Friday, March 11, 2011

Two Videos That Tell You Everything You Need to Know about the 2008 Market Meltdown

First, a short summary of a quaint economic concept called "moral hazard:"

And then an embarrassing example of Congressional cluelessness:

This all began under Bill Clinton, was made worse when G.W. Bush did nothing about it, and was capped off with President Obama's decision to bail out the banks and financier who gleefuly made billions of dollars off the house of cards they financed.

Kosher Hedgehog Comment: Well said, Lowell. The Barney Frank video beautifully illustrates a characteristic of every economic bubble, from the Dutch Tulip Mania of 1636-37 through the mania and the recently burst housing bubble that produced our current financial recession, and that characteristic is that the bullish pundits always argue that the current boom is different from every other speculative bubble in the past because the rules have changed. One heard this during the bubble of 1999-2003, when investment funds chased start-up companies, practically throwing millions at them and imploring them to maintain a "high burn rate" of invested capital, even though the path by which many of the new online businesses would generate income, much less profits, was often unclear. Skeptics were belittled for not understanding that there was a "new paradigm" and "the rules have changed." Although Barney Frank employed different lyrics in the 2005 video, the careful listener will conclude that he was singing the same old song.

Is it only me, or does anyone else hear the same tune now playing in the gold and precious metals market?


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