Silverbird
03-26-2008, 12:33 PM
The financial system
What went wrong
Mar 19th 2008
From The Economist print edition
....But something changed in 2001, when the dotcom bubble burst. America's GDP growth since then has been weaker than in any cycle since the 1950s, barring the double-dip recovery in 1980-81. Stephen King and Ian Morris of HSBC point out that growth in consumer spending, total investment and exports in this cycle has been correspondingly feeble.
Yet, like Wile E. Coyote running over the edge of a cliff, financial services kept on going. A service industry that, in effect, exists to help people write, trade and manage financial claims on future cashflows raced ahead of the real economy, even as the ground beneath it fell away....
The tendency for financial services to run right over the cliff is accentuated by financial assets' habit of growing during booms. By lodging their extra assets as collateral, the intermediaries can put them to work and borrow more.....
Indeed, their shareholders would punish them if they sat out the next round—as Chuck Prince let slip only weeks before the crisis struck, when he said that Citigroup, the bank he then headed, was “still dancing”. Mr Prince has been ridiculed for his lack of foresight. In fact, he was guilty of blurting out finance's embarrassing secret: that he was trapped in a dance he could not quit. As, in fact, was everyone else.......
http://www.economist.com/finance/displaystory.cfm?story_id=10881318
History Lesson
http://www.economist.com/finance/displaystory.cfm?story_id=10880496
More stories here too
What went wrong
Mar 19th 2008
From The Economist print edition
....But something changed in 2001, when the dotcom bubble burst. America's GDP growth since then has been weaker than in any cycle since the 1950s, barring the double-dip recovery in 1980-81. Stephen King and Ian Morris of HSBC point out that growth in consumer spending, total investment and exports in this cycle has been correspondingly feeble.
Yet, like Wile E. Coyote running over the edge of a cliff, financial services kept on going. A service industry that, in effect, exists to help people write, trade and manage financial claims on future cashflows raced ahead of the real economy, even as the ground beneath it fell away....
The tendency for financial services to run right over the cliff is accentuated by financial assets' habit of growing during booms. By lodging their extra assets as collateral, the intermediaries can put them to work and borrow more.....
Indeed, their shareholders would punish them if they sat out the next round—as Chuck Prince let slip only weeks before the crisis struck, when he said that Citigroup, the bank he then headed, was “still dancing”. Mr Prince has been ridiculed for his lack of foresight. In fact, he was guilty of blurting out finance's embarrassing secret: that he was trapped in a dance he could not quit. As, in fact, was everyone else.......
http://www.economist.com/finance/displaystory.cfm?story_id=10881318
History Lesson
http://www.economist.com/finance/displaystory.cfm?story_id=10880496
More stories here too