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Punk Economics: Lessons from the Banking Crisis

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Following the great Irish railway share crash of the 1850’s the wonderful english economist John Stuart Mill, observed the crisis does not destroy wealth it merely evidence is the extent to which wealth has already been destroys by stupid investments made in the boom. So banking crisis they do not start the day the market collapses put the actually begin years before when the banks begin to borrow and Landry recklessly using other people’s money to ramble awesome fun, so what have we learnt the 2008 banking crisis.

Lesson 1
The easiest way to rob a bank is to run us, in the old days the image at the bank robber was declined the balaclava on the outside breaking in. these days the guy in the suit from the inside breaking now, banks are now destroyed from inside and out.

Lesson 2
One speculation using other people’s money because the fastest way to get rich, the bank’s chief executive becomes the biggest stretch to the bank and the system, because the CEO’s pay is linked to the share price that we are almost guaranteed to get wholesale loosing as the CEO’s take these reckless gambles to drive up the share price to pay themselves. Meanwhile, why wouldn’t they push it to the limit because its entirety in their interest to do so.

Lesson 3
Let’s think about JP Morgan a man who have seen his fair share these crisis come and go, said something brilliant he said nothing so undermines your financial judgment as the sites other labor getting rich that this is exactly what happens in the boom everybody sees the guy down the road or in the bank across the road do well kitten which I we try to copy them. This is how a mania takes hold don’t get me wrong I’m not saying bankers are bad people to just humans and humans were all totally irrational and when things are going well the all tend to follow the herd, chief executives at banks are no different.

Lesson 4
The forest fire, the best way to think of a banking crisis which is getting out a control is to consider a forest fire the bankers are the pyromania school actually started the fire. The central bankers and the regulators there like the firemen proportionately day we’re looking for people who are you by the rest to the far as the housing for and yes as the general economy which is threatened with incineration finally the politicians are the last line of defense and they’re the ones who got to put the fire out a full cost with all main.

Lesson 5
The kidnapper Wears Prada once we are in the situation that we found ourselves in 2008 becomes like a hostage drama, the bankers are the kidnappers the economy is the hostage and the bankers threatened the politicians but if they don’t get bailed out with as much money as they need then they will shoot the hostage the economy and the entire thing will
implode.

So then the issues really over how much ransom is paid over in the ransom is always other people’s money usually taxpayers, so the banker picks up the phone to the politician and says if you don’t give us hope in what go kill the economy a game two of the top to you so como pay up so no one gonna be hurt.

So this is really the too big to fail mantra in action this is how the public gets put on the hook for debt the public had nothing to do with in the first place, so the question now is this all happen again I mean sure do you think yourself after a crisis of this magnitude there must be all classes have systems put in place to prevent a repeat of this type of Psych.

Do not be so to for example the mantra now is that we do not need aggressive financial regulation, but we simply need is an increase in capital requirements. But this is not actually true because bank capital is only in accounting residual its assets minus liabilities whose capital there is no banking leprechaun with the pot of gold labeled capital at the end of the financial rambled so too loud on the inside want to inflate assets.

And understate liabilities they can actually create bank capital so we are back to square one and this is why we need more lot less regulation, because when a bank collapses so too does the balance sheet of the country this leads to a liquidity trap for punters have too much to ask they don’t want to borrow the banks are still too much bad debts and they do not want to lend the economy gets stomped its stock gets stock, and its shrink start to fall.

Forcing austerity which has been the reaction thus far on such a country which is already suffering from thee leveraging and deflation is a bit like putting an anorexic on the times expecting that person to get pack, if you doubt us look at Europe right now at the banks are still weak deficit enormous unemployment double digits and prices are falling and the Italian central bank boss druggy is doing his best to turn the Euro into the lira behind the backs on the germans. And that ladies and gentlemen this hardly the solution.

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