Reply to Global Crisis Article

Christine Lagarde International Monetary Fund

Reply to:

Christine Lagarde: We've made progress since the financial crisis. But there's still more to do

It started long before the collapse of Lehman brothers.  While the collapse of Lehman brothers was, as you stated 
"Looking back today, the pressure points seem obvious. But they were less obvious at the time. Most economists failed to predict what was coming. It is a sobering lesson in groupthink." This was less group-think than mob psychology. Or, as I put it, "buying into the premise.  (EVEN as I write this, Julie Chen on The Talk  CBS Corporation asked the question, "What is more important to you, Function or Fashion?"  The audience cried out-- "Fashion")  This I covered in my article
"Marketing 1959"

Moreover, you said,

"What were these pressure points? At the core was financial innovation that vastly outpaced regulation and supervision. Financial institutions—particularly in the United States and Europe—went on a frenzy of reckless risk-taking. This included relying less on traditional deposits and more on short-term funding, dramatically lowering lending standards, pushing loans off balance sheets through murky securitizations, and more generally, shifting activity to the hidden corners of the financial sector that were subject to less regulatory oversight. For example, the market share of subprime mortgages in the United States reached 40 percent of overall mortgage-backed securities by 2006—up from almost nothing in the early 1990s." 1.  The subprime mortgage programme was instituted contrary to the best financial advice. 2.  Fannie Mae and Freddie Mac were in trouble even as politicians were declaiming their stability.

However, to truly understand this, there must be the cultural transformation. After Ronald Reagan replaced Jimmy Carter, the American culture turned into "a kid in a candy store" mania. Lifestyles of the Rich and Famous took over: How much to fill this bathtub with champagne? How much to fill this bathtub with caviar? Celebrities were paying $22. for a $2. cigar.  I know that because I smoked Macanudo Prince Philip Cafe for $2.  But not after the Rich and Famous took over. Our entire culture was primed (no pun intended) to accept the culture lust for luxury.  This was covered in my article  Ascribed Value--or ridiculous consumption. My most recent efforts, since the EuroCrisis, has been propounding the algorithm: Capital Investment + Economic Stimulus =  Economic Development+ Growth Sincerest regards,
Slim.

Bob Asken
Box 33
Pen Argyl, PA
19072


Copyright (c) 2018 Bob Asken
All rights reserved.