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Do you think there could be a second Great Depression?

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Benny Holiday

My Mail is Forwarded Here
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3,809
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Sydney Australia
Why the Australian economy is under stress

The Sunday Telegraph editorial
Novemeber 30, 2008

What a Pack of Bankers
November 30, 2008 12:00am

THERE has always been a certain romantic mystique about the banking and finance sector.

Most of us weren't entirely sure what the money geniuses got up to in their plush-carpeted offices, beyond vaguely knowing it had something to do with margins and hedges, but not in a horticultural sense.

Most of us were happy to leave all the calculations to the stripey-shirt brigade and get on with life.

Now we know the truth - the boffins were not all that bright after all.

At times, they appeared to be making it up as they went along; creating bond markets out of thin air, manipulating the structures of the share-market to speculate on unfortunate companies, and apparently failing to notice when it all, inevitably, came unglued.

They were giving too much money to the wrong people, taking too much from the right people and skimming an obscene amount off the surface for themselves. Pretty simple, really.

Now the major banks and insurance companies are being exposed as poor performers on another front: the management of superannuation funds.

Not only have they been investing unwisely and falling behind the superannuation sector's top funds in the generation of financial returns - they have also been charging customers enormous fees, so they can in turn pay commissions to financial planners.

Why do they need to pay commissions? So the planners will direct customers towards their superannuation funds.

It's an unpleasant merry-go-round of greed, with everybody having a grand old time except the hapless consumers, whose investments have been stripped of value.

At least we are now finding out the truth.

The one good thing about the global financial crisis is that it has ripped away all the mystery and misguided respect we've had for financial institutions in the past.

Bankers used to rate highly in the most-trusted occupation surveys, somewhere slightly below doctors and teachers, and significantly higher than politicians, actors, journalists and used-car salesmen.
It's a safe bet that will no longer be the case (and there are some great used-car deals to be had these days, thanks again to the economic meltdown).

Now, it's time for the finance-sector party to end.

The economic downturn will not last forever. Things will improve. But when they do, we must ensure lessons have been learned from all the carnage.

The Federal government and its regulatory agencies must take this opportunity to ensure Australia's finance sector is run to the highest standards.

Careful consideration should be given to controlling the level of fees being charged by banks and other institutions, including superannuation funds.

Methods for controlling overblown executive salaries should be explored - and it is time to examine closely the arguments for ensuring banks pass on interest-rate cuts promptly when the Reserve Bank adjusts its rates, rather than the present situation of delayand obfuscation.

Macquarie Bank doesn't seem to have grasped the message just yet - despite all its solemn talk about prudence and caution, the Fee Factory still managed to find enough cash to splurge over half a million on a Christmas party.

The event had a gothic theme, with coffins and gargoyles to get everyoneinto the spooky spirit of the looming recession. For those people whose funds have been frozen in managed funds, or who have been made redundant, it's no laughing matter.

But it's interesting to see Macquarie finds it all so amusing.
 

B. F. Socaspi

One of the Regulars
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239
Location
Philadelphia, PA
I blame globalization for the depression.

General economic plan of neoliberals:
Invest tons of money into opening businesses in third world countries that have been opened up by recent free trade expansions.
Sell to first world countries with currency worth more than the dollar at overly inflated prices.
Convert back to the dollar.
Laugh at the failing markets while smoking a Cuban.
???
PROFIT!!!

See what we did to Thailand or Mexico for more information.
 

DutchIndo

A-List Customer
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Little Saigon formerly GG Ca
The thing that really worries me is people are alot crazier than the 1930s. It seems people riot over the most stupid things nowadays. I remember the Watts riots as a kid and the Rodney King thing. Like most guys on this forum I have a historical interest in firearms. I have never in my life had so many people ask me for advice in that area. There unfortunately is a "vibe" going around and everybody feels it.
 

PrettySquareGal

I'll Lock Up
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4,003
Location
New England
Perhaps it's naive optimism, but I believe that it's possible that such an economic challenge could perhaps bring back some of those vintage values (pay as you go, buying a house as a place to live and not as a get rich quick scheme, living within one's means, etc) many of us cherish and live by regardless of the times.
 

Flivver

Practically Family
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New England
Indications are that this will be the most severe recession in the postwar era...meaning that it will be the worst since the Great Depression.

Some trends forecasters are suggesting that this could prompt a new frugality in the U.S.

We'll see...
 

carter

I'll Lock Up
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5,921
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Corsicana, TX
My investment manager does.

We had a long discussion last week regarding hard goods that should hold their value over the long run. Vintage firearms, fishing tackle, and bullion were among the investment items we discussed.

A new frugality certainly seems to be in order.
 

Feraud

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Hardlucksville, NY
PrettySquareGal said:
Perhaps it's naive optimism, but I believe that it's possible that such an economic challenge could perhaps bring back some of those vintage values (pay as you go, buying a house as a place to live and not as a get rich quick scheme, living within one's means, etc) many of us cherish and live by regardless of the times.
I doubt it. One problem is attitude. There are people who were raised in families of consumer consumption and acquisition "by any means necessary". Hard times will not change a problem they cannot acknowledge. It is easier to blame The Economy than to look at one's part in it. That is just one part of this mess..
 

PrettySquareGal

I'll Lock Up
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New England
Feraud said:
I doubt it. One problem is attitude. There are people who were raised in families of consumer consumption and acquisition "by any means necessary". Hard times will not change a problem they cannot acknowledge. It is easier to blame The Economy than to look at one's part in it. That is just one part of this mess..

I see what you are saying, but let me ask you this: If easy loans are vanishing, credit card limits being reduced and basically all around credit drying up, and for many people "by any means necessary" equaled taking on insurmountable debt via credit, how will they now fund their sense of entitlement? I know crime is one answer, but maybe for others they will have no other choice but to change their ways?

(And yes, changing their behavior doesn't mean they change their values...hmmm)
 

LizzieMaine

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Where The Tourists Meet The Sea
Feraud said:
I doubt it. One problem is attitude. There are people who were raised in families of consumer consumption and acquisition "by any means necessary". Hard times will not change a problem they cannot acknowledge. It is easier to blame The Economy than to look at one's part in it. That is just one part of this mess..

That's exactly the problem -- the root of the whole crisis is *cultural*, not economic. We've created a society in which the idea of having more than the previous generation has been ingrained as something to which one is automatically entitled -- thus the whole live-beyond-your-means mindset. No one is *entitled* to own a house, a new car every year, a big screen TV, the latest gizmos and doodads, and some of us need to get it thru our heads that maybe we *can't* have those things.

That was the most important lesson I learned as a child growing up poor: there were things that other kids had that I wanted, but no matter how much I whined and hollered and threw tantrums, I wasn't going to get them. So I learned to be satisfied with what I *could* have. And that's a lesson a whole generation is going to have to learn if we're going to get out of this hole.
 

carter

I'll Lock Up
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Who can we depend on?

PrettySquareGal said:
I hope that a new frugality includes wealth of spirit and a new found appreciation for things.
I appreciate the sentiment.

I'd broaden it a bit to:
....A new-found appreciation for friends, family. and things of lasting value.
 

Feraud

Bartender
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17,188
Location
Hardlucksville, NY
PrettySquareGal said:
I see what you are saying, but let me ask you this: If easy loans are vanishing, credit card limits being reduced and basically all around credit drying up, and for many people "by any means necessary" equaled taking on insurmountable debt via credit, how will they now fund their sense of entitlement? I know crime is one answer, but maybe for others they will have no other choice but to change their ways?

(And yes, changing their behavior doesn't mean they change their values...hmmm)
Funding future entitlements will occur once the economy swings back the other way. And it will. Right now I am pointing at the individual mindset that contributes to the creation of such problems. Those who do not see an issue with their habits will tighten their belts for now and loosen them up later.

I do not believe the issues we are facing are the sole (if any) responsiblity of citizens who need to put a flat screen television in every room of the house or never deny their children every latest electronic gadget. This is more a...moral glutton if you like. :)

More importantly, business and government have to look at their part in this mess. Money doesn't do that.
 

H.Johnson

One Too Many
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Midlands, UK
Since I already live a 'pre-modern' lifestyle, this has hardly affected me at all. Only the increase in electricity prices seems noticeable to me.
 

SamMarlowPI

One Too Many
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1,761
Location
Minnesota
(not sure if this has been mentioned but) i just read an article yesterday that said the port of long beach is filling up with brand new autos from overseas that people don't want...i guess new cars are still pouring in on cargo ships at the normal consumer rate of a few years ago except now they are going straight to containers and sitting...nobody is buying new cars and car-delivery truckers are being laid off because dealers can't move their stock and don't want more...said big companies are leasing all kinds of storage space along the coastal ports to keep the new arrivals...one comment said it won't be long before they tell the ships to turn around...
 

carter

I'll Lock Up
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5,921
Location
Corsicana, TX
NOT in favor of pollution but....

There's a largeish trench between the west coast and wherever that stuff comes from. Maybe it could use some landfill.

BTW, Cuba has been "making do" with vintage American-made vehicles for decades. Is thera lesson to be learned here?
 

Grant Fan

Practically Family
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846
Location
Virginia
I think it is possible but I think it is important to stay optimistic, and also have a feeling that when in it it doesn't feel that awful, I mean it may not be good but not awful eather
 

Flivver

Practically Family
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821
Location
New England
One observation that may allow a new frugality to take hold is the Boomer generation's need to always be a "winner". This is so strong that they often change the definition of what it takes to win to suit their current situation.

So in our current environment, where the Boomers can no longer spend and acquire like they used to, they could declare frugality (which they *can* achieve) as a virtue and start practicing it.

No guarantee that this will actually happen...but it could.
 

Joie DeVive

One Too Many
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1,308
Location
Colorado
LizzieMaine said:
That's exactly the problem -- the root of the whole crisis is *cultural*, not economic. We've created a society in which the idea of having more than the previous generation has been ingrained as something to which one is automatically entitled -- thus the whole live-beyond-your-means mindset. No one is *entitled* to own a house, a new car every year, a big screen TV, the latest gizmos and doodads, and some of us need to get it thru our heads that maybe we *can't* have those things.

That was the most important lesson I learned as a child growing up poor: there were things that other kids had that I wanted, but no matter how much I whined and hollered and threw tantrums, I wasn't going to get them. So I learned to be satisfied with what I *could* have. And that's a lesson a whole generation is going to have to learn if we're going to get out of this hole.

AMEN!

I have seen more and more children who have never heard the word "no". My nephews are examples. I swear they have more toys than a toy-store. It's so bad that my husband and I have to be extremely creative to come up with something they don't already have. :eusa_doh: This year we are creating a photo-storybook for them.
I'm amazed by children who get a toy every time they go to Target. I really only got toys on holidays growing up. If I wanted anything in between, I saved my tiny allowance. Half the time I forgot what it was I wanted before I had saved the money. It helped teach me about money, and how to prioritize.

Grant Fan, to a degree you are right. As people become more and more afraid, they spend less and less causing more and more layoffs. It's a nasty spiral. So, having an optimistic outlook does work against that spiral.
On the other hand it is important to be realistic about what may be coming. I personally believe that there are some very tough times ahead. I believe it is vital to be prepared. Hope for the best, but prepare for the worst.

Optimism isn't limited to good times though. As grinding and hard as the Depression was, people still found ways to be happy. It may not have been all the time, but people still fell in love got married, had babies, and celebrated what they could.
 

MEDIUMMYND

One of the Regulars
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172
Location
South Shropshire
Flivver said:
Indications are that this will be the most severe recession in the postwar era...meaning that it will be the worst since the Great Depression.

Some trends forecasters are suggesting that this could prompt a new frugality in the U.S.
This recession has been coming for the last two years and it will only get worse.Any upturn is some years away people of the developed world will have to adopt a more frugal lifestyle which is no bad thing when folks realize the true value of things and how they are earned things may start to turn around but not before.
 
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