Good overview of why PO didn't cause the credit crunch

oilslick · Post by **oilslick** » 07 Apr 2009, 00:29

Worth a read, hope I don't get called a troll now

http://online.wsj.com/article/SB123897612802791281.html

But housing expenditures in the U.S. and most of the developed world have historically taken about 30% of household income. If housing prices more than double in a seven-year period without a commensurate increase in income, eventually something has to give. When subprime lending, the interest-only adjustable-rate mortgage (ARM), and the negative-equity option ARM were no longer able to sustain the flow of new buyers, the inevitable crash could no longer be delayed.

The price decline started in 2006. Then policies designed to promote the American dream instead produced a nightmare. Trillions of dollars of mortgages, written to buyers with slender equity, started a wave of delinquencies and defaults. Borrowers' losses were limited to their small down payments; hence, the lion's share of the losses was transmitted into the financial system and it collapsed.

snow hope · Post by **snow hope** » 07 Apr 2009, 08:59

Huh. Troll.

Andy_K · Post by **Andy_K** » 07 Apr 2009, 09:10

Matches pretty well my thoughts on the subject.

I do wonder though, what would have happened had there not been a global recession to kill off oil demand. How high would proces have gone? Would 'Peak Oil' have really gone mainstream? Guess we'll never know now.

DominicJ · Post by **DominicJ** » 07 Apr 2009, 09:12

Damnit Man, it was those pesky Rothschilds!!!

skeptik · Post by **skeptik** » 07 Apr 2009, 09:15

oilslick wrote:Worth a read, hope I don't get called a troll now

Of course not. History is never so simple as A—>B. There is always a complex web of causes and effects which in turn become causes. My own history for the current mess has its arbitrary starting point in the Vietnam war.

Blue Peter · Post by **Blue Peter** » 07 Apr 2009, 09:26

skeptik wrote: My own history for the current mess has its arbitrary starting point in the Vietnam war.

You can't leave it there, Skeptik.

Peter.

JohnB · Post by **JohnB** » 07 Apr 2009, 09:45

Didn't it start with the Industrial Revolution

skeptik · Post by **skeptik** » 07 Apr 2009, 09:57

Blue Peter wrote:
skeptik wrote: My own history for the current mess has its arbitrary starting point in the Vietnam war.
You can't leave it there, Skeptik.

Peter.

Look at how the Americans decided to pay for the war, what that did to FED base rate, (as seen in the graph in the linked article) in the second half of the 70's and what General de Gaulle's response was. Then Nixons reponse - it all connects.

Unfortunately I dont have time to lay it *all* out.
Overview -
1)USA goes from being a creditor to a debtor nation
2) Financial deregulation from 1980 onwards leads to progressive criminalisation of the financial services sector - the aim changing from prudent money management and fostering of growth in the real economy, to ripping it off for as much as possible via naked shorting, exotic derivatives, ponzi schemes, bubble creation, fees, bonuses.

----------
edit, purely to be provocative...
Whatever happened to the Mafia? Don't hear much about them these days. Are they really hanging round in pool halls in Noo Joisey kitted out in black leather and bad hairdos, and running garbage disposal companies? Or is this just their cover story?

I think it's more likely they saw where the real money is, decided to send their bright kids to business school back in the 70's, are now mainly running hedge funds, buying/blackmailing politicians to provide 'deregulation' and regulators to look the other way, funding their cover stories in Hollywood and on TV, and live in Geneva, Dubai and the Hamptons.

oilslick · Post by **oilslick** » 07 Apr 2009, 15:18

snow hope wrote:Huh. Troll.

That's it, I'm never coming back, I've got better things to do with my time than be abused etc etc etc

Andy Hunt · Post by **Andy Hunt** » 07 Apr 2009, 15:25

Mark my words, we'll all be eating our children soon.

DominicJ · Post by **DominicJ** » 07 Apr 2009, 15:44

That sounded menacing in my head

Andy Hunt · Post by **Andy Hunt** » 07 Apr 2009, 15:48

I was saying it in my best Tom Waits voice.

fifthcolumn · Post by **fifthcolumn** » 07 Apr 2009, 18:11

Andy_K wrote:Matches pretty well my thoughts on the subject.

I do wonder though, what would have happened had there not been a global recession to kill off oil demand. How high would proces have gone? Would 'Peak Oil' have really gone mainstream? Guess we'll never know now.

I'm going to take a wild guess here and speculate:

I speculate that if there were enough substitutes and demand really is as elastic as is often stated then during the next boom it might go very high and stay there for longer since demand will not collapse but instead will be substituted. The price spikes will likely be less intense but there would be less likely to be a collapse.

I think, ironically, that the oil companies are very well served to invest in e.g. plug in hybrid electrics

Adam1 · Post by **Adam1** » 07 Apr 2009, 20:21

Andy Hunt wrote:I was saying it in my best Tom Waits voice.

http://www.youtube.com/watch?v=EOrG1r3S6ZA

He'd have just the right repost to the RGRs of this world.

Andy Hunt · Post by **Andy Hunt** » 07 Apr 2009, 23:58

Adam1 wrote:
Andy Hunt wrote:I was saying it in my best Tom Waits voice.

http://www.youtube.com/watch?v=EOrG1r3S6ZA

He'd have just the right repost to the RGRs of this world.

Awesome.