Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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