Quote:
Originally Posted by Cowboy89
Let's not forget that there have been entire industries previously viable business models made obsolete without liberal credit.
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Economic growth in the scope we knew it pre-crisis cannot occur at the same rates most likely for the next decade or so [...]
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Great post Cowboy.
I agree with you that government and central bank intervention was critical in softening the initial blow, and that the effects of this implosion will be felt for a long time. Its uncertain for me how, but there is no way that a global economy can simultaneously employ this amount of economic stimulation and not have some kind of equal and opposite reaction.
I had to point out the two quotes above.
First, I would argue that a large part of the pre-crash returns were being driven by complex option and derivative trading that was riding on the back of over simplified efficient market theories. Dangerous combination, and it was likely a contributing factor to some of the liberal credit policies you are referring to.
Were they really sustainable business models if they are gone today? My point is that the truly sustainable business models are still around, post-crash. Those that are grounded in real assets, and generate real returns.
I agree that we will not see pre-crash returns for a long time. I should say that I hope to never see these types of returns because there was just something about them that seemed too good to be true.
Financial innovation is important, it creates the space for business to expand and for wealth to be generated. However, it should not be the primary driver for that growth. What is the point of creating a whole bunch of money to cover money? Was it financial "risk management" (insurance) or was it simply gambling and the run finally ended?
Creating debt and then making good on your loan is a FUNDAMENTAL of business. How on earth can you hope to do that in a sustainable and reliable fashion if all you're doing is placing bets on which way a stock price will go? Its insane. Of course it blew up. The more insane part is that it was a HUGE part of the global economy, was creating false demand and was thus driving activity that didn't need to happen. Why was that allowed to occur? What business basis did any of this have?
The effects will be felt for a long time, but I hope that the study of this run up and collapse leads to a better understanding of creating sustainable business models and sustainable markets. It starts with investors who are rational (i.e. have reasonable expectations and judgement), but that is another debate I suppose.