"Reeling and Writhing, of course, to begin with, and then the different branches of arithmetic -- Ambition, Distraction, Uglification, and Derision." - The Mock Turtle, Alice in wonderland
You would be forgiven to think that this post is an ode to the days of nursery rhymes, what with all the reference to Humpty Dumpty and Alice in Wonderland. As quaint as these analogies might sound, i couldn't but help invoking them in the context of Wall Street and The financial mess for the sake of irony; who would imagine a nursery rhyme to have lessons for few of the smartest people on Earth?
As most of us know, the entire thing started with housing bubble, loans were given to people who couldn't afford it and had dubious payment histories and it was assumed that house prices would rise indefinitely thus providing a security against any loss. Well, if only Economics 101 was studied more carefully! Not to be left far behind, Wall Street jumped into this by buying Mortgage Backed Securities (MBS) from lenders, thus spreading the risk of such sub-prime borrowers. Since these people couldn't afford their payments, they started defaulting on their loans, causing a viscious spiral resulting in the sub-prime crisis and the fall of the Wall Street. To cut a long story short, Greed was not good.
This is a larger problem, one of consumption driven by borrowed money and an entire culture of credit. Where you earn 100 but spend 200. And one which is beginning to unravel as America (and the rest of the world) begins to understand that such greed is simply not sustainable. Now, i have been opinionated about the government-industry complex, but this problem is far more critical as it is a reflection on an entire culture of the populace not understanding what consumption within their means is.
Economics they say is the science of incentive. When the incentive is growth, it leads to prosperity. But when greed (and not to mention lack of common sense!) supersedes growth, it leads to destruction of financial values and institutions and can have large reaching effects. While the way forward is definitely through tighter regulations of such complex financial instruments like MBS, it would do America (and the world) a whole lot of good to understand that such unmanageable debt (American debt is over $ 11 trillion! thats 15 times India's economy), as a way of economy, is not sustainable.
Will the Humpty Dumpty be put back again? America still does have strength in their educational institutions and democracy (so called) and i do really hope it is as my daal roti to a certain extent depends on Americans' propensity to spend. But Humpty Dumpty's great fall might just be the biggest stories of our times!
P.S. "When Genius Failed" by Roger Lowenstein is an excellent read on Wall Street, its businessmen and bankers, and its uninhibited greed
As most of us know, the entire thing started with housing bubble, loans were given to people who couldn't afford it and had dubious payment histories and it was assumed that house prices would rise indefinitely thus providing a security against any loss. Well, if only Economics 101 was studied more carefully! Not to be left far behind, Wall Street jumped into this by buying Mortgage Backed Securities (MBS) from lenders, thus spreading the risk of such sub-prime borrowers. Since these people couldn't afford their payments, they started defaulting on their loans, causing a viscious spiral resulting in the sub-prime crisis and the fall of the Wall Street. To cut a long story short, Greed was not good.
This is a larger problem, one of consumption driven by borrowed money and an entire culture of credit. Where you earn 100 but spend 200. And one which is beginning to unravel as America (and the rest of the world) begins to understand that such greed is simply not sustainable. Now, i have been opinionated about the government-industry complex, but this problem is far more critical as it is a reflection on an entire culture of the populace not understanding what consumption within their means is.
Economics they say is the science of incentive. When the incentive is growth, it leads to prosperity. But when greed (and not to mention lack of common sense!) supersedes growth, it leads to destruction of financial values and institutions and can have large reaching effects. While the way forward is definitely through tighter regulations of such complex financial instruments like MBS, it would do America (and the world) a whole lot of good to understand that such unmanageable debt (American debt is over $ 11 trillion! thats 15 times India's economy), as a way of economy, is not sustainable.
Will the Humpty Dumpty be put back again? America still does have strength in their educational institutions and democracy (so called) and i do really hope it is as my daal roti to a certain extent depends on Americans' propensity to spend. But Humpty Dumpty's great fall might just be the biggest stories of our times!
P.S. "When Genius Failed" by Roger Lowenstein is an excellent read on Wall Street, its businessmen and bankers, and its uninhibited greed
