362 Powerpoint.

FIRST!

I mean…in an optimum world the brilliant and charismatic President of the United States of America would tell the plebes that their bread and circuses were going to continue.

<3 Tom Hanks. He was Woody in the Toy Storys.

Because I love to explain things… credit is pretty much maybe money. Like, people give you stuff for free. Because you maybe will pay them back. When you do, things go okay. When you don’t, there is usually jail or something.

Lots of banks gave out lots of credit to people they probably shouldn’t have. And they did it in a way that made it very hard for the people to pay back with real money. This meant the banks had lots of maybe money that they used like real money. But then the people with credit didn’t have any real money. Which meant the banks didn’t, either.

And the problem with banks is, if they have no real money, they fall down go boom.

And when banks fall down go boom, we have less money, maybe and real, because credit is a big part of why it’s good to have banks in the first place. Less money is a bad thing, because no money makes you poor. And when lots of people are poor, or getting not as rich as they used to be, less things are bought and we need less people to make things. So more people get even poorer.

I think… I’m pretty rusty on the whole shebang myself. I got a passing grade on my AP Macro Economics test…

Wow, i should post this on my livejournal.

Yunno, if you’re gonna associate the crash with something random from the era..you could say, point to the lack of a good world war in the ’20s. Nothing helps the industrial economy like a them or us, all or nothing war.

Sorry, just got done watching Starship Troopers.

I comment on the second to last comic I need to read about a book, and the latest newspost is about books. I’m a genius.

Also, we need to be told things will be okay by Ace Ventura. That, or The Doctor. Who better than The Doctor. Preferably the 10th, beacuse he’s so great at being great.

With all his oobly-googly timey-wimey stuff.

Tom Hanks would totally put people at ease. Or get criticized to death. Whichever comes first.

Seriously, though, it’s like this. I’m in an economics class right now so I hope that makes me qualified to explain this base don what I’ve learned. We are a country that spends money it doesn’t have on things it can’t afford. Ergo, Capitol Hill decides that we should rectify the situation by spending more money we don’t have on more things we can’t afford, e.g the financial sector.

Yes, the short-sighted media is largely to blame, as are a bunch of politicians who pretend to know things about economics and history that they clearly don’t- or else we might not be in this mess. The Tom Hanks/Optimus Prime idea was good; frankly, it would probably be good if they got voted into office, though that would probably have to wait. I’m for Obama, myself, and neither Hanks nor Prime are currently running, UNFORTUNATELY. The bailout ideas are all pretty bad, though, since the economy is like a living organism that is designed to undergo change and fluctuation. It can recover from injuries and, like a healthy immune system, does better when it’s allowed to beat things by itself than when it’s replaced by medicines and languishes from lack of use. Firms and industries that are too weak to support themselves should die off, in accordance with natural selection, leaving the better ones to replace it. It’s like paradigm shifts in science: the victorious viewpoint (or firm/industry) is always better. Forcing stability can lead to disastrous results (thank you, Law of Unintended Consequences).

Honestly, though, it’s a little too late. The actually good economists have seen this coming for a while and didn’t hesitate to warn us, though the people in their foolishness were quick to silence them with shouts of “Chicken Little says the sky is falling!” Now, it seems that we’re headed to a place as bad as- if not worse than- the great Depression. It could very well be worse because in the Depression, we were the largest creditor nation in the world. Nobody ever owned a country more money than the world owed us then. Now, we’re the largest debtor nation; we owe everyone else money because of our enormous trade deficit.

People will be hoarding money and burying it in coffee cans in their back yards, a la the first great Depression, if things continue on their present course. I myself will be hoarding MREs (Meal Ready to Eat, which is basicially military rations that keep forever), weapons and ammo (because, if things get as bad as they could, civil unrest/violence/anarchy and even foreign invasion might occur), and portable water filters, like those you take camping. That’s because, if the shit really hits the fan and there’s no money left, the first thing to go before the angry mobs take to the streets will be the utilities. Googbye water, gas, and electricity. Also, out of the simple fact that we owe them everything and not out of any poltical dislike of the country (I’m a Communist apologist sometimes), China might actually see fit to invade us, serving out the international role of the repo man. Here’s hoping none of that happens and it probably won’t get THAT bad, though it’s always a good idea to have someone prepared for it, like me. Yeah, me vs. the rest of the world. I’m going to die…

So, yeah, there’s the story in a nutshell. But I’m just a junior in high school. Heh, what do I know?

Pooped ’em…

Tom Hanks… WAS NOT WOODY IN TOY STORY! It was Tim Allen… -_-

Secondly. Panic is the cause of a stock market crash. It happened to Washington Mutual. People freaked out, and pulled all of they’re money out. It happened to a lot of banks, but more so to Washington Financial.

But then again, the news is broadcasting panic! Because that’s what they’re good at. It makes people watch TV. Which gives them ratings. Which brings in Ad Agencies which generates income. People are naturally drawn to bad things. Which is why they watch Soap Operas. A disaster gets live coverage, while a Nation Wide Fundraiser gets a 3 minute spot.

Crave: Tim Allen was Buzz Lightyear. Tom Hanks was Woody.

Wait… Like Carol is one to talk. She’s not exactly a feather herself :)

The Doctor……..the newest one((Whatever number he is)) would be the best to tell us the truth.

Also a war dosn’t necesserily help an econimy sometimes it makes it worse like……..now. The whole reason we had a boom after both WWs is because we SOLD the weapons, food, medical and other things to the people fighting. We only joined the last part and we finished it quickly.

Vote Peter Cullen 2012!

EDIT: I just finished writing all this and realized how longwinded it is. I won’t claim to know everything about economics: I’ve never even taken a class on that subject specifically. I do pick up information though, and it has accumulated enough that I can confidently assert that I know more or less what was going on around 2008 (which was 7 years ago, now). I suppose you’ll have to take my word for it that the following is a 90+% accurate depiction of the economic situation that led to the collapse (though I disregard some details like the difference between loans and mortgages for the sake of simplicity).

Note: Since I am posting this in 2015, I suppose I can’t very many people to still ind it relevant. If you had problems understanding what happened at the time and never looked into it, though, I feel confident that you will have a working understanding after reading the rest of this ridiculously long post.

The real problem is that the entirety of our financial system (at least here in the US) is based on trust. Money is a symbolic concept. A paper dollar is worth considerably less than what you can buy with it. This is because the value of the Dollar is not based is not based on it’s material worth, but rather on the fact that I know that at the end of the day I’ll be able to trade it for something I actually want. Thusly do I place my trust in our financial system.

Of course, If I didn’t believe that I would be able to trade my otherwise worthless paper money for actual goods, then I wouldn’t accept payment in that paper money. And the person paying me would begin to lose their faith in that concept as well. And since fewer people want it, the value of the paper money would go down. A store manager would know that he can no longer use paper money to buy what he needs or wants so he would either trade for something with actual value or demand that his customers pay more money than they would otherwise to cover for the reduced value of the currency. Either way, his customers would need to be paid more money from their jobs to cover the expense. The businesses for whom those customers work would then likewise have to charge more for their services in order to pay their employees.

Banks also operate on trust. They tell you that when you put your money in the bank, it will be safe. Nobody will steal it. They tell you that you can come back any time and retrieve your money. What they don’t tell you (directly anyway) is that your money doesn’t stay at the bank. They take your money and they spend it. Sort of. They give out loans and things using your money. But since the loan agreement requires that the debtor pay back more money than they borrowed, over time the money comes back to the bank. The Bank, of course, keeps a reasonable supply of cash on hand so that it can make new loans and give money to people who ask for a withdrawal. And because the Bank knows that once you put money in a safe place, you aren’t likely to need it for a while, they know that they can safely spend (or invest) the majority of your money without significant risk.

The problem is Time. When the bank gives out a loan, the deal is that the debtor gets the money they need right now, but agrees to pay the creditor back with interest after a set period of time (or over a period of time). Until that debt is paid off, the bank can’t use that money for anything (because it isn’t theirs anymore). If, for some reason, a lot of people decide to take their money out of the bank when the bank isn’t expecting it, the bank can run out of it’s cash supply. This is very bad for a bank, because it puts them in a very sticky situation. If they can’t pay people the money that those people put “safely in the bank”, those people may think that the bank is crashing. Unfortunately, the first instinct someone has when they hear that their bank is crashing is to try and withdraw all their money from it. If they do, the bank is in an even worse position: It doesn’t have the money it promised everyone it would keep safe for them, because it been given to debtors, who haven’t paid it back yet. The bank can’t get that money back without breaching their contract with the debtors. But they have to pay that same money to their account holders, or they breach their contract with them. So by acting as though your bank has crashed, you’ve assisted it in a downward spiral from which the bank cannot escape without breaching their contractual obligations and further reducing the public’s trust in them.

It is worth noting that the bank must operate this way in order to function in a capitalist economy. If it doesn’t invest your money, it won’t get the interest back, which is what allows them to pay their expenses and make a profit.

It is also worth noting that this whole situation makes it so that if enough people think the bank will fail, it does. The bank is dependent on the trust of it’s account holders.

Of course that means that if you’re a widely trusted person or news source, and you tell everyone that the bank is about to fail, it might. Because if people believe you, they withdraw all their money and make the bank fail. And everyone will think that you predicted it before the signs showed. That will make them trust you more as an accurate news source. And since we’ve already shown that the trust of many people can be turned into money, That would make you a very rich and influential news person.

As you can no doubt see, a greedy news person has an excellent motive to preemptively ‘Predict’ the collapse of a bank, so it’s understandable that they might pay close attention to various sorts of economic statistics in the hope that they might be able to use them to cite a believable ‘Prediction’. Which undermines the trust that the bank needs to run.

Now, the really scary part becomes evident once you consider the government’s involvement in the whole banking system. You see, the government is only able to pay it’s operating expenses and debts because of money. The same money that the Government prints. The worth of that money is determined by people’s confidence in the money’s value. So the Government has a vested interest in making sure that people value money. Of course, if a bunch of banks collapse and people start wondering if the whole economy is going with them, they question how much the money that that economy runs on is actually worth. But since the value of the money is based on trust, people questioning it’s value causes it to be worth less. Which is bad for everyone.

When money is worth less, people once again need more of it. So the government has to make more. But with more money available, the value of that same money is once again decreased. This causes an Inflation Spiral (Inflation being the term used to describe the property of money to become less valuable over time).

Now, since the government wants everyone to value the money and to trust them and the banks (since that is what will stop these downward spirals), they have a difficult problem. They have to do their best to restore people’s faith while introducing as little extra money into the system as possible (so as to avoid inflation). Their solution, as we know, is the bailout. The way this works (in theory) is that if a bank doesn’t have the money to pay it’s account holders or it’s debts, the government steps in and gives them a bunch of money. The bank pays off everyone who is afraid that they’re failing, allowing those people to come to the conclusion that the bank is fine, thereby partially restoring trust in the banks. People who hear about this plan know that the government has money, so they reason that if the government is backing the banks, then the banks can be trusted. So more trust returns to the banks. At the same time, those people also know that the government is working to solve the financial crises, which makes them trust the government more. The more people trust the government, the more they have to trust the banks that the government is now backing. So, theoretically, everyone wins and the only thing that changes is that taxes go up a little for a while to pay for the bailout money.

Naturally, since this is real life, things never go that smoothly. Now we have to once again consider the perspective of the banks. They were going about their business, lending money to people they knew could pay it back and using the money of their account holders to do it (which is business as normal for a bank), when all of a sudden a bunch of people withdrew all their money at once. The Bank couldn’t pay everyone, so people started panicking and everyone tried to withdrawn their money. The bank was having a hard time, until in rides the government on their white horse to give the bank a whole bunch of money, along with a strict warning not to be so careless in the future. The bank pays off a bunch of their account holders with the government’s money, faith is restored in the bank: Crises Averted. Mission Accomplished. And then all those debtors pay back the bank. The bank’s accountant does a double-take. “We can’t possibly have that much money: we had to get bailed out just a few months ago,” he says. He wonders how it happened, so he decides to go over some of the records to see what caused it. He finds that some years ago, the bank became a tiny bit more lax in it’s standards. It started loaning money to people that maybe couldn’t pay it back. The Accountant looks at the records for the last few months. He sees a lot of debtors paying off their old loans. “Wow, we really took a risk back there, and look where we are now. That really seems to have paid off,” he says. Since he likes to think he’s good at his job, he brings this to the attention of his superiors, saying “Hey look! I think I found out what made us all this money! If we lower our debtor standards, and take a little risk, it will pay off, and we’ll make lots of money. And oh, by the way, about that raise I asked for the other day (hint, hint; wink, wink)”. So the management of the bank decides to lower their standards and be less responsible with the money, all in the pursuit of higher profits. Then people stop paying back their loans. They declare bankruptcy so the bank won’t pursue them. The bank loses all hope of getting that money back.

Time goes on. The bank loses more money to unqualified debtors, but they persist. “The data shows that we’ll make more money this way. Give the money some time to filter through,” says the Accountant. But the bank loses more money. They’ve lost all the money they made after the bailout. Then, out of the blue, a bunch of people decide to withdraw all their money. The bank runs out of cash and can’t pay them. People panic. “The banks can’t give us back their money: the bailouts didn’t work! The economy is going to explode, or collapse, or whatever you call it when everyone gets poor and another Great Depression starts,” they shout.

Now nobody trusts the bank. The government’s plan failed, so people are starting to question them, too. The government sees what the bank did, so they don’t trust the banks either. “We bail them out by giving them a bunch of money, and they squander it,” says the Secretary of the Treasury, “We can’t trust them any more”. But this is politics. Things are never just black or white in politics. “Wait. Election season is coming up. If we admit that we were wrong now, there’s no way we’ll get voted back! Let’s bail them out again for now, and then after the election we’ll tell everyone what happened,” says some (insert appropriate adjectives) politician.

Once again, Murphy’s law intervenes. The out-of power political group sees their chance and takes it: “It’s been many months,” they say, “If these guys were going to fix the economy, they would have done it. We’d be much better at their job than they are”. The election passes, and the new party comes in. But the old party hasn’t told anyone about their secret. They can’t tell the new leaders, because they know it would be political suicide. They’d never get reelected, and who knows if they’d ever find another decent job.

And so it goes. Time passes, and the new party takes hold and starts to change policies, unaware of the recent failings. And the bank goes on doing it’s thing, without learning the important lesson that was staring them in the face from day one.

Again, sorry about the terrible mega-post. I really didn’t mean to take up so much space. But since I think I’ve done a reasonable job explaining a complex issue, I feel it would be wrong to try to shorten it. I hope I’ve enlightened someone and lead them to a better understanding of the world.