Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

We Could be in Great Depression II – But We’re Not!

Economics / US Economy Jan 14, 2011 - 03:00 PM GMT

By: Sy_Harding

Economics

Best Financial Markets Analysis ArticleGlobal financial authorities proved to be quite adept at reacting quickly, step-by-panicked step, to the financial crisis as it unfolded, making hasty dramatic moves dreamed up on the fly in panicked weekend meetings.

That the efforts worked is obvious. We are not in Great Depression II.


Heck, we're already back to buying new cars, packing the airports and vacation destinations, and piling money into the stock market. Bankers are not jumping out of office windows as in the 1930's. Those eased out of their former positions are enjoying impressive golden parachute retirements. Those still in their positions are already celebrating humongous performance bonuses again. The U.S. government has even made sizable profits from many of the temporary bailout loans and investments.

And the good news doesn’t stop there.

Global central banks, the International Monetary Fund, the U.S. Congress, and financial regulators, have thoroughly investigated the causes of the crisis and promised changes that will prevent such near disasters from ever happening again.

That is such a relief.

- If only global financial authorities could provide something more concrete than verbal assurances, anything at all to indicate they are able to see, and are willing to address, potential problematic conditions before they develop into the next crisis.

So far they have not only left the previous problematic conditions in place, but have amplified their potential for damage.

For instance, too big to fail financial institutions have become larger than ever, made so by the very actions chosen to solve the crisis. The largest dozen banks were quickly handed hundreds of $billions, with few restrictions on how the money was to be used, and encouraged, in some cases even forced, to acquire their weaker competitors. JP Morgan Chase took over Bear Stearns. Bank of America took over Merrill Lynch. Wells Fargo took over Wachovia. JP Morgan Chase took over Washington Mutual to name a few.

Meanwhile, the more than 7,000 small and medium-size banks were left hanging in the breeze, and two years after the crisis ended are still going under at a faster pace than during the crisis. And more than a million home-owners lost their homes just in 2010, with a million more destined for the same treatment this year.

Then there is the so-called moral hazard, the behavior that can be expected from people who are insulated from punishment for their actions.

Congress and the regulators have shown the major financial firms more clearly even than before that greed and high risk activities carry no risk for them, that if they lead to disaster the calamity will fall on others, while the financial firms will be rescued and probably even rewarded, coming out the other side bigger and more profitable than ever.

What could Congress and the regulators be doing?

After the Great Depression, and later after the 1987 crash, real reform measures were introduced. They included the Glass-Steagall Act, passed in 1933, which separated and restricted the activities of financial institutions, the ‘Uptick Rule’ in 1938, which disallowed the unrestricted short-selling that had been responsible for exacerbating stock market declines and crashes. After the 1987 crash, trading restrictions known as ‘curbs’ were placed on program-trading firms, preventing them from exacerbating another market decline with waves of massive computerized sell-programs.

Those reforms worked quite well for a very long time.

However, financial industry lobbyists were successful in having Glass-Steagall repealed in 1999, which resulted in banks becoming heavily involved in brokerage, mutual fund, and proprietary trading activities, as well as the packaging and promotion of questionable investment products like sub-prime mortgages.

Wall Street was then successful in having the uptick rule repealed in 2007, and the New York Stock Exchange confirmed in November, 2007 that it had scrapped the curbs on program-trading firms. Both repeals were allowed just before the severe 2007-2009 bear market began.

Congress and the regulators acknowledged the connection, but in spite of the promises of re-regulation of the financial industry, none of those previous successful regulations have been re-introduced. And the financial reform bill finally signed into law last July was so watered down by the time of its passage as to be a joke.

Meanwhile, the debt crisis that has been sweeping across Europe is being papered over country crisis by country crisis with still higher levels of debt, while Euro-zone officials and G-20 nations repeatedly meet but are unable to agree on much of anything related to more permanent solutions.

Bubbles used to be rare events. But since the repeal of Glass-Steagall, which allowed the major banks to become involved in all areas of the financial industry, we’ve experienced a stock market bubble in 2000, a housing bubble in 2006, and a debt bubble in 2008.

It may be that governments were adept at getting us out of a serious crisis once it hit.

But where are the signs they are even trying to prevent the next one?

The Fed is correct in saying that unemployment at 9.4% is too high, but that without the bailout efforts it would be at 25%, as in the Great Depression.

But what would it be, and where would the U.S. economy be, if Congress, the Fed, and regulators had done their jobs, left previous regulations in place and enforced, and there had not been a housing or debt bubble?

Hindsight is easy and can’t prevent the last crisis, but shouldn’t there be some sign that we learned from it?

Sy Harding is president of Asset Management Research Corp, publishers of the financial website www.StreetSmartReport.com, and the free daily market blog, www.SyHardingblog.com.

© 2011 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules