never existed.

Were are not so much in a recession as we are arriving back in the real world, which has developed nicely over the years but never did look like the world the speculative bubble created in our fantasies.

Banks were free to speculate because winning meant winning money and losing didn't mean losing money. There was a line below which a professional speculator could not fall. If his bank lost money, he would simply leave and his personal fortune was never at stake.

 

Reply #5 from Stardock Forums Top

and now you trying to blame others???!!!!
End of quote

{ sarcasm } Yup, it was all your fault.  All yours entirely { /sarcasm }

 

You made a reasonable point about speculators driving up energy prices, but... speculators don't run OPEC and the leaders of OPEC had been pushing for higher oil prices for quite a while.  They just hadn't been successful in holding their alliance together without having some of their partners cheating by over-producing.

Between increased demand because more and more drivers have hit roads in the U.S.A. and in the world (and more transportation was needed in other countries, like China, India, and others), less fractures and infighting among OPEC members, and yes, even some speculators that got into the oil market after being driven out of the mortgage market, oil and gasoline prices shot up.

Reply #6 from Stardock Forums Top

{ sarcasm } Yup, it was all your fault. All yours entirely { /sarcasm }
End of quote

I think you are correct ... no sarcasm.... i was fuming at the time and it was sooooo clear to me that all of it was pure specualtions. no one of any kind of a brain (even a damaged brain) would believe that the world supply/demand balance got screwed that much in just ONE month.... who are they kidding? the fools may be ... cetainly not me.

But what did i do?  other than blogging about it ...nothing ....

i should have gone to wall street and grab few of them and beat the hell out of them .... i would have been arrested, jailed and caused a lot of commotion in the news to the point that people would know what was going on .... nothing would come out of all that but at least i would now be feeling better about it.

so yes it was my fault ... and yours and all of us.

Between increased demand because more and more drivers have hit roads in the U.S.A. and in the world (and more transportation was needed in other countries, like China, India, and others), less fractures and infighting among OPEC members, and yes, even some speculators that got into the oil market after being driven out of the mortgage market, oil and gasoline prices shot up.
End of quote

com' on .... they all of a sudden realized all of that? and the demand increased 150% in one month? dont kid yourself ....

OPEC didnt do it (but of course they loved it), drivers didnt do it, china and india didnt do it .... wall street speculators did it all ... no ifs or buts about it.

and do-gooders who were "helping the poor" get mortgages.
End of quote

Is this the punching bag now?

the foreclosures related to poors' mortgages are insignificant compared to the totality of the the whole subprime mess.

look at where the foreclosures are happening on a whole-sale scale ... it is fancy developments in arizona, florida and california ..... is that where the poors buy multi-million dollars homes?

watch the news and read Leauki ... and get off the poor's case. they have a whale of troubles ... no do-gooder will be able to help them at this point. they have no voice ... and the wheel that screech the loudest gets the grease ...

Reply #7 from Stardock Forums Top

Leauki, here is one example from Arizona.... in the news recently ...

A real estate speculator got a $20 M mortgage on a piece of land with no downpayment or any meaningful collaterals ... he was planning a resort-type project ... the land itself is not worth much at all ... but the bank gave him the money anyway .... when the market collapsed he defaulted, abandoned the project and the bank failed because it did many loans like that.... not many poors were among the clients of that bank.

the funny thing is ... the bank president resigned .. relocated to florida (i think) while the man who got the money disappeared ..

As you mentioned, most of those subprime mortgages were for real-estate speculators on the assumption that home prices would just keep going up .... they didnt care about how much or at what rate the mortgage is at the start or later ... they would unload it with a profit ... so what should they care ..... when they couldnt sell ... that is when the s**t-hit-the fan .....

that was the problem in a nut shell ... not the poors or even your regular home buyer.

 

Reply #8 from Stardock Forums Top

look at where the foreclosures are happening on a whole-sale scale ... it is fancy developments in arizona, florida and california ..... is that where the poors buy multi-million dollars homes?
End of quote

Judging by all the foreclosures I'm looking at here in Florida, I would say you are stretching it  bit.  ;)  Trying to put this on "the rich" is really ridiculous.

Lets not forget people like Rangel pushing mortgage companies to push sub-prime loans so low-income people (their voters) would get them.

Reply #9 from Stardock Forums Top

Trying to put this on "the rich" is really ridiculous.
End of quote

i didnt. i dont blame someone for using someone's foolishness to his advantage ... i blame the crooks who gave them the money.

and again ... the poor's mortgages are not a significant part of the whole mess .... the mess is the huge subdivisions and mansions sitting empty with no buyer in sight ....

Reply #10 from Stardock Forums Top

I think it started during the Clinton administration when things were deregulated.  That's what allowed financial institutions to start playing their games.  And where was the SEC during all this???  So it's been coming for a long time now.  And once values (of stocks, of homes, of products) become overvalued, the only way to correct is some kind of crash.  Unfortunately, both things happening at once led to this current mess.