Sunday, August 30, 2015

What Wasn't fixed after the 2008 Crash?

Begin quote:
"Investors knew it was coming but that didn't make it any less painful. Global markets, long due for a major painful correction after the past several years, have finally broken. China, the second largest economy in the world, led the plunge on August 24th, with the Shanghai index falling more than it has since 2007. Emerging markets, Europe and the U.S. all followed. The dow lost nearly 600 points, more than when U.S.'s credit was downgraded in 2011. Markets recovered, but investors were spooked. "This is one of the longest periods the market had gone through with such low volatility," explains Ruchir Sharma, Chief macro-economist for Morgan Stanley investment Management. "It was therefore vulnerable to some bad news."

end partial quote from page 13 of Time magazine September 14th with Colbert on the cover.

But, to me the question again is: "What didn't get fixed in the 2008 crash?"

Basically most things that caused the last crash could cause another one. We have just been lucky. No one much went to jail for causing the 2008 crash and likely no more will go to jail now for it either even though billions of dollars in fines have been paid by Banks and large investment firms for their part in causing the 2008 Crash.

But, for the most part nothing much is changed. If there are no real consequences to individuals then we could or should logically expect something as bad or worse to happen to the U.S. or global economy sometime in the future. This is a given.

However, there is also something to be said for "Being forewarned is forearmed too."

So, my point of view is without something like the:

  1. GlassSteagall Legislation - Wikipedia, the free...
    The term GlassSteagall Act usually refers to four provisions of the U.S. Banking Act of 1933 that limited commercial bank securities activities and affiliations ...
  2. What Was The Glass- Steagall Act? - Investopedia
    Established in 1933 and repealed in 1999, the Glass-Steagall Act had good intentions but mixed results.
  3. The Glass-Steagall Act, or the Banking Act of 1933, was enacted during the Great Depression to separate the powers of commercial and investment banks. It kept banks ...
  4. The Glass- Steagall Act Explained - NerdWallet
    The Glass-Steagall Act of 1933, passed during the Great Depression, prevented commercial banks from trading securities with their clients’ deposits and created the ... 

    Without something like this legislation in the U.S. or Europe once again or both, both the U.S. and Europe are in danger of destroying a lot of little people's nest eggs in various instruments from homes to stocks to Munis to savings to you name it.

    The guts just were cut out of the average investor in China where they invest 50% of their household income in the stock market or savings.

    Here where the average investment by household is less than 5% we likely cannot imagine that. However, imagine that the average investor in China right now, can't send their kid to college now, can't keep their home, can't retire even if they wanted to, much like what happened to many between 2008 and 2012 here in the U.S. when people lost their homes or the homes went underwater as an investment.

    If this can happen in China it can happen in other places like the U.S. or Europe too without adequate safeguards like another Glass Steagall Act here in the U.S. which was put in place because of what the 1929 crash did to the U.S. by sending 25% to 50% of the people homeless and into unemployment or food aid lines nationwide. However, unemployment compensation didn't even start until 1932 and that was only in Wisconsin. However, by 1935 6 other states instituted it including California. So, imagine millions of people losing their jobs, their places to live and moving into tents along rivers or tents just outside of towns. Because this actually happened especially from 1929 until 1935 or later.

    So Unemployment compensation helped people have a place to live until they got their next job and Social Security helped those few then who lived long enough to reach 65 during the 1930s.

    The Great Depression was between 10 and 50 times worse than the Great Recession for people who lived here in the U.S. then depending upon what area you lived in. and Many starved to death or killed themselves in the mayhem during the 1930s here in the U.S. 

    I grew up in the 1950s being told I was spoiled by all the good times and told almost every day some new horror story from World War II or the Great Depression. It made us of the Viet Nam War generation tend to be survivors and to think about saving money for a rainy day like our parents and grandparents had to do to survive the great depression and World WAr II.

    One of the many stories is that my grandfather didn't trust the banks during the 1930s because many collapsed then. So, instead he buried 25,000 dollars in a coffee can in his front yard instead. However, when he went to dig it up someone had beaten him to it. So, even though he couldn't trust the banks someone else might have seen him bury the 25,000 dollars. But, he still owned his 2 1/2 acres of Apple and Black Cherry trees and his home and his duplexes and garage and well and he still owned his Electrical Contracting Business so he was still okay through everything. However, the value of money was much different then. For example, you could buy a house for 7000 dollars in the 1950s ( a tract home) that you would now pay 250,000 to 500,000 for today here in the U.S. to give you some idea of the difference in money's value in the 1950s until now. So, 25,000 dollars then in the 1930 would be equal to 250,000 dollars now at least in real buying power.

    So, in the end we still need Social Security (for those who live long enough to get old). We still need Unemployment compensation (for those who are in between jobs), and we still need another Glass Steagle act so people don't lose everything once again like during the Great Depression when rich investors in Banks or other places do crazy things once again. Because it's only a matter of time before they do.

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