The cause of our crises has not gone away

JP45

Yet more warnings from a couple of economists arguing that nothing has fundamentally changed and that we remain as vulnerable as ever to a future financial crisis.

Simon Johnson, professor of economics at MIT and a former chief economist at the IMF, spoke on the Today programme of the need for fundamental reforms of the banking system, a view which is apparently shared by the majority of economists:

The most remarkable statement I heard at the American Economics Association meeting over the past few days came from an astute observer – not an economist, but someone whose job involves talking daily to leading economists, politicians, and financial industry professionals.

He claims “all serious economists agree” that Too Big To Fail banks are a huge problem that must be addressed with some urgency. He also emphasized that politicians are completely unwilling to take on this issue. On this point, I agree – but is there really such unanimity among economists?

I ran his statement by a number of top academics over the past day and – so far – it holds up. But this may just reflect the kinds of people I meet. Still, it is an interesting claim that stands until refuted – send or post details of serious people (in economics or elsewhere) who currently think Too Big To Fail Is Just Fine (other than people in government or big banks, of course).

http://baselinescenario.com/2010/01/05/%e2%80%9call-serious-economists-agree%e2%80%9d/#more-5889

The other warning came from John Kay, writing in today’s FT (well worth reading the whole article):

I do not know what the epicentre of the next crisis will be, except that it is unlikely to involve structured debt products. I do know that unless human nature changes or there is fundamental change in the structure of the financial services industry – equally improbable – there will be another manifestation once again based on naive extrapolation and collective magical thinking. The recent crisis taxed to the full – the word tax is used deliberately – the resources of world governments and their citizens. Even if there is will to respond to the next crisis, the capacity to do so may not be there.

http://www.johnkay.com/2010/01/06/the-cause-of-our-crises-has-not-gone-away/

HammerSmashedFace

Been saying it for months, anything that is 'fixed' on the back of policies that when removed cause it to 'break' again mean that it was never really fixed in the first place. Twelve to eighteen months after the election should start to show us the 'truth.'

If at that time we are booming as Hamish, Rinoa would have us believing is happening now I will be quite happy to say so, I'm waiting patiently to see if this will be the case, anything that is happening now is unsustainable on the back of unsustainable policies.

carolt

It's bleeding obvious to anyone with the faintest bit of common sense.

HammerSmashedFace

carolt wrote: »

It's bleeding obvious to anyone with the faintest bit of common sense.

Some people look through their 'worried', 'greedy' or 'over-leveraged' spectacles though Carol, which distorts their view of the obvious a little.

Cleaver

HammerSmashedFace wrote: »

Some people look through their 'worried', 'greedy' or 'over-leveraged' spectacles though Carol, which distorts their view of the obvious a little.

Or they just have differing opinions to you on what is a very complex issue.

Mr.Brown_4

Cleaver wrote: »

Or they just have differing opinions to you on what is a very complex issue.

Actually it's not complex at all. Hamish has personally reassured me that all is going to be ok for ever more, even outside Scotland. He is brilliant.

DaddyBear

We are trying to fIx the problem by pursuing the same policies that caused it. Insanity.

Thrugelmir

Whilst policy may not have significantly changed.

I believe the majority of people are changing their financial habits in some way. So all is not doom and despair.

Rinoa

HammerSmashedFace wrote: »

If at that time we are booming as Hamish, Rinoa would have us believing is happening now I will be quite happy to say so, I'm waiting patiently to see if this will be the case, anything that is happening now is unsustainable on the back of unsustainable policies.

We are recovering from recession, unemployment has started to peak before the inevitable fall later this year and the housing market has returned to stability. Any comments you make now are unsustainable on the back of unsustainable arguments.

purch

So all is not doom and despair

Careful !!!!!! :eek:

RabbitMad

Thing is though, if inflation or sterling devaluation (printing cash) turns out to be the fix to our issue you need to load up on debt now. Imagine buying a house at the start of the 70's for 7K and selling 10 years later for £120K. Your 7K mortgage would look like peanuts against your inflated salary.

On the other hand if we don't have inflation but have stag flation or deflation loading up on debt now is the wrong thing to do.

If only I had a crystal ball I'd know whether to stay put and be mortgage free next year or borrow £150K and have a really nice house