NationStates Jolt Archive

"Let's make money" is the title of the upcoming documentary on the global financial system by the Austrian Erwin Wagenhofer (http://german.imdb.com/name/nm2025932/). He's been working on it for three years, and now that the financial crisis has started in earnest, it's about to be released (30th of October). Here's an excerpt from an interview with a German news source (translated by me):
tagesschau.de: Mr. Wagenhofer, you've been following the trail of our money through the international financial system for three years now. At your release date, the crisis broke loose. Good timing?

Erwin Wagenhofer: No one can be happy about the crisis kicking off in earnest now. Fact is that all the people that we talked to these past three years saw this crisis coming. But no one did anything about it. To this date, that's the most surprising thing for me. It's as though you're sitting in a car and driving around at 200 km/h. The longer you do, the greater the chance that you'll provoke an accident. No one did anything about the financial crisis - with the knowledge that its always society that pays the tab. There's a plan behind that.Source (http://www.tagesschau.de/wirtschaft/interviewwagenhofer100.html) (in German only)

The underlined part is... pissing me off... to say the least.

Hmm...

Is the documentary going to be released in English?

I find that hard to believe, true there were some economists that saw it coming, but everyone in finance he spoke to? I don't think I can believe that.

All of the Austrian School of economics saw this coming. They also predicted the Great Depression during the Roaring Twenties. No one listened then either.

Is the documentary going to be released in English?No idea. Maybe.
I find that hard to believe, true there were some economists that saw it coming, but everyone in finance he spoke to? I don't think I can believe that.Can or don't want to? I've had the suspicion that this was going on for a while, that this didn't come out of the blue but was a colossal failure of the individualist and unrestricted nature of free-market capitalism. And now he confirms it.

am I the only one who thought this thread was going to be on the great NS counterfeit scheme?

also what goes up must come down

Can or don't want to?

Actually, re-reading the sentence, if it's just people from the past three years, then I'm not surprised actually. I remember people here predicting this sort of thing about 2 years ago.


I've had the suspicion that this was going on for a while, that this didn't come out of the blue but was a colossal failure of the individualist and unrestricted nature of free-market capitalism. And now he confirms it.

I don't think it's anything to do with the nature of the free-market, just that there wasn't government intervention where it was needed (in areas of banking), and too much dodgy interference in other areas (but that's another issue).

I find that hard to believe, true there were some economists that saw it coming, but everyone in finance he spoke to? I don't think I can believe that.

You don't want to believe it. There is a difference. But is it really so hard to believe that those amoral rich bastards, those capitalist parasites were perfectly willing to just let the corruption continue in the comfortable knowledge that their political friends would be more than willing to use government funds to save them? Aren't you glad that our taxes are used for such noble goals?

Actually, re-reading the sentence, if it's just people from the past three years, then I'm not surprised actually. I remember people here predicting this sort of thing about 2 years ago.Noted.
I don't think it's anything to do with the nature of the free-market, just that there wasn't government intervention where it was needed (in areas of banking), and too much dodgy interference in other areas (but that's another issue).Well, if there wasn't government intervention when needed, then it would be the nature of the free market =P
Basically, I don't think the market is capable of preventing stuff like this due to the drive for greater profits. If someone steps back and realizes that this is going to end in a disaster, their employer just hires someone with less scruples. Outside intervention is needed. What the documentary is apparently going to show is that the financial world had the knowledge to prevent or at least mitigate this crisis, and they failed to act.

But is it really so hard to believe that those amoral rich bastards, those capitalist parasites were perfectly willing to just let the corruption continue

If they knew that it would fuck up their careers, and their fortunes, then no.

in the comfortable knowledge that their political friends would be more than willing to use government funds to save them?

Then their predictions were faulty.

Well, if there wasn't government intervention when needed, then it would be the nature of the free market =P

If you define the free-market as practically anarcho-capitalism, which I think is a bit silly.


Basically, I don't think the market is capable of preventing stuff like this due to the drive for greater profits. If someone steps back and realizes that this is going to end in a disaster, their employer just hires someone with less scruples. Outside intervention is needed.

Agreed, but I think the bolded is an exaggeration, at least within the private sector.

All of the Austrian School of economics saw this coming. They also predicted the Great Depression during the Roaring Twenties. No one listened then either.

I am sorry it perhaps has to do with all the rest of the time they cry recession and it doesn't happen. the Austrian school of economics is the chicken littles of economic theory. they also have little to no math basis compared to other economic schools.

I don't think it's anything to do with the nature of the free-market, just that there wasn't government intervention where it was needed (in areas of banking), and too much dodgy interference in other areas (but that's another issue).

Actually, much of the housing bubble is due to the government requiring banks to make loans to pretty much anyone who applied due to "nondiscrimination" laws. A bank doesn't make a risky loan if it wants to stay in business, but the government said that banks were required to ignore location, risk, ability to repay, etc. Yes, it make a boom in constructiuon but now we see the consequences.

Combine this regulation effect with the inflation of our fiat currency and worldwide national deficits and this recession/depression was inevitable. It was only a question of ho long Wall Street and the Federal Reserve/ International Monetary Fund could keep us from noticing how screwed up everything really was.

I am sorry it perhaps has to do with all the rest of the time they cry recession and it doesn't happen. the Austrian school of economics is the chicken littles of economic theory. they also have little to no math basis compared to other economic schools.

"Economics is not a mathematical study, but rather a philosophical study" - paraphrase of a quote by Murray N. Rothbard.

In case you haven't been paying attention, we HAVE had many recessions and bubbles. This is cused by the current Keynesian economic system. It exaggerates the natural rises and falls in the market until the fall is too hard to handle. The market always moves toward equilibrium, and government interference always adds extra instability because the artificial stimulation of the market makes it that much harder to strive toward the equilibrium point.

Actually, much of the housing bubble is due to the government requiring banks to make loans to pretty much anyone who applied due to "nondiscrimination" laws. A bank doesn't make a risky loan if it wants to stay in business, but the government said that banks were required to ignore location, risk, ability to repay, etc. Yes, it make a boom in constructiuon but now we see the consequences.


Yeah, I kind of made a thread about that, it ended horribly (I'm not sure if this is really accurate, but it's an interesting take on the issue), I really suggest you don't argue this, it's just something that NSG seems to get really touchy about.

Economists are weathermen.

Sunny day.
"It's gonna rain."
Sunny day.
"It's gonna rain."
Sunny day.
"It's gonna rain."
Sunny day.
"It's gonna rain."
Sunny day.
"It's gonna rain."
Sunny day.
"It's gonna rain."
Sunny day.
"It's gonna rain."
Sunny day.
"It's gonna rain."
Sunny day.
"It's gonna rain."


It rains.


"See!! Told ya I was right."

If you define the free-market as practically anarcho-capitalism, which I think is a bit silly.Not entirely. Liberals, conservatives, and libertarians have certainly been pushing for it to be under the guise of the invisible hand. Where the financial system is concerned, we can probably agree that there's been less oversight than necessary.
Agreed, but I think the bolded is an exaggeration, at least within the private sector.Nyeh. I mean it's probably the fear that someone else can make the money you want to make that's kept people from acting on the knowledge that they were heading towards a cliff.

I am sorry it perhaps has to do with all the rest of the time they cry recession and it doesn't happen. the Austrian school of economics is the chicken littles of economic theory. they also have little to no math basis compared to other economic schools.

Economists are weathermen.

Sunny day.
"It's gonna rain."
Sunny day.
"It's gonna rain."
Sunny day.
"It's gonna rain."
Sunny day.
"It's gonna rain."
Sunny day.
"It's gonna rain."
Sunny day.
"It's gonna rain."
Sunny day.
"It's gonna rain."
Sunny day.
"It's gonna rain."
Sunny day.
"It's gonna rain."


It rains.


"See!! Told ya I was right."

These are good points, the ASE were kind of hysterical from what I hear, if they're constantly crying 'zomg recession!', they're going to be right eventually.

Actually, much of the housing bubble is due to the government requiring banks to make loans to pretty much anyone who applied due to "nondiscrimination" laws. A bank doesn't make a risky loan if it wants to stay in business, but the government said that banks were required to ignore location, risk, ability to repay, etc. Yes, it make a boom in constructiuon but now we see the consequences.


I agree this is a large part of the issue. along with low int rest rates encouraging more loans and discouraging savings.

Not entirely. Liberals, conservatives, and libertarians have certainly been pushing for it to be under the guise of the invisible hand. Where the financial system is concerned, we can probably agree that there's been less oversight than necessary.


Not sure, I think it's more the way it's been over sighted, I mean lets not kid ourselves here, the west heavily regulates its markets, even the US. I just think they're a bit crap at it.


Nyeh. I mean it's probably the fear that someone else can make the money you want to make that's kept people from acting on the knowledge that they were heading towards a cliff.

But seriously, I think most of the blame should be put on the regulators in some ways, there's only so much bankers can do, the regulators should really have caught onto what was going on.

Not sure, I think it's more the way it's been over sighted, I mean lets not kid ourselves here, the west heavily regulates its markets, even the US. I just think they're a bit crap at it.

But seriously, I think most of the blame should be put on the regulators in some ways, there's only so much bankers can do, the regulators should really have caught onto what was going on.I dunno, this sounds like we should put the blame on the cop for not stopping the thief and let the thief go free to me, and I don't agree with that.

I dunno, this sounds like we should put the blame on the cop for not stopping the thief and let the thief go free to me, and I don't agree with that.

Regardless, the blame game is pointless. What we know is that they should have stepped into to stop these dodgy loans, you can't rely on the banks to make perfect business decisions, when the current state of the market is so.. confusing.

Regardless, the blame game is pointless. What we know is that they should have stepped into to stop these dodgy loans, you can't rely on the banks to make perfect business decisions, when the current state of the market is so.. confusing.Well, not perfect. But apparently they knew well in advance so they could have done something about it. As I said, they may not have been able to avert it, but at least mitigate the effects. Overall a bit of blame-game is needed to see what needs to be done and where it needs to be done. It's sure biting us in the ass that oodles of FBI agents have been diverted from buisiness fraud to anti-terror without ample replacement, for instance.

Well, not perfect. But apparently they knew well in advance so they could have done something about it.
What is "it" though? Lots of people would have said a crisis is in the making, but there would have been few to actually point at where it would hit.

I know this must be hard to swallow, but people actually thought their risk management strategies with the CDOs and so on would work and protect them. People don't knowingly drive their companies into the ground - they may get careless, but if they knew what everyone says they knew now, you can't seriously tell me they hadn't acted differently.

And besides, even people who saw a subprime meltdown coming, like the proprietary traders at Goldman Sachs, who shorted the things and made $3 billion or something from it, eventually got hurt. Even firms that didn't do anything wrong are getting their arse kicked if everyone around them is falling to pieces.

So the only thing that could have been done is run with much less gearing, have more equity and less debt. And anyone who suggested that was kicked out of the office by their shareholders. Because even old pensioners who own a bit of UBS aren't going to stand for their firm paying jack all dividends, while all the other banks are cash cows.

Just read this (http://www.economist.com/finance/displayStory.cfm?source=hptextfeature&story_id=11897037).

The whole thing was a house of cards with golden parachutes. As long as you climed high enough in time to make your leap then it was ok for you. But surely the big problem was believing that levels of lopsided development would cotinue throughout the world so that a smaller group could utilise the best of the resources and make use of those to come up with better opportunities (the old nessecity is the mother of invention thing).

But surely the big problem was believing that levels of lopsided development would cotinue throughout the world so that a smaller group could utilise the best of the resources and make use of those to come up with better opportunities (the old nessecity is the mother of invention thing).
What do you mean?

All of the Austrian School of economics saw this coming. They also predicted the Great Depression during the Roaring Twenties. No one listened then either.

*Can't think of a joke about Germans and Nazi's so let's just pretend I made one here*

I agree this is a large part of the issue. along with low int rest rates encouraging more loans and discouraging savings.
http://economistsview.typepad.com/economistsview/2008/02/activist-moneta.html
No matter how many times people say it..., activist monetary policy did not cause the bubble. Looser money is a necessary pre-condition for a bubble, but it is not sufficient to cause one on its own.

[...]

Rather than recap that econometric research, consider the following. You walk out your door one February morning, slip on an ice patch, and fall. While this may confirm your preference for summer, you do not say "winter made me fall" if your concern is to prevent future crashes. You say: "Why wasn't this walk cleared of ice? Why didn't I look where I was going? Should I be wearing boots when it ices over?" While one does not slip on ice in summer, winter did not cause the accident, and that season is not something one can feasibly prevent even locally.

So Leon you're saying that because the banks and other loan brokers offered low "honeymoon" or "teaser" rates to people who then thought they could afford it but were unable to when the rates raised and had to default are not part of the cause?

What about the fact the The Fed kept rates low for an extended period of time after the initial reasons for lowering them had passed?

What do you mean?

I was thinking about the idea that market capitalism needs to continue making better profits each year then it did the previous year but that if resources get strained or used up then things slow down, or if you need to share the wealth with across more countries then that gets harder.

As places like China really develop then they're in a position to sieze a better slice of the pie and buy up resources like capital and oil making them more expensive.

I'm not sure if that is directly relevent here or if its more of a background factor.

Anyway I read the article you linked, it was interesting though I'm not familiar with all of the phrases it used. The comments seem quite interesting though. What are your thoughts on those?

So Leon you're saying that because the banks and other loan brokers offered low "honeymoon" or "teaser" rates to people who then thought they could afford it but were unable to when the rates raised and had to default are not part of the cause?
Lots of things were part of the cause. But picking out people to blame, as emotionally satisfying as it may be, is guaranteed to leave some out and, more importantly, to leave us not learning some lessons that should be learned.

Of course where people broke laws, such as accountants or CEOs not publishing proper numbers about the health of products or the company or people basically lying, cheating and stealing to get people to sign mortgage contracts, punishments are in order. But that's not a response to the crisis.

What about the fact the The Fed kept rates low for an extended period of time after the initial reasons for lowering them had passed?
That should have caused inflation, and not much more. I'm looking at this for a potential thesis topic, and the links between monetary policy and asset price bubbles are rather thin on the ground (more so than I would have thought). But ask me again in a year or so and I might be able to tell you more.

Lots of things were part of the cause. But picking out people to blame, as emotionally satisfying as it may be, is guaranteed to leave some out and, more importantly, to leave us not learning some lessons that should be learned.

Of course where people broke laws, such as accountants or CEOs not publishing proper numbers about the health of products or the company or people basically lying, cheating and stealing to get people to sign mortgage contracts, punishments are in order. But that's not a response to the crisis.

Oh I know that there were lots of things that were apart of the cause but I was saying this was apart of it and not the only thing we should be blaming, I am not one to say the banks did this by lending money or some people did this so let's punish them, because there are a wide variety of

That should have caused inflation, and not much more. I'm looking at this for a potential thesis topic, and the links between monetary policy and asset price bubbles are rather thin on the ground (more so than I would have thought). But ask me again in a year or so and I might be able to tell you more.

Don't worry I will :p

But there was something in The Economist that was describing how the inaction of The Fed to raise the cash rate sooner did lay some of the groundwork for this. I am sure you would have read it or any other one of theirs I had read a few, when I find the particular article I will link it.

But it will be interesting to hear what you find during your research next year.

Regardless, the blame game is pointless. What we know is that they should have stepped into to stop these dodgy loans, you can't rely on the banks to make perfect business decisions, when the current state of the market is so.. confusing.

The "blame game" is NOT pointless. If regulators made a mistake, their approach has to be different in the future. If banks made a mistake, it's their approach which has to be different in the future. "Fixing blame" is a corollary of "working out what went wrong so it doesn't happen again."

Perhaps markets will pay more attention to what corporations (lending institutions, anyway) are actually doing, when considering whether to reward them by buying shares. There has been too much attention payed to market share ... when the lending market it turned out was bubbling out with false value, ie unrepayable loans.

I was thinking about the idea that market capitalism needs to continue making better profits each year then it did the previous year but that if resources get strained or used up then things slow down, or if you need to share the wealth with across more countries then that gets harder.

As places like China really develop then they're in a position to sieze a better slice of the pie and buy up resources like capital and oil making them more expensive.

I'm not sure if that is directly relevent here or if its more of a background factor.
If you're talking about America's public and private debt building up, and its ability to repay being doubted because of its drop in relative economic strength compared to, for example, China, you may have a point. But it really is very, very distant background - it's not like people have stopped lending the US money.

The problem was more US-internal, and it wasn't so much the fact that oil and commodity prices increased (hey, most of the banks made a killing shifting their trading from credit derivatives into commodities over the past year, and only that blowing up really brought home the message that these banks are in the deepest shit ever) as it was that lots of cheap money was chasing fewer and fewer genuinely solid assets. So it ended up chasing less solid stuff, and where there was demand, bankers created a supply. And some of that extra money came from the developing world, certainly.

Anyway I read the article you linked, it was interesting though I'm not familiar with all of the phrases it used. The comments seem quite interesting though. What are your thoughts on those?
It is a wee bit technical, but it gets across the train of thought at the time and some of the reasons things didn't get picked up. And, refreshingly, it didn't use the word "greed" once, which everyone seems to feel comfortable doing at the moment.

The comments - well, most of them are good (like the one about the auditing accountants being at fault as well). A bonus of the Economist website is that when they check comments before uploading it, they do it properly. Put a similar article on BBC or something, and you get a lot of content-less frothing at the mouth.

I can't help thinking that the reason people in general see this as a "zero blame" situation ... just want practical fixes and quickly ... is that we are all to blame. We loved our cheap credit, we got down in it and wallowed. Even when we didn't need to -- maybe we could buy a car outright, but why not take that interest-free loan? Pay it off when it starts to cost.

You can point the finger at poor and ill-informed people who bought property they couldn't afford. Or you can point at lenders who gave them loans they knew wouldn't be repayed. But if real interest rates start to soar, a good proportion of us have loans we won't be able to afford. If it goes as far as stagflation, suddenly we're one of those bums who wasn't cautious enough. Out of a job and in the rental market.

Blame leads to punishment. It's not about the gratification of having someone to blame ... it's about punishing individuals or institutions for causing harm intended or not. A "criminal negligence" standard, not a "malicious intent" standard should be applied.

Yeah, I kind of made a thread about that, it ended horribly (I'm not sure if this is really accurate, but it's an interesting take on the issue), I really suggest you don't argue this, it's just something that NSG seems to get really touchy about.

Yeah - saying a socialist policy started by Carter and worsened by Clinton has created the monster facing us now will not endear me to the leftists here. Not that those on the 'right' tried to reduce the problem.

*edit* from the CIA factbook entry on the USA (https://www.cia.gov/library/publications/the-world-factbook/geos/us.html)

Budget:
revenues: $2.568 trillion
expenditures: $2.73 trillion (2007 est.)

Public debt: 60.8% of GDP (2007 est.)

Industrial production growth rate: -1.7% (2007 est.)

and we keep digging. the "bailout" just made everything worse. This situation WILL collapse eventually, and the longer we wait the worse the fall.

Yeah - saying a socialist policy started by Carter and worsened by Clinton has created the monster facing us now will not endear me to the leftists here. Not that those on the 'right' tried to reduce the problem.

*yawn*

This "leftist" ain't biting. The big end of town screws up royally, starts wailing for government intervention. Culprit must be government intervention. Too weak to deserve an argument, really.

EDIT: Though the wild non-sequitur of what you added in the edit does provoke me to tease you a bit. What connection do you see between the "socialist policies" (presumably, anti-discrimination legislation) and public debt?

Inetresting

The movie seems to be named "Let's make Money" without any German equivalent. Teases!

Perhaps someone can watch this review and tell me if it's in English. DeutscheWelle review (http://www.dw-world.de/popups/popup_single_mediaplayer/0,,3724803_start_879_end_1208_type_video_struct_7885,00.html?mytitle=%2522Let%2527s%2BMake%2BMoney%2 522%2B%25E2%2580%2593%2BA%2BFilm%2Babout%2Bwhat%2BBanks%2Bdo%2Bwith%2Bour%2BCapital%250D%250A). I'm still ideologically opposed to installing Flash because I don't want my brain rotted by YouTube, but if it's all we've got I just might.

(If that link doesn't work, it came from here (http://www.dw-world.de/dw/article/0,2144,3707235,00.html) .)

What is "it" though? Lots of people would have said a crisis is in the making, but there would have been few to actually point at where it would hit.The liquidity crisis itself perhaps not but the sub-prime mortgage crisis that caused it has been predicted for quite some time.
I know this must be hard to swallow, but people actually thought their risk management strategies with the CDOs and so on would work and protect them. People don't knowingly drive their companies into the ground - they may get careless, but if they knew what everyone says they knew now, you can't seriously tell me they hadn't acted differently.I don't doubt they were caught by surprise that they were hit. What I'm saying is that they saw the crisis was coming, but because everyone felt they were secure didn't do anything about it. I'm sure if they had realized that the crisis wasn't just going to hit the competition, they would have acted differently.
And besides, even people who saw a subprime meltdown coming, like the proprietary traders at Goldman Sachs, who shorted the things and made $3 billion or something from it, eventually got hurt. Even firms that didn't do anything wrong are getting their arse kicked if everyone around them is falling to pieces.That's the thing though, the sub-prime meltdown had been pointed out for a while now, even if the consequences thereof weren't. Enough people simply didn't care about the risk involved.
So the only thing that could have been done is run with much less gearing, have more equity and less debt. And anyone who suggested that was kicked out of the office by their shareholders. Because even old pensioners who own a bit of UBS aren't going to stand for their firm paying jack all dividends, while all the other banks are cash cows.

Just read this (http://www.economist.com/finance/displayStory.cfm?source=hptextfeature&story_id=11897037).
Your article makes a very interesting point:
The pressure on the risk department to keep up and approve transactions was immense. Psychology played a big part. The risk department had a separate reporting line to the board to preserve its independence. This had been reinforced by the regulators who believed it was essential for objective risk analysis and assessment. However, this separation hurt our relationship with the bankers and traders we were supposed to monitor.

...

In their eyes, we were not earning money for the bank. Worse, we had the power to say no and therefore prevent business from being done. Traders saw us as obstructive and a hindrance to their ability to earn higher bonuses.

...

Collective common sense suffered as a result.There's apparently a serious pressure to make more money, the risk be damned, that overrides common sense.

There's apparently a serious pressure to make more money, the risk be damned, that overrides common sense.
You can argue about what exactly he means by common sense in this case, but in principle I don't think anyone disagrees with this sentence. The role of risk management would have been to stand up to these pressures, which they failed to do. That's a combination of interpersonal factors, office politics, corporate culture and so on.

But what I keep saying, and nobody wants to hear, is that this is not something from which we can reliably extrapolate anything about "Turbokapitalismus", as Spiegel seems to be so fond of doing. It's just not good science. And that is especially true since the regulators, who most now propose giving much more power to, had no idea what was coming either. State-owned banks, municipalities and so on were also hit. If people are going to blame bankers' need for profit on all this, they must believe that bankers knew what was going to happen. And in turn they must believe that regulators et al are just plain incompetent, because they didn't know something everyone else in the industry apparently did. Even if someone could hold all that in their head without exploding, that doesn't exactly scream "more regulation" then.

90% of everything that caused the trouble can be fixed by more transparency, which should really require a massive simplification of reporting rules, and internal reform to give risk managers more influence on decisions, including strategic ones. The former is a case for regulators to do most of the work, the latter can reasonably happen with consultation from their side but not much more.