The Adjustment Process
The quote from Volcker in 2005 is instructive:
"Under the placid surface, at least the way I see it, there are really disturbing trends: huge imbalances, disequilibria, risks – call them what you will. Altogether the circumstances seem to me as dangerous and intractable as any I can remember, and I can remember quite a lot.I tend to agree with CR that it is better to be at this stage of the crisis if only because we are closer to a resolution, but I can't feel terribly relieved because the ordinary person went into this cycle worse off, with less real wealth and fewer economic options, than in previous recessions.
...
We are buying a lot of housing at rising prices, but home ownership has become a vehicle for borrowing as much as a source of financial security."
This is why Volcker's statement is so important - that people looked at housing as a source of financial security. It was not just speculation or get-rich-quick schemes (though there were plenty of those, too), but was greatly driven by a desire to make reasonable economic advances while other options, such as solid working class jobs, were disappearing. I read in some blog within the last 24 hours (but can't remember now which one) that a very large number of this kind of employment was lost under Bush.
The crisis will end short of the apocryphal pronouncements I read on many blogs and news sites, but that doesn't mean it will end well for people who are not solidly in at least the upper-middle class.
And, for some, it may not end at all.
Anglachel
1 comment:
I consider myself to be reasonably well-read. I did know that some people were taking on mortgages that might blow up in their faces, but I assumed (naively, of course) that it was an individual problem. It never occurred to me that the people doing the lending had not taken the risk into account.
And, no doubt, like many I lack the smarts to understand things like derivatives. I assumed, again naively it appears, that the brilliant math & physics guys developing all these things actually knew what they were doing.
I admit to having had occasional nightmares about another Depression (my parents grew up in the 30s and their parents lost everything) because of the increased distance between actual, physical cash and the bits & bytes of a computerized global economic system. (Imagine a world in which nobody has coins or bills or silver or gold, just computer records of expenses & income and the incredible degree of trust required to keep such a system from, sooner or later, imploding.)
Which brings me to the unanswerable question, I guess. How do citizens with no expertise in economics or science or any technical field for that matter make informed decisions on such matters - assuming they come to our attention at all?
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