Talk:Financial Crisis of 2008

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Is it that bad?

Thank you for all of your hard work. I would have to question though the starting premise that it is the worst financial disaster since the Great Depression. I realize that commentators are saying such, but they have a tendency to interject hyperbole to make things sound more grandoise than they should. Do we really feel, at this point, that the current crisis is worse than the downturn in the early/mid 70's or the hard hit in the early part of Reagan's first term after the Carter Presidency? Inflation is not 18%, unemployment is not 10%, and the GDP last quarter contracted at -0.3%, which I somehow doubt ranks as high in the list of calamities, especially when you consider that it was induced mostly by fear and a drop in consumer spending. If consumer spending had stayed the same quarter to quarter than the GDP would have grown 1.9% last quarter instead of the -0.3 that we recorded. And that certainly would not be a 'sky is falling' scenario. Learn together 22:53, 14 November 2008 (EST)

well we've just plunged into this mess and nobody knows where it will bottom out. Yes, I think that so far it it worse than the others mentioned in several ways: 1) this is worldwide 2) there have been spectacular bankruptcies and collapses of huge companies--something we never saw before; that includes some of the biggest banks in the world, the #1 insurance company (AIG) and--on the verge--General Motors and Chrysler and maybe Ford too (in Reagan's day it was the much smaller Chrysler that was in trouble); add in the housing crisis and the fall in retirement funds that hit most people with retirement accounts and stock market investments....RJJensen 23:27, 14 November 2008 (EST)
I do have some more thoughts. Most US recessions are world-wide to some degree because we're the big kid on the block. When we fall everyone feels it. The Arab Oil Embargo after the Yom Kippur War grounded the economies of all of the West (if I remember correctly -- it certainly did here). When the stock market first broke 1000 it went back under that level the next day -- and wouldn't come back for 10 years. After the 2000 election the Nasdaq was at 3500, after Gore's run to take the Presidency it had dropped to 2700 and after 9/11 it was 1300 -- so we've had worse financial hits market wise as well. Personally I don't like this downturn as I am invested in the market, but I don't think it does justice to the downturns that we have weathered in this nation. And as for the big companies going out of business, is that because the economic situation was so untenable or because they just weren't that smart? Look at the contract GM has with its union. The workers get paid whether they're laid off or not. Wasn't that a recipe for disaster during any downturn? Did anyone twist the arms of the financial institutions to lend money like they did? Was that an extremely unfortunate series of economic events that caused institutions to fold or circumstances that were half self-made and didn't require a deep recession to occur? Learn together 03:58, 15 November 2008 (EST)
how smart was it of the banks and hedge funds etc to play the games they played? very dumb and they lost $$$$$. But the collapse of multiple very big firms in US and Europe is something the world has never seen before, so I'm pretty pessimistic myself. I see a 50-50 chance that both GM and Chrysler will close down in the next 6 months, along with many of their suppliers and dealers; the article has some scary estimates of how much that will cost the econony, on top of the trillions that have already been lost.RJJensen 14:25, 15 November 2008 (EST)
I'm not sure the numbers are as dire as predicted. The auto sector makes up less of a percentage of the U.S. workforce than it did during the Chrysler bailout, and that only cost 1.2 billion. Many of the jobs would 'shift'. For instance Americans would still buy cars, so car salesmen wouldn't go out of business, they would merely be selling Toyota or Honda or some other non-US model instead. Many of the car plants that would close down enmasse would be bought by competitors who would be itching to make the sales that the American car manufacturers previously made in the world's largest economy. There would be some hard times during the transition, but the overall volume of product and how it is delivered wouldn't change much. Foreign car companies already have plants in the U.S. They would just turn up with a lot more of them. Learn together 02:15, 22 November 2008 (EST)
I am very pessimistic. I predict if GM goes down the transplants will not make up the gap for several years; instead they will cut back production because they can't get parts (many parts companies will go under and the transplants depend on them). (It takes years and billions of dillars to build one new auto plant--we will need 20+ new plants and where is the money coming from?) US auto sales will plunge, prices will soar --like the Prius. People will pay $40k for a car that now costs $25k, and will have to wait 6 to 12 months (like in 1945-47). Americans will be very unhappy. Most GM dealers will close--they are major factories in every Main Street in the USA and are in trouble right now. The closing costs will be hundreds of billions, and a million or two well paid people (like salesmen) will be badly hurt. RJJensen 07:33, 22 November 2008 (EST)
I definitely see a period of adjustment, but it's not like there are no other car companies in the world, and they are still very competitive among themselves and would try hard to get the open market of the largest car buying nation in the world. I do agree the waves could last for years as it takes time to adjust plants to other manufacturers as well. The biggest problem with the bailout right now is will it work? Unions have contracts that workers have to be paid even if they are laid off, and their pensions and medical plans are untouchable. The car companies are bleeding heavily and putting more blood into open wounds won't solve the problem. Costs are so high that the first slowdown would kill the industry -- and the upcoming slowdown looks to be as bad or worse than what they are going through presently. With the way books are kept its hard to tell how much money they really lost, but on paper it was almost 20 billion dollars in the last quarter among the three. With losses like that, apart from helping them to live a bit longer, how is any economic stimulus package going to help them? Chrysler had a plan when they needed help 30 years ago, and they implemented it to turn themselves around. Where it the plan among the automakers now other than a call for help? Learn together 11:10, 22 November 2008 (EST)
I fear too much attention is given to 100,000 overpaid UAW workers -- there are 1 million OTHER workers who will lose their jobs--at 3600 local dealerships for Chevy, Buick, Pontiac etc. If GM shuts down car sales (including US-made and imports) will fall in half for several years, you will wait 6- 12 months to buy an imported new car, and it will cost 50% more than today. (It will take years for Japan to build new factories to service the USA, and they will charge us 50% more.) Americans will not tolerate that. (and indeed it happened in 1945-47). Furthermore the adjustment costs will be far higher than the bailout costs. The government will have to pay all the pensions of retured GM workers, for example (that's a law signed by Jerry Ford in 1976).RJJensen 18:40, 22 November 2008 (EST)

I heard the thoughts of an expert the other day. (You can dismiss this if you wish, as second-hand information from an anonymous source. If I was you I would, but them I'm me and I heard it first-hand.) His predictions were so gloomy that all I could hope was that he was dead wrong. I couldn't tell you now much detail of what he said, but he indicated that it would be as bad as in the 1930s, world-wide, and would last 25 years! I got the impression that it would be beyond the capacity of governments to solve (i.e. they wouldn't have enough money to spend their way out of it), and even though Australia (where he lives) is financially very healthy, and our main banks amongst the healthiest in the world, those banks would be in trouble and we would be affected nearly as badly as everyone else. If you have debts, you will be in trouble. If you have assets (shares or property), they will drop in value so much it won't be funny. If you have cash (and presumably not in a bank!), you should be okay.

Have a nice day!

Philip J. Rayment 09:11, 6 December 2008 (EST)

Recent Edit

I think part of Geo's concern is the lack of a source and the veracity of the claim. The Bush administration can not stop funding to General Motors except through a veto -- something which has not come up. Congress has the authority to grant whatever money it sees fit. I seem to recall the Democratic Congress asked for more information before going forward. General Motors themselves has claimed that bankruptcy is not an option, so saying that they are on the verge of bankruptcy may not be accurate either. I haven't made any alterations to your work, but I also hope you take the information given here in helping you to frame the scope and overall presentation of the article. Learn together 21:20, 1 December 2008 (EST)

It takes 60 votes to pass major legislation through the Senate--the Democrats have 51 votes now, (and will have 58 or so starting in Jabuary). The Bush administration said it would oppose a bailout, meaning a veto, and the GOP in the Senate has been strongly opposed. That's how things are blocked. Geo's insults (calling a very well researchedarticle "garbage") ruin his credibility in the matter. GM itself says it is on the verge of bankruptcy, and its board is now evaluating different bankruptcy strategies. for some evidence see "GM's troubles stir question of bankruptcy protection vs. a bailout". "Democrats propose taking $25bn (£17bn) from the $700bn Wall Street bailout to fund carmakers. Barack Obama made the case for government aid in an interview... Republicans largely oppose any bailout, with Richard Shelby, the ranking member of the Senate banking committee, saying that the government would be throwing good money after bad. "It would only be postponing the inevitable," Shelby said." quoted And this from Fox News: "Treasury Secretary Henry Paulson told Congress on Tuesday [Nov 18] that the administration remains firmly opposed to dipping into the government's $700 billion financial bailout fund for a $25 billion rescue package for Detroit's Big Three automakers, no matter how badly they need the help." Fox news report RJJensen 21:51, 1 December 2008 (EST)
The President, and previous Presidents, have been known to say they oppose something without going to a veto. It's a way of making their position known and the wording of it is usually very important. My understanding is that the Democrats chose to not proceed immediately because of their own reservations. No one wants to be caught supporting a bill that simply requires a neverending series of bailouts for an industry that is not viable. I'm not saying that's the case, only that the Big-3 automakers had not shown Congress how they intended to make this money resolve their difficulties to the satisfaction of Congress. So far most of the proposal has been showing how they're burning money and need new money quickly, but not showing how they intend to stop burning money. Congress, both Republican and Democrat, will want some form of specifics. Learn together 12:29, 2 December 2008 (EST)

Overblown

This is a recession, to be sure. Why call it a "crisis"? And who says it's the worst since 1932? All that happened is that a couple of bubbles have burst: the dot-com bubble

the housing downturn, which started in 2006, is a primary cause of the broader economic malaise. --Ed Poor Talk 22:05, 1 December 2008 (EST)

I think most analysts say the crisis is the worst since 1932. It's a crisis because the financial system has nearly collapsed with many of the biggest financial companies either collapsed (Lehman) or taken over (AIG, Fanny Mae, Freddy Mac, Bear Stearns, Wachovia, Washington Mutual) or given vast bailouts (Citigroup) to survive. That never happened before. A recent quote from Paulson: "We are going through a financial crisis more severe and unpredictable than any in our lifetimes.....our financial system seized up and severely damaged the economy." quoted Nov 17 2008 RJJensen 22:16, 1 December 2008 (EST)
No documentation here for any of that: most are red links, and AIG has one line but no ref. --Ed Poor Talk 22:45, 1 December 2008 (EST)
full documentation is already in the article's footnotes. Paulson listed the same crises. RJJensen 22:47, 1 December 2008 (EST)

Probably better to leave it as crisis. Technically a recession is declared based on growth, which has and/or is happening now, but in addition to that you have the credit crunch which saw the virtual drying up of inter-bank lending which in turn created massive cash-flow and liquidity problems and the collapse of banks and financial institutions. The crunch is different to the recession, although involved with it when seen from the point of view of cause and effect, so both together counts as a crisis.--Ieuan 22:58, 1 December 2008 (EST)

Separate article needed on recession

This Financial crisis article is primarily about the financial crisis--involving banks and related institutions around the world. It only briefly mentions the recession in the USA, which will require a sseparate article that covers issues like unemployment, income levels, growth trends, and word trade issues. RJJensen 22:58, 1 December 2008 (EST)

Proceed as you see fit. Obviously you are the one who has written the bulk of the article and you should be able to break it up into subsections. Learn together 12:31, 2 December 2008 (EST)
I've dug a little into previous recessions and "panics". The common theme is greed and speculation. That is, people invest in land or companies, not because they see a potential for steady growth, but simply because they think they'll be able to sell after a short period time to someone else; who in turn has the same greedy idea - like a chain letter. The balloon is filling with the hot air of speculation; it has no substance; so it always bursts, taking with it all the profits of the last echelon of speculators.
Am I brilliant and innovative thinker, or have I just rediscovered what economists have known for many decades now? --Ed Poor Talk 12:50, 2 December 2008 (EST)
Ours goes even a little deeper Ed. Because an economy needs spending to grow and to continue, cutting back on spending leads to negative growth and a recession. Since about 2/3rds of spending is at the consumer level, the economic condition is very much dependent upon perception -- and therefore to press manipulation. So if the press keeps telling people we are in a recession, and people start to believe it and cut back their spending, then we will go into a recession. It's a self-fulfilling prophecy. If you see my first comment at the top of the page, the slightly negative economic growth that we sustained in the last quarter would have actually been almost 2% growth if consumer spending had just stayed constant. But people were spooked and therefore took what would have been slow positive growth and turned it into a negative. Learn together 12:58, 2 December 2008 (EST)
Consumer confidence it at the lowest level in many years. That's reality: people are NOT buying cars even when there are great deals. They are NOT buying houses (which means they also buy less furniture, rugs, appliances etc). The stimulus last spring failed because people did not spend when they were told to spend. The banks are worse. they are hoarding their money and it is fairly hard to get a loan or credit card these days.RJJensen 13:13, 2 December 2008 (EST)

LT, I read the 2% growth thing earlier. I know about the placebo effect and the self-fulfilling prophecy. One reason my students have done so well is that I help them to see their potential and encourage them to fulfill my (our) expectation for them. You might even have heard of the blue eyes, brown eyes test. Economics is not a physical science. The economy does not "go" into recession. People lead other people. Each decision to buy or to save, to invest/hold/sell is a choice made by a human being with free will. (Stop me, before I start giving the George Bailey Savings and Loan speech! ;-) --Ed Poor Talk 13:27, 2 December 2008 (EST)

People make decisions all right, and the decisions they are making now is to be as conservative with their money as possible and avoid risk. -- most of the financial risk takers have pretty well been ruined. There is numerical data to show the trend is very dramatic this year: see Rasmussen index of consumer confidence which fell from 120 (early 2007) to 64 right now. Bush told people to spend money last spring but they did not. Maybe it's a case of wise-for-me but bad-when-everyone-does-it.RJJensen 13:33, 2 December 2008 (EST)
The housing problem, precipitated by Congress, in particularly Barney Frank, Chris Dodd, Chris Cox, ACORN and others, pressuring lenders, banks, Freddy and Fannie, to approve loans to otherwise unqualified applicants, the Real Estate and Building industries, alway greedy, encouraged buyers to believe the markets would go nowhere other than up, all are the cause. Banks overvalued homes. People treated their homes the same as they did their brokerage accounts, buying, selling, buying again, each time stepping up another 100K. All madness. That key fact, and as Jensen said, the media, invested in Bush-bashing and getting Obama elected, repeatedly saying we were in a recession, or worse, over and over again, did indeed, eventually, months later, lead people to believe their false assertion. As inevitably as day follows night, they cut their spending, put off big ticket items, and we were off to the races. Our "problem" led to an over-all lack of confidence, not only by consumers, but a lack of confidence between banks and investment brokers, retirement groups like CALPERS, which in turn started causing the same lack of confidence in the UK, and then it was a world-wide crisis. --₮K/Talk 13:52, 2 December 2008 (EST)
The GOP ran Congress and the White House so they get the blame. (the community loans were less than 3% of the problem--they do not amount to much) Note that the toxic problem is heavily concentrated in 4 states where the bubble mostly happened--Calif, Florida, Arizona, Nevada.) The bubble was real as prices doubled in 2 years. the rule was "Buy high and sell higher!" people at all income levels refinanced their homes and spent the money. About 40% the foreclosed mortgages are speculation--the houses have always been empty and the owner had a 0-down, low payment mortgage that was "certain" to produce $100,000 profit in a year. Brokers called every week begging to make BIG $$$ for you. I was in Phoenix this summer and Miami last month and you can see thousands and tens of thousands of new, empty houses and condos. I attended a history convention in Miami last month and stayed at one of those new condos, which they are renting out by the night like hotel rooms. I had a beautiful one bedroom apartment near the main hotels, with maid service, for $80 a night! (the hotels charged $250 a night). We have millions of these empty houses and condos and they are forcing down prices for everyone else. The problem is global. It's about as bad in parts of Europe and Asia. I remain very pessimistic about 2009. RJJensen 14:31, 2 December 2008 (EST)

Okay, I guess I will quote George Bailey: "Potter's not selling, he's buying!" I give it another 2 to 6 months, and then I think we'll see people start to buy those empty houses and condos - but at their actual value, and to live in, not as speculations. "Salt, that life may have savor." --Ed Poor Talk 14:38, 2 December 2008 (EST)

good quote. I hope your right and we don't have to rename this site Potterpedia RJJensen 15:41, 2 December 2008 (EST)
More VERY BAD economic news today: sales of electronics and appliances sank 25% (compared to Nov 2007) Luxury goods were down 24%, and specialty retail, which includes clothing and department store sales, fell 20%. Auto sales were down 37% in November to the lowest rate in 26 years. GM down 41% Ford down 31% and the foreign cars were down just as much, with Toyota down 34%, Nissan down 42% and Honda down 32%. RJJensen 01:08, 3 December 2008 (EST)
The economkic picture continue to worsen beyond the world of finances and autos so I started a second additional article on the Recession of 2008 . RJJensen 20:03, 24 December 2008 (EST)

Article move....

Since this thing really got cooking this last quarter, and will run over into 2009, do we want to tie it to one year, or perhaps move it to Financial Crisis of 2008/2009 or World Financial Crisis of 2008/09? Just an idea..... --₮K/Talk! 07:47, 6 December 2008 (EST)

well that;s a good question. We usually name these downturns by the first year ("Panic of 1893" "Great depression of 1929") -- we don't know how long it will last. RJJensen 07:56, 6 December 2008 (EST)
  • Well, you are a little ray of sunshine this morning, aren't you?  :p Fair enough on the naming. --₮K/Talk! 07:58, 6 December 2008 (EST)

definition of recession

The NBER is the nonpartisan agency that declares the timing of business cycles--and it has been for 80 years. They use multiple criteria, which gives much more precision (not the simplistic one of two quarters' decline). Note that the START of a recession is actually a high point, from which the economy begins a downward trend. That happened 12 months ago. For more details see NBER statement RJJensen 05:00, 23 December 2008 (EST)

Recessions are not usually considered to be movements between high and low points, but actual negative growth. If this is the official recognized agency for calling recessions, then I want hard evidence of that before this current downturn. It is odd that it hasn't been mentioned that the standard of two straight cycles of negative economic growth was actually discarded long ago -- but somehow wasn't noticed. And seeing their declaration that the last downturn began in March 2001 was laughable if they weren't serious. The GDP went on a far steeper nosedive as far as rate of crashing at the end of Clinton's term including losses of almost 15 trillion dollars in value in the stock market as the internet bubble burst and Gore tried to take the election, and yet that didn't classify as the beginning of a downturn based upon their standards? Please.
I've given you a great deal of latitude due to the many edits you have made on this site and I believe that should be rewarded by allowing you to have a pretty free reign in how to set up the article and put in content. In my book you've earned that. But it doesn't appear you have fit any of the information that I have given you in the talk pages into the article. If it is going to start to read like a blog, then I am going to get more directly involved. And simply reverting me, including editing that went beyond what is being discussed here, is not a direction you should follow. Learn together 05:27, 23 December 2008 (EST)
economists, conservative and liberal alike, have been using the NBER business cycle dating since the 1920s. Milton Friedman, for example, did much of his best work for them, such as his famous "Monetary History". The "two-quarters" rule of thumb usually works and has the advantage that it comes out sooner. But it is not quite as reliable since the GDP data is just one of many indicators. The NBER uses the GDP data (which is ambiguous) as well as many other time series. The advantage is that it's quite non-partisan (unlike politicized government agencies). CP readers should be shown what the most reliable sources are for economic data. That's the NBER and I'm not sure what the aleternative is--no one has proposed some other authoritative source. RJJensen 05:48, 23 December 2008 (EST)
The Bureau of the Census does the economic surveys for the Federal Government, under contract for other departments. They do the housing survey, job related surveys for the Department of Labor, etc. Their results are non-partisan, and cannot be tampered with by the White House, or anyone else.[1]

Other Surveys: The Census Bureau collects information in many other surveys and provides the data to the survey sponsor for release. These sponsors include:

  • Bureau of Justice Statistics (BJS)
  • Bureau of Labor Statistics (BLS)
  • Bureau of Transportation Statistics (BTS)
  • Department of Housing and Urban Development (HUD)
  • National Center for Education Statistics (NCES)
  • National Center for Health Statistics (NCHS)
  • The National Science Foundation (NSF)
  • The Social Security Administration (SSA)

--₮K/Talk! 08:11, 23 December 2008 (EST)

Schumer

The New York Times does NOT say this: "The NYTimes says Senator Charles Schumer D-NY, is the most responsible for Wall Street's collapse" It says he worked with Bush and the Republicans to avoid regulation.

Keep in mind that Bush-GOP and conservative policy was low regulation, low interest and pro-home-mortgages for everyone. RJJensen 01:40, 13 March 2009 (EDT)

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