very good article on economy
2 replies
adamprez2003Forum VeteranOPreally great read. makes you think
http://www.weeklystandard.com/Content/Public/Articles/000/000/016/763ixjus.asp?pg=2
When people asked what fundamentally caused the financial crisis, my answer is not what they expect. I respond with one phrase--the fall of the Berlin Wall. By the early 1990s, after the collapse of the socialist model, emerging market economies such as China, India, Eastern Europe, and the commodity producers wanted to be like the West--capitalists. And they became pretty good at making their economies more productive. This had the effect of lowering real wage costs globally while setting up these economies as powerful exporters.
Soon a global ocean of capital--of excess savings--was beginning to swirl around a liberalized worldwide financial system. Partly as a consequence of the Asian crisis of the late 1990s, most of these emerging market economies by the late 1990s adopted a new export-oriented model for success. They tied their currencies to the U.S. dollar and refashioned their economies as large export platforms. The target: The U.S. consumer who fairly quickly became the world's consumer of last resort.
As large parts of the world set up shop as a giant, low-cost, export engine, the low saving U.S. consumer became almost addicted to consumption. As we kept consuming, many of the world economies began stockpiling record amounts of excess savings. This reliance on exports, in lieu of developing consumer-based economies, created enormous global savings imbalances. In China alone, excess savings in the form of central bank reserves quickly approached $2 trillion. The problem was that there were too few investment opportunities for so much capital.
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from page two:
Now the Obama Administration has come out with its financial regulatory plan, which is already being attacked by the left as too timid and by the right as downright onerous. But there is a third opinion--the view of the agnostic. Having worked daily with financial traders for nearly a quarter century, I'm not sure any government regulator is capable of going toe-to-toe with the Wall Street wizards and their lawyers who begin figuring legal ways around the regulations at times even before the regulations are promulgated.
I recently asked a Goldman Sachs executive: "If you found a brilliant regulator, you'd hire her, right?" His response: "In a minute." Today a senior regulator at the SEC earns between $160,000 to $190,000 a year. Executive secretaries at Goldman earn $200,000 per year. Typically even relatively junior executives can earn in the millions. It is not an equal talent match.Washington is looking for a quick regulatory fix--a magic pill to make the financial headache go away--but the heart of today's regulatory problem may relate more to the crumbling of the fundamental ethical underpinnings of our society. The financial crisis may say a lot about what we have become as a people.
Don't get me wrong. I still favor our Anglo-Saxon version of capitalism which tolerates the drive for individual self interest and shareholder value precisely because, in the end, this system historically has delivered. During the 1990s under Bill Clinton this system created 20 million net new jobs. During the same period, the German financial system of universal banking, for example, supposedly a system more concerned with serving the collective good, produced a dozen net new jobs.
But make no mistake, our Anglo Saxon approach to markets is prone to abuse. It is the necessary evil we can live neither with nor without--no matter how clever Tim Geithner thinks he is in reforming the system of making and selling salad. For our regulators, this is an unfair fight which is why the public-private model of oversight may be our best recourse. The bankers along with the regulators need to watch each other because they all have skin in the game.
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padre31Luxury Box"Excess savings of 2 trillion"
Adamp, that is a drop in the bucket.
The real issue is or was the leveraging of Debt instruments several times over and interconnecting them across national boundaries and denominating them in Dollars backed by nothing.