How can I argue against such a consensus?

ChrisCook:

But to come back to the point of the Diary, Wolf's assumption is that in some way the "Savings Glut" is pre-existing money which has been lent to unwise property purchasers/ investors.

The chain of causality is the other way around.

Secured loans were made to by credit institutions to assist in property purchases, and due to the deficit nature of the money supply these interest-bearing loans created new money which inflated the bubble still further.

The direct cause of asset price inflation is the deficit basis of money created as debt

A very large part of this new money which was instantaneously deposited back into the system was thereupon used by American consumers to buy Chinese etc goods, and this was then saved, by being deposited in the banking system somewhere in the world.

The Bubble caused the Savings Glut: the Savings Glut did not cause the Bubble.

And these where spent by bluechip companies acquiring select start-ups so as to look "trendy"

And the acquisitions were funded by debt, provided by banks, on terms that couldn't be repaid by the incremental cash flows brought to the acquirer by the startup (as they were all losing money actually).

Investment banks propped up the bubble on the idea that tech prices would always inflate (remember house prices ?)

VC capital is a small part of the scheme by amount. It became easy to come by as soon as it appeared there was infinite demand on listed markets for the shares of pets.com etc

When the bubble burst, we had the bankruptcy of mci worldcom, global crossing, near-bankruptcy of vivendi, state rescue of france telecom, etc, etc...

rates where set a real-zero to enable corporations to make money (on credit took by their customers) so as to amortize their loans sitting in the balance sheet of the big IB.

Does this cynical explanation suit you ??


Pierre