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  1. #1
    Community Advisor ULTiMATE's Avatar
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    Someone please explain the Financial Crisis

    I understand that for some reason we're in recession and that we don't have as much money as we used to, and businesses are closing because they've lost all of their money, but why?

    To put it easily, where did all the money go? If the banks had $900 Billion for example where did this money go? Did it disappear or does someone else have it?

    I'm just wondering where money actually goes, because surely it didn't just disappear. If you have all your physical money is it worth any less?

  2. #2
    I meant that to happen silver trophybronze trophy Raffles's Avatar
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    People are greedy. Bankers and their ilk have made everything so complicated and difficult for Joe Bloggs to comprehend, that this sort of thing can happen, and it's been compounded by governments not regulating the whole thing enough. Mind-bogglingly, they can create "wealth" out of thin air (e.g. by giving mortgages to people who are never ever going to be able to repay them), pretending that then have money when they don't. They then use this inexistent wealth to try to make more, which snowballs, reels others in and creates the catastrophe we are in now. Anyway, that's how I understand it in pretty simple terms.

    What do you mean "physical money" - coins and paper? You've seen how quickly they can become worthless, just look at Zimbabwe. The only way to make sure you keep your "money" (an arbitrary token that says "I have this much stuff that is worth X amount compared to something else") is to spend it on something that is unlikely to lose its value, like gold or property. But then anything can go pear-shaped. At the end of the day, you're at the mercy of these people who are supposed to know lots about running economies and dealing with money, but they seem to be pretty incompetent. And it's hard-working people who lose out at the end of the day - the bankers at the top just get millions in fat bonuses.

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    bad loans were put into bonds, bonds sold to banks, banks sold bonds, bonds stop giving interest, bonds prices dropped like a rock, banks lost $ with bad bonds on balance sheets, bond re inssurers called in lost $, banks don't have $ to loan, makes it harder for cars retail ect. they fire people, no one has job so the stock market slows, and thats the crisis

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    I Love Licorice silver trophybronze trophy Datura's Avatar
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    Today money is worth almost nothing. For paper money to have any value there must be a collateral in gold or other valuable physical entity. Governments print money without restraint, causing ever repeating cycles of boom and bust.

    Paper money holds its value only as long as you have people that will accept it as a value. The money that is lost in crisis as we have right now is not actually lost, it was never there in the first place. Fractional Reserve Banking is at the root of this.

    The only solution to this mess is to get out all government intervention into the economy, including the banking. Only a totally free market can provide natural stability.
    Ulrike
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    I meant that to happen silver trophybronze trophy Raffles's Avatar
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    But surely in a totally free market these people (using the term loosely here) would still cheat, scam and lie to benefit themselves at others' expense. Perhaps more so.

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    I Love Licorice silver trophybronze trophy Datura's Avatar
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    Quote Originally Posted by Raffles View Post
    But surely in a totally free market these people (using the term loosely here) would still cheat, scam and lie to benefit themselves at others' expense. Perhaps more so.
    Sure, some would try to steal and cheat. But it is truly the responsibility of the individual to think enough and understand enough to protect themselves so that they will not be victimized.
    Ulrike
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  7. #7
    I meant that to happen silver trophybronze trophy Raffles's Avatar
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    You can't expect the individual to understand everything. This is why people get swindled when they take their car to the mechanic or by the salesman who makes his money on commission at the electronics shop (yeah yeah, of course I'm not saying they're all like that, far from it). I don't think it's unreasonable for the government to supervise the goings on of these financial institutions that can have such a major impact on so many people. That is, of course, assuming the government is not corrupt and employs people who have the population's interests at heart.

  8. #8
    I Love Licorice silver trophybronze trophy Datura's Avatar
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    Quote Originally Posted by Raffles View Post
    You can't expect the individual to understand everything. This is why people get swindled when they take their car to the mechanic or by the salesman who makes his money on commission at the electronics shop (yeah yeah, of course I'm not saying they're all like that, far from it). I don't think it's unreasonable for the government to supervise the goings on of these financial institutions that can have such a major impact on so many people. That is, of course, assuming the government is not corrupt and employs people who have the population's interests at heart.

    You are right of course, no person can know everything, but there is a lot of information out there that is easily accessible. Fraud will always be with us, no matter how broad any controls and laws and regulations by any of the governments and their justice systems are. The perpetrators of fraud are often the very people who are supposed to protect the little guy. But people should not expect to be sheltered from all harm by staying ignorant and relying on their government to guide them and protect them. It is reckless to live in a state of ignorance about the most basic issues that might affect your life and abdicate responsibilities that should be in your own control.

    Now we have a terrible situation caused by the very government that people thought (naively so) would shield them from disaster. People have relied on it demanded it thinking that controls and regulations over banks and lending institutions would relieve them from vigilance, totally ignoring the fact that government involvement is the very cause of disasters.

    The printing of money is done without regard to actual value. It is a vehicle to create inflation in order to pay down government incurred debt at a much lower value in the future. They could not do so if there was a gold standard. Inflation would not exist and they would have to live within their means.

    The lending of money to people who were not able to ever pay back what they borrowed was forced by the government's policy of "equal" treatment. Banks had no choice about it since they are so regulated that they can not act according to how a responsible business should. An absurd and totally irresponsible policy, but hey, what does the little guy know, right? Wishes and dreams tend to override even the simplest of common sense. So they went out and lived as if there was no price to pay and the government in the end points the finger at the "greedy" banks. What a farce.

    You see, that is why I want no control and oversight by bureaucrats.
    Ulrike
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    People trusted the game way too much.

    It is just a game.. profits, projections, shares, ect when they fail you have paper that is all just paper with ink on it..

    People in more unstable countries have seen the economy collapse and know to invest in land, family, gold, silver things that are REAL.. Westerners think their finical systems are magical and invest everything in them and receive a promise and a few pieces of paper.

    Most financial systems have a 10-1 leverage, which is considered safe some have 60-1. So at 10-1 a system has $1000. in deposits they lend out $10,000. in credit then if people withdraw $1500 the system collapses or if people can’t repay a fraction of the credit the system collapses.

    Basically like a big pyramid scam. It all runs fine as long as there is new investors and people pay back the credit. But fiat(paper) money systems are non sustainable and they always fail..

    And paper is just paper.

  10. #10
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    Bad Loans, Bad Bankers, Bad Clients, Bad Oversight, Bad Politcians and PURE GREED!!!!!
    EARN $200 to $400 PER SALE WORLDWIDE PM FOR DETAILS.

  11. #11
    Pragmatic Programmer halfasleeps's Avatar
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    I asked someone and they told me:

    It starts out as fear, people stop spending which causes companies to make less money. Then the companies have to lay people off, then people stop spending not just because of fear anymore because they don't have jobs. Then companies loose more money and have to close.


    I also sometimes wonder if E-commerce has anything to do with it?

    I mean I love shopping online, but as it becomes more of a trend more people realize they can usually find things cheaper online then at brick and mortar stores, then the brick and mortar store's loose too much business and are forced to close down and people loose their jobs and spend less money.


    I don't know if any of what I said is true, so if I am wrong please kindly correct me.
    Altoona Design
    Freelance Flex developer for hire.
    ActionScript Programmer with 8 Years Experience.

  12. #12
    I meant that to happen silver trophybronze trophy Raffles's Avatar
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    Ulrike, I don't think you can trust the government so absolutely. I think the financial institutions are more to blame, by far. They have the responsibility to be responsible, in the same way that an oil company has the responsibility to extract oil without damaging the local environment (but of course in many cases greed prevails).

    Financial institutions have the duty to be responsible and foresee what will happen if they cheat, lie and make things up. At the end of the day they have lost out, but of course so has the little guy.

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    I Love Licorice silver trophybronze trophy Datura's Avatar
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    Quote Originally Posted by Raffles View Post
    Ulrike, I don't think you can trust the government so absolutely. I think the financial institutions are more to blame, by far. They have the responsibility to be responsible, in the same way that an oil company has the responsibility to extract oil without damaging the local environment (but of course in many cases greed prevails).

    Financial institutions have the duty to be responsible and foresee what will happen if they cheat, lie and make things up. At the end of the day they have lost out, but of course so has the little guy.
    You can not say so. The fractional banking system is set up by the governments, banks have only 10% of money in reserve as collateral. The whole system is set up as a pyramid scheme to allow the governments to borrow basically unlimited amounts of money. The banks can not act against the regulations that are forced onto them by governments (laws created specifically for controlling banks). The banks are only following what is dictated to them from higher up. Their hands are tied. Just like most businesses are hamstrung by all those regulations that the controlling bureaucrats set up in order to "protect" their voting population and with that secure their power base.

    It is a huge mess that will not get better until all of those hampering regulations get thrown out. I do not see it happening soon though, the conditions will deteriorate more until people start to understand that one can not live above ones means and finance everybody's unearned dream with fiat money.

    I am a big advocate of a pure laissez-faire capitalist system. We never had a system like that in the world before. The US in its beginning was close, but even there pretty soon the controls and shackles appeared. Laissez-faire is a system based on the ethics that protects the rights of the individual. It is the only system where no force is initiated against any other person. It is a system where people can earn according to their ability without being punished. What we have now is the taking from the able and the distribution of the takings according to need.

    In a laissez-faire system competition is fierce. Struggle for winning the customer is at the fore at all times. In order to succeed the best has to be offered for the lowest price. Money would be handled just like any commodity. The bank that offers the largest return would have the most customers. The bank that would act immorally would soon be out of business because it would be boycotted to death.

    A system like that of course requires for people to start taking the responsibility for their own lives and what they do, how they act, how they mange. The big nanny state would not be there, only private organizations that help out, private organization that would have much higher funding than they have now because the burden of taxes would be all but gone.
    Ulrike
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  14. #14
    I meant that to happen silver trophybronze trophy Raffles's Avatar
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    Yes, in a purely laissez-faire capitalist system the banks and other companies would struggle to win the consumer, but isn't that what they're doing anyway? Without certain rules they'd be free to do as they please, e.g. make lots of money dishonestly in the short run and then try to run with it before they get caught. Like Bernard Madoff, although he managed to keep it going for quite a while. Not saying they'd all do that, but given the nature of human greed, it would be pretty inevitable.

    The bank that would act immorally would soon be out of business because it would be boycotted to death.
    Yes, true, but after how many people had lost their life savings?

    To be honest, I trust a company as much as I trust a government - not very much.

  15. #15
    ✯✯✯ silver trophybronze trophy php_daemon's Avatar
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    Quote Originally Posted by halfasleeps View Post
    It starts out as fear, people stop spending which causes companies to make less money. Then the companies have to lay people off, then people stop spending not just because of fear anymore because they don't have jobs. Then companies loose more money and have to close.


    I also sometimes wonder if E-commerce has anything to do with it?
    People stopping to spend is an outcome not a reason. E-commerce has definitely nothing to do with it. There's already enough of posts in this thread to explain perfectly what is.

    E-commerce is an interesting subject in this context though. It's just a hearsay from the people working in e-commerce, I didn't bother to check, but e-commerce is the only retail branch that is still going up. And it is likely it's gonna continue to do so. And no wonder, running e-commerce business has expenses literally close to 0, and you don't need a loan to run not one but two, three of them, while to run a brick and mortar store it takes big investments. Your online store will never be foreclosed. Furthermore, it allows for cheap prices which is only attractive to price aware buyers. And finally, people will need to buy stuff even in the worst times.

    A great time to get involved in e-commerce if you haven't yet, imo.

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    ✯✯✯ silver trophybronze trophy php_daemon's Avatar
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    Quote Originally Posted by Raffles View Post
    Yes, true, but after how many people had lost their life savings?
    How many you reckon will lose during this crisis?

  17. #17
    I meant that to happen silver trophybronze trophy Raffles's Avatar
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    No idea, but there was a couple in the UK in the news who bought property in Spain just before everything went down the toilet and spent their life savings on it, as a "safe investment". Now the property market in Spain is in tatters and their investment is worthless.

    Quote Originally Posted by php_daemon
    It's just a hearsay from the people working in e-commerce, I didn't bother to check, but e-commerce is the only retail branch that is still going up. And it is likely it's gonna continue to do so.
    Yeah, in the news on TV tonight Marks and Spencer (ubiquitous chain of food and clothing shops) showed heavy losses all over the place, except on internet sales, where their sales are up about 20% from last year. Amazon's business is booming and this last Christmas was their best ever. It's where I did most of my shopping actually.

  18. #18
    ✯✯✯ silver trophybronze trophy php_daemon's Avatar
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    Quote Originally Posted by Raffles View Post
    No idea, but there was a couple in the UK in the news who bought property in Spain just before everything went down the toilet and spent their life savings on it, as a "safe investment". Now the property market in Spain is in tatters and their investment is worthless.
    Exactly. Be it government corruption, private company corruption, or just natural market trends, a risky investment is a risky investment. If you wanna risk, it's your risk no matter what economic system or government is in place.

    BTW, didn't know it was that bad in Spain, I'm waiting for this to happen here so I can buy some real estate for its real price (or well, at least closer to real)

  19. #19
    I Love Licorice silver trophybronze trophy Datura's Avatar
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    Quote Originally Posted by Raffles View Post
    Yes, in a purely laissez-faire capitalist system the banks and other companies would struggle to win the consumer, but isn't that what they're doing anyway? Without certain rules they'd be free to do as they please, e.g. make lots of money dishonestly in the short run and then try to run with it before they get caught. Like Bernard Madoff, although he managed to keep it going for quite a while. Not saying they'd all do that, but given the nature of human greed, it would be pretty inevitable.


    Yes, true, but after how many people had lost their life savings?

    To be honest, I trust a company as much as I trust a government - not very much.
    Banks are businesses, or should be. Like any business there are good businesses and bad businesses. People who want to leave their life-savings with one institution are not very smart really. There is always, as in everything we do, uncertainty. Life is like that. We can not hope to be magically protected from all bad things. Life kicks us around now and then, but people live under the illusion that somehow a government can protect us from the kicks. They buy into the political rhetoric like they buy into any other belief and hope that all will be just fine and they do not have to assert the effort to make sure that it actually will be.

    Why do you assume that almost all people are in need of rules to be honest? Rules only hamper the honest but do not prevent the crooks, as your example well shows. Give me one rule that prevents a crook from being one. It is a false assumption that you can prevent crime by rule-making.

    I too do not trust the big corporations of today. But the way they act is also caused by the intervention of the governments and the required lobbying by them to get anything moved and changed at all. It takes two to tango in this situation, so both sides have become absolutely corrupt. Also, do not forget that corporations are not nameless institutions, they are all made up of individuals and therefore are never better than the sum of the individuals.

    For a laissez-faire system to come into existence a whole lot has to change. The basic philosophies of altruism and self-abasement have to be eliminated and the desire of the people to be rationally selfish has to come to life. Not walking over dead people to reach your goal as selfishness is understood by most, but pursuing the quest for a fulfilling life by ones own power and for oneself. Guilt free enjoyment in achieving a goal to have a good life and not being pressed under compulsion to give away what one has rightfully earned.

    Now let us say that would happen, there would be much less fraud and irrational greed than today, for people would recognize their own limits and also their capacities. They would like to protect the gained freedom by giving the same to their fellow man.
    Ulrike
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  20. #20
    SitePoint Addict ruby-lang's Avatar
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    Quote Originally Posted by Datura View Post
    A system like that of course requires for people to start taking the responsibility for their own lives and what they do, how they act, how they mange. The big nanny state would not be there, only private organizations that help out, private organization that would have much higher funding than they have now because the burden of taxes would be all but gone.
    Science fiction writers have written many novels about large, privately owned organizations that supercede national governments. Rarely in a positive light.

    Anyway, my perception is that the American government managed to fail on both sides. From one side, it issued laws that basically forced financial institutions to take on bad debt to supposedly promote equality. From the other side, it abolished laws intended that would have prevented marketing junk as AAA+ conservative funds to unload this bad debt onto unsuspecting investors. Did you notice how nobody went to jail?

    I don't know why Madoff bothered creating a pyramid scheme, when he could have fleeced his friends without breaking a single law.

  21. #21
    I Love Licorice silver trophybronze trophy Datura's Avatar
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    Quote Originally Posted by ruby-lang View Post
    Science fiction writers have written many novels about large, privately owned organizations that supercede national governments. Rarely in a positive light.
    The problem with this kind of writing is that the authors use the same principles applied that we have now. There is no vision at all. Things are just bigger and worse of course

    Quote Originally Posted by ruby-lang View Post
    Anyway, my perception is that the American government managed to fail on both sides. From one side, it issued laws that basically forced financial institutions to take on bad debt to supposedly promote equality. From the other side, it abolished laws intended that would have prevented marketing junk as AAA+ conservative funds to unload this bad debt onto unsuspecting investors. Did you notice how nobody went to jail?
    They never take the responsibility these rascals You see, in the system that I advocate the government would not intervene in business, people would be on their own or have companies, like consumer groups, to verify or deny any claims like junk being AAA+. Bad attempts would be spotted fast, because the livelihood of the companies who provide a service like that would be on the line.
    Ulrike
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  22. #22
    I meant that to happen silver trophybronze trophy Raffles's Avatar
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    Quote Originally Posted by php_daemon
    BTW, didn't know it was that bad in Spain, I'm waiting for this to happen here so I can buy some real estate for its real price (or well, at least closer to real)
    The property developers in Spain got over-excited and built far too many holiday resorts, villas and so on. Now there are multi-storey holiday apartment blocks completely empty or unfinished because there's no money and no one to rent or buy them.

    Quote Originally Posted by Datura
    Now let us say that would happen, there would be much less fraud and irrational greed than today, for people would recognize their own limits and also their capacities. They would like to protect the gained freedom by giving the same to their fellow man.
    This seems just as utopic and unlikely to happen as its opposite - sensible and safe government supervision and regulation of the financial system.

    I'm not saying one system is better than the other, just that they are as fraught with issues as each other.

  23. #23
    I Love Licorice silver trophybronze trophy Datura's Avatar
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    Quote Originally Posted by Raffles View Post
    This seems just as utopic and unlikely to happen as its opposite - sensible and safe government supervision and regulation of the financial system.
    Utopian I would not call what I propose I do not accept as valid any kind of government (even as sensible as you try to make it out to be ) to interfere with the markets. This is a fundamental difference we have in our view on how the world should be.
    Quote Originally Posted by Raffles View Post
    I'm not saying one system is better than the other, just that they are as fraught with issues as each other.
    But I do I am sure about this, because I base my judgment on a philosophy that is anchored in reason. This system I am talking about is pretty much the only direction left to go. All else has been tried and has failed. Moderation of the systems that have been tried will not work either, they would slide right back to where we are today. I think that I will not see this in my life, but it is very possible that you will, unless we are forced back into the dark ages by the threats that we are facing right now in the international realm by the fundamental mystics.
    Ulrike
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  24. #24
    SitePoint Addict ruby-lang's Avatar
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    Quote Originally Posted by Datura View Post
    They never take the responsibility these rascals You see, in the system that I advocate the government would not intervene in business, people would be on their own or have companies, like consumer groups, to verify or deny any claims like junk being AAA+. Bad attempts would be spotted fast, because the livelihood of the companies who provide a service like that would be on the line.
    But, the problem is... there are. Moody's and its ilk were supposed to be doing this job, but due to conflicts of interest, they weren't. Remember Enron and Andersen? When enough money is involved, people are ready to throw decades of hard work building a reputation out the window.

  25. #25
    I Love Licorice silver trophybronze trophy Datura's Avatar
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    Quote Originally Posted by ruby-lang View Post
    But, the problem is... there are. Moody's and its ilk were supposed to be doing this job, but due to conflicts of interest, they weren't. Remember Enron and Andersen? When enough money is involved, people are ready to throw decades of hard work building a reputation out the window.
    Yes this is all true, but it happened within the current system, not the one I am advocating
    Ulrike
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