Wednesday, October 01, 2008

Lesson From a Crisis: When Trust Vanishes, Worry


An excellent summary of what we face at this moment: some needed medicine.
Please comment.

4 comments:

jrocker said...

A history lesson on the Great Depression may be just what the country needs, if this bill is as good as the article says.
It's important that we know what this 'bailout' bill will really do. It seems like most think it is just a 700billion check for wall street, which just isn't the case?Or is it? I understand how Wall Street needs to be helped, but 700billion seems a little excessive. How exactly does this bill dole out the 700billion? Does Paulson have no oversight? Not even from the Judiciary? That doesn't sound too good to me, but I do have a slightly biased opinion when it comes to the government.
If its as bad as my parents really think, God help us.
I guess now, since the bill has been passed, we can only hope that it has provisions in it to prevent blank checks to CEO's and overall will have the best interests of the middle class at heart. hope so...

jrocker said...

A history lesson on the Great Depression may be just what the country needs, if this bill is as good as the article says.
It's important that we know what this 'bailout' bill will really do. It seems like most think it is just a 700billion check for wall street, which just isn't the case?Or is it? I understand how Wall Street needs to be helped, but 700billion seems a little excessive. How exactly does this bill dole out the 700billion? Does Paulson have no oversight? Not even from the Judiciary? That doesn't sound too good to me, but I do have a slightly biased opinion when it comes to the government.
If its as bad as my parents really think, God help us.
I guess now, since the bill has been passed, we can only hope that it has provisions in it to prevent blank checks to CEO’s and overall will have the best interests of the middle class at heart. hope so...

Amy V. said...

This article makes a very interesting point about the nature of economic downturns. The author relates the phenomenon to a loss of information, much like the "used car sale" example in the book Freakonomics. The banks are at a loss of information about their loans, so they panic making the crisis worse. The author makes a crucial point saying, that to determine the depth of a crisis, one should watch interest rates, not the stock market. Higher interest rates indicate a lack of trust in the Bank. They charge higher interest when they do not believe that the the loans are credible. Also, in the article there are many references to credit "drying up." What exactly does this mean? Does it refer to this phenomenon in which doubt diminishes the credibility of credit?

Liz said...

I agree with the article's belief that it simply comes down to trust. Unfortunately its in short supply in the current economy. I don't think it's fair to place all the blame on wall street, however they are partly responsible for the lack of trust. Watching AIG use bailout money to go on company retreats does not instill much trust. Neither does, as the article says, Bear Sterns supposedly having collateral but failing to follow through. But people also need to take some responsiblity for their own actions. Taking out a mortgage that is way more then you can handle hurts everyone. Banks and lenders need to be able to trust that you can be responsible for as much as you claim.