The economy problem [rant and lay man explanation]

Discussion in 'The Lounge' started by ninja08hippie, Aug 12, 2012.

  1. ninja08hippie

    ninja08hippie Official SF Hugger
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    Look, I hate american politics. Politicians and media are so good at manipulating the people, that I don't see the United States pulling out of the economic black hole in time.

    So many americans are so passionate about parties and will blindly follow them based on a litmus test, usually religion, taxes, or regulations, but no one ever actually explains to them what the problem is.

    Here is what made the economy implode: This is how banks and trading firms and the stock market work. Banks and big trading companies lend money to companies to fuel their innovation and move them forward. In return, the companies stock goes up, so the banks make money. That's fine, THAT is capitalism.

    Here is the problem. The banks starting giving out more money than they actually had, which was fine for a while, because the companies that they were investing in were returning profit to them, so they could do that. This is called a "derivative." The problem lies here, the banks lend out as much money as they FORSEE them having in the future, the problem is that when the economy takes a tiny dip south (which is natural,) they've suddenly invested so much more money than they had, that they start loosing money, and stop trading. This cause a massive ripple effect that caused the economy to implode on those derivatives. It makes tiny natural dips into disastrous market crashes.

    The "job killing regulations" that the Republicans keep talking about are regulations that say banks can only invest as much as they actually have. It should be common sense, but the politicians have made it so petty and personal that 99% of Americans, don't even know that's what capitalism is. I'll bet maybe 1 out of 1000 americans actually know what the "regulations" that keep coming up in debates actually are, yet almost all of them have strong feelings one way or another. Before reading this rant, did you?

    Capitalism is spending money to make money, within the boundaries of the limits of money that you actually have. The type of "capitalism" that the USA has borders on psychics voodoo. You can't predict how much money you will have in the future, so you shouldn't be able to invest based on predictions. Regulations don't kill capitalism, they are essential for it.

    The Republicans are so obsessed with the idea that unregulated free market will fix everything that they don't even realize that it's what caused the problem. And the democrats are so worried about bailing out the "job creators" that they don't realize that telling these companies that they are worth more than they are is going to make it worse.

    A single constitutional amendment "No entity shall invest more than it is currently worth" will fix the entire economy long term, but the media convolutes the issue and covers it up with things like gay marriage and war that I don't see the USA digging it's way out and the economy will eventually completely collapse. Every capitalist superpower in history had suffered the same fate and for the same reason. It boggles my mind that no one picks up a history book anymore.

    The stock market crash wasn't cause by anything mysterious, it's very common sense. Don't spend more than you have, you won't be fucked when investments start going south. Why should banks be any different?

    /rant


    I want an honest answer, before reading my post:
    How many of you actually knew what the "regulations" they keep debating about are?
    How many of you knew what a "derivative" is?
    How many of you were vocal about your opinions on the matter without knowing?

    Go ahead, call me an ignorant socialist hippie. I'm probably the person here who understands the market the best, but Fox News and MSNBC have brainwashed you into serving a political party instead of common sense.
     
    #1 ninja08hippie, Aug 12, 2012
    Last edited: Aug 12, 2012
  2. OverSinged

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    None, I have little faith in man-kind, and politicians are at the lowest ranks of those I have no faith in.

    Derivative.... I'm fairly sure I've heard it in math class or something, but never in this context.

    I'm vocal on my opinions very rarely, but when I do, it's my opinions, and they usually don't involve the words "voting for"
     
  3. Texas_Red

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    Incorporations break that. They can be worth billions one minute, and nothing the next thanks to speculation and the stock market. So they could invest $5 billion and be fucked the closing of the next day.

    Not saying you don't know a bit, but that's a big claim. I know enough to know that capitalism as it stands and how we do it isn't much more than a pyramid scheme really.

    Fuck Faux News and fuck MSNBC and fuck all the rest too. I don't watch TV or bother with the mainstream news outlets.
     
  4. Essene

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    [​IMG]

    This is a derivative.
     
  5. clamUp

    clamUp Active Member

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    Actually, if you really want to understand what happened, find and watch Inside Job and Margin Call, in that order.

    In as much of a nutshell as I can put forth at this late hour:

    Goldman Sachs, Lehman Brothers, etc. put together investment packages and sold them to their clients. The clients, believing the packages to be worth what they were paying, invested pension accounts, and other money that wasn't actually theirs.

    The problem is, these packages were nothing more than crap loans made to high risk borrowers, most of whom would never pay any of it back. Once the crap hit the fan, money started bleeding from these swindlers fast. But they had their asses covered.

    A company named AIG had been selling insurance on these crap loans, so that when they tanked, Goldman Sachs, Lehman Brothers, etc. would get all that back and more. AIG was one of the first to fall, trying to pay out all these investments.

    Derivitives worked in the form of insurance. Normally when someone takes out insurance, they can only insure their own property. But AIG had been selling insurance to anyone on any of these bad investment packages. It'd be like everyone in these forums buying insurance on your house. When the house burned down, AIG owed money to anyone who took out insurance on that policy. As you can imagine, they went down hard and fast, and that started the dominos tumbling in sequence.

    So now, with all that insurance payout money in the hands of the high-ups at those huge wall-street companies, there was nothing left for anyone else. Basically about 40 people wound up taking most of the country's wealth.

    The scary part is, many of those people are actually cabinet members of the past several presidencies, and they knew exactly what they were doing.


    Of course I'm now up past my bedtime, but if you want the low-down on the real story behind it all, check out those two videos. They do a much better job explaining it than I ever could.
     
    #5 clamUp, Aug 13, 2012
    Last edited: Aug 13, 2012
  6. ninja08hippie

    ninja08hippie Official SF Hugger
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    Lol, yes, yes it is. :p I didn't know there were many people here who understand calculus :) For those of you who don't know, in calculus, a derivative of a formula is essentially its slope at any given location along the line. In his example, the formula is (f(x + h) - h) / h. If you want to know the slope of the line at x, it's derivative tells you that it's value is 2x. If can also be used to predict where the line is going. In mathematics, it works perfectly, in stocks, it doesn't.

    Exactly. Banks go so massive that when the market started going south, their bets on the market caused them to suddenly be worth nothing, and all of the companies that they brought all of the companies that they pushed massive amounts of money into down with them. They controlled so much of the country's wealth, that the entire country's economy fell with them.

    Too big to fail indeed. When an industry reaches a state where the entire country's economy depends on them, they shouldn't be betting more than they are worth on market predictions.

    That's why it doesn't matter if Obama or Romney is in the white house. Neither has any say in the future of the economy. It's entirely controlled by 50 or so greedy assholes in Goldman Sachs and Bank of America's board rooms. Unless, of course the government decides to regulate them, which they won't. The dems might try to push for some regulations, but the banks will use their GOP seats in congress to make sure it doesn't pass. That's why the economy I believe won't recover. We live under a puppet government went it comes to economics.

    I don't have faith in the American people to see the problem. The big parties and corporations are so good at controlling the population with distractions like gays and immigrants that somehow the GOP has convinced half the county that they need to cut the taxes for the top 3% by calling them job creators, which will just make the problem worse, while the democrats think cutting taxes for the middle class is the way to go. It's nice, but it doesn't actually fix the problem.

    And Texas_Red, I like the pyramid scheme analogy. It's exactly what I said before, massive banks invest in smaller companies. The smaller companies grow and expand because they think they have the financial backing of giants. But when the giants say that "we don't actually have the money, we expected to have more in the future," the smaller ones start going bellyup and laying people off.

    I'm waiting to see what happens in other countries. Iceland let their banks simply collapse, Germany let their banks stay, but have tight regulations around them. Both of their economies are improving, I am curious to see what happens long term with both.
     
    #6 ninja08hippie, Aug 13, 2012
    Last edited: Aug 13, 2012
  7. cbrmale

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    The best performing economy in the OECD is Australia and has been for some years. If you want the answers to what the US needs to do for long-term recovery then do some research on what Australia did in the nineteen-eightees. Abandon tarriffs and subsidies, let inefficent industries whither and die, which allows naturally competitive industries to be more competitive globally, and move to a budget surplus (something the US is a million, million light years from). But not right now for the surplus because the US needs government economic stimulus.

    Australia's reforms caused major upheavals at the time. Many lost jobs as corporations and entire industrial segments failed, and it also hit certain geographical areas hard, especially the heavy industry state of Victoria. There was much pain but the end result was major long-term gain. I believe that the US political system would never allow this short-term pain for long term gain to happen, and I don't expect a full recovery of the US economy for many, many decades if it happens at all. Over time China will be the superpower of the 21st Century.

    Australia survived the global financial crises for four reasons. One is the excellent ground-work laid through the reforms in the period 1983 through to 1995, and the second is a medium-level regulation of Australia's financial system which meant that Australian banks were not exposed when the sub-prime crisis hit. The third was Australia had a budget surplus, and therefore was able to turn this into a short-term deficit to stimulate the domestic economy. The fourth was that Australia's major trading partner, China, implemented a program of economic stimulus as well, which increased the demand for Australian goods.

    Australia's unemployment rate is in the low 5% (5.1 through 5.3). Growth is slow but steady, and sufficient to maintain this low unemployment rate.
     
  8. biker061

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    not sure where your 'strawberry fields' are but is you're not a US citizens who is also registered to vote you have no right to express any opinion about US politics!
     
  9. Mittimer

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    Everyone on this forum, regardless of where they are located globally is free to express any opinion they please. If you don't like it, don't read it or move on.
     
  10. ninja08hippie

    ninja08hippie Official SF Hugger
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    Uh, I'm in Jersey and I am registered as an independent voter. And if the USA polices the world, everyone in the world should have an opinion. Also, do you disagree, you think banks should be allowed to invest more than they have (because of Bush's removal of regulations) and then get bailed out with taxpayer money when they guess wrong (because of Obama's bailout?)

    Also, you know Rupert Murdoch (who is a very powerful political force in the USA) is British, right?
     
    #10 ninja08hippie, Aug 14, 2012
    Last edited: Aug 14, 2012
  11. Texas_Red

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    We as Americans seem to feel it is our right to comment on other countries politics and even bully them around to seeing things our way, why shouldn't we be held to the same standard?
     
  12. ninja08hippie

    ninja08hippie Official SF Hugger
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    Well said, we have taken the role of "world police." Even though the majority of the Earth population hates us. ;)

    Also, even if I were European, Europe's economy crashed in exactly the same way, about eight months after the USA's did. Goldman Sachs also had a major role in that too :p

    Also, it's not an opinion... that's what happened.
     
    #12 ninja08hippie, Aug 14, 2012
    Last edited: Aug 14, 2012
  13. OverSinged

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    This world police thing rather annoys me, to be honest. Not because of what we're doing is wrong, though in most cases it probably is, but because we try to make ourselves look like the good guys. Why can't we just invade someone for their riches and say that's what we did it for?
     
  14. HardRocker

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    This is only partially on topic, but I feel the urge to rant, so thanks for the thread.

    If the political party system was abolished, it would be a good thing. Every candidate run on his or her own platform and no one else's. Parties are a ridiculous assembly of clowns trying to ride the coattails of whoever is currently up-and-coming.

    I swore off all cable news "services" after the last election. For once I had the time to watch candidates' live speeches and their proposals, unclear as they were. Then in the evening I would see the cable news networks tell us what the candidates had said, and show clips to back it up.

    The reports of the candidates' statements were twisted by each network to fit what they wanted to feed their target audience, and the sound-bites were broken up so as to be totally without context. CNN, MSNBC and Fox were all equally guilty of outright lying about the candidates, bolstering their favorites and trashing the opponents of their favorites. It was sickening. They unashamedly exposed themselves for what they are, commercial entertainment with an agenda. No, I wasn't surprised.

    So I say Fuck cable news, all of it. I have not tuned in a single one of them since 2008 and I've never missed them for a minute. I still read the newspaper most days; yeah, I know, they piss me off too, but I can pick and choose without having the noise of what I wish to ignore babbling in the background. We have a good local free rag that gives good opinions and articles about what's happening in my own town. Once or twice a week I watch our local evening news, and sometimes I'll tune into NBC or ABC evening news. But not for entertainment, just to see what's going on that maybe I would be interested in. I mute it a lot too.

    So there. Now y'all can get back to economics. Banks suckering people into borrowing more than they can afford to repay and the laws and policies that allow it, and everything else that supplants common sense.
     
  15. cbrmale

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    Sadly, Rupert Murdoch is originally Australian, but he had to recant his Australian citizenship to take up American citizenship in order to establish News Corporation. There are US rules about foreign ownership of media, just as there are similar rules in most countries in the world.

    While I don't want to be seen to be bashing America, my observations are that Americans are unwilling or unable to see the great things achieved in other parts of the world, and think 'hey that's a good idea; why don't we do that?'.
     
  16. ninja08hippie

    ninja08hippie Official SF Hugger
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    Rupert Murdoch is Australian, not British? Oh, I thought he was British because that's where his criminal activities were focused.

    The world police thing annoys me too, but the economy problem isn't a USA specific one, it's just USA banks that have the majority of the blame and the party politics that let it happen. I just wanted to explain what actually happened and what the "regulations" that keep coming up in debates actually are since most people don't seem to know. :)
     
  17. biker061

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    thanks, please continue your rant!