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Economic Crisis Bingo

by JakeS Wed Oct 15th, 2008 at 08:31:40 AM EST

Let's play economic crisis bingo. I provide a couple of quotes, and you guess which economic crisis they describe (I'll remove all direct mention of the countries and years involved so it won't be too easy).

So, without further ado:

The first act was the story of the bubble. It began, we now think, with bad banking. In all of the countries that are currently in crisis, there was a fuzzy line at best between what was public and what was private

[...]

Government guarantees on bank deposits are standard practice throughout the world, but normally these guarantees come with strings attached. The owners of banks have to meet capital requirements (that is, put a lot of their own money at risk), restrict themselves to prudent investments, and so on. In [...] however, too many people seem to have been granted privilege without responsibility, allowing them to play a game of "heads, I win, tails somebody else loses." And the loans financed highly speculative real estate ventures and wildly overambitious corporate expansion.

The bubble was inflated still further by credulous foreign investors [...] It was also, for a while, self-sustaining: All those irresponsible loans created a boom in real estate and stock markets, which made the balance sheets of banks and their clients look much healthier than they were.


The bursting had to happen sooner or later. At some point it was going to become clear that the Panglossian values [the] markets had placed on assets weren't realistic in this imperfect world

[...]

As nervous investors began to pull their money out of banks, asset prices plunged. As asset prices fell, it became increasingly doubtful whether governments would really stand behind the deposits and loans that remained, and investors fled all the faster. Foreign investors stampeded to the exits, forcing currency devaluations

[...]

[The] financial implosion is, of course, dragging the real economies down with it. Partly, that is because people feel poorer, depressing consumer demand; partly it is because low stock prices and high interest rates are depressing investment. But there is also - disturbingly - a supply-side effect. Although runaway banks were the original source of the mess, a functioning banking system remains a crucial lubricant for the economic engine. With banking in some [...] countries effectively paralyzed, that engine is showing signs of seizing up: even companies that should be profitable - like exporters - are finding themselves hamstrung by lack of credit. It is, in short, a terrible but also fascinating spectacle.

Could it get worse? If there is a third act, it will involve the interaction of economics and politics: economic crisis will lead to political instability, instability will lead to capital flight that reinforces the economic crisis, and all heck will break loose. But so far only [one country] shows even faint signs of such a new vicious circle, and even there most sensible observers think that the risks of really serious unrest have been exaggerated.

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1929 and 1997 respectively?

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Wed Oct 15th, 2008 at 08:35:17 AM EST
These two are from the same crisis, but broken for the benefit of the fold.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Oct 15th, 2008 at 08:39:10 AM EST
[ Parent ]
1997, then.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Wed Oct 15th, 2008 at 08:49:57 AM EST
[ Parent ]
Bingo.

What tipped you off?

As an aside, it's funny in a sad kind of way to read Krugman's writings about the last ten years' economic policy. I once sat down with The Great Unravelling and put a little red sticker in it every time I saw him identifying the real estate prices as a bubble, talk about how weak and insufficient banking regulations and oversight contributed significantly to previous crises, etc.

I ran out of little red stickers 2/3 of the way through the book.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Oct 15th, 2008 at 01:14:14 PM EST
[ Parent ]


Diversity is the key to economic and political evolution.
by Cat on Wed Oct 15th, 2008 at 08:50:50 AM EST
LOL

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Wed Oct 15th, 2008 at 08:51:47 AM EST
[ Parent ]
words: You'll forgive my centricity in the history of Modern Global Finance.

I confess: I almost forgot the "Korean Conflict," and I inserted "Panic of '94". To my mind, the so-called Asia Crisis commenced that year. Some would say that dating is arbitrary, because it isn't supported by "technical analysis" of capital flows, i.e. securities' price signals. I say, "Patterns are discovered in retrospect. Yet excess surplus always preceeds panic." Not to mention, revision, for example:

Hart-Landesberg | Corzine

In any case, '94 was dead to NBER.

Diversity is the key to economic and political evolution.

by Cat on Wed Oct 15th, 2008 at 10:53:23 AM EST
[ Parent ]
I see the article was updated after I created the timeline. (Not suggesting anything I published precipitated the edit.)

"Early 2000s recession" and "Late 2000s recession" were not recognized a/o April 2008.

Diversity is the key to economic and political evolution.

by Cat on Wed Oct 15th, 2008 at 10:59:39 AM EST
[ Parent ]
Currency devaluation... Japan?
by t-------------- on Wed Oct 15th, 2008 at 08:54:47 AM EST
What actually started this downward spiral? Who cares! Any little thing can set off an avalanche once the conditions are right. Probably the proximate causes were a slump in the ... market and a rise in the ... exchange rate, but if they hadn't triggered the crisis, something else would have.

One of my favorite ... writers.

We all bleed the same color.

by budr on Wed Oct 15th, 2008 at 08:58:09 AM EST
result of key word search.

Asia: What Went Wrong | CNNMoney | 2 March 1998

The first act was the story of the bubble. It began, we now think, with bad banking. In all of the countries that are currently in crisis, there was a fuzzy line at best between what was public and what was private; the minister's nephew or the president's son could open a bank and raise money both from the domestic populace and from foreign lenders, with everyone believing that their money was safe because official connections stood behind the institution. Government guarantees on bank deposits are standard practice throughout the world, but normally these guarantees come with strings attached. The owners of banks have to meet capital requirements (that is, put a lot of their own money at risk), restrict themselves to prudent investments, and so on. In Asian countries, however, too many people seem to have been granted privilege without responsibility, allowing them to play a game of "heads I win, tails somebody else loses." And the loans financed highly speculative real estate ventures and wildly overambitious corporate expansions.
[...]
Soon enough, Asia was set up for the second act, the bursting of the bubble. The bursting had to happen sooner or later. At some point it was going to become clear that the Panglossian values Asian markets had placed on assets ...

Tool.

Anniversary gift | EconomistView | 1998

If you use the term "microeconomics" in a WordPerfect document, the spelling checker will flag it and suggest "macroeconomics" instead. The spelling checker has a point. You see, macroeconomics has gone out of fashion. Not only academic economists but also some of our most influential economic pundits seem to regard it as bad manners to talk about recessions and recoveries and how governments might alleviate the former and engineer the latter. Ordinarily reasonable people now argue that the business cycle is a trivial matter, unworthy of attention when compared with microeconomic issues like the incentive effects of taxes and regulation. Trying to do anything about recessions is bad for growth, they say, and even thinking about the business cycle is a bad thing, because it distracts people from what really matters.

A reader cannot begin to catalogue the contradictions of a NYT columnist who descends periodically to deduce microeconomic truth from aggregated data, so seeming to validate commonsensical outrage, while never, ever advocating state enforcement of fiduciary "attitudes."

Diversity is the key to economic and political evolution.

by Cat on Wed Oct 15th, 2008 at 01:43:10 PM EST
I'm not sure I understand the second half of the post. Can somebody translate it into English, please?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Oct 15th, 2008 at 01:55:36 PM EST
[ Parent ]
Dood, somebody at another blog tested the readership on the constitutional question of late-term abortion by quoting an exam prompt. The exam was given by Mr Obama. I'm studying to be an inverant spoiler.

Translation: Mr Krugman is a neo-con, not posing any different in objective than Mr Reich, for example, for federal policy. That is to obligate disposable income to funding financial sector industry ... since private property and collective bargaining no longer exists, pretty much. Mortgages exist and grow in volume, while ownership and legal property rights diminish.

Krugman has, for as long as I can remember, that is even before his regular column, written opinions to validate whichever politician is president. I've not read one word of his academic papers. And I bet not one will ever see the light of the www.

Diversity is the key to economic and political evolution.

by Cat on Wed Oct 15th, 2008 at 03:12:15 PM EST
[ Parent ]
LOL. inveterate

The prompt quoted was blind, prior to 2004. And Mr Obama had lately advocated his position adjudicating, what was the phrase? a woman's "feeling blue."

Diversity is the key to economic and political evolution.

by Cat on Wed Oct 15th, 2008 at 03:22:18 PM EST
[ Parent ]
... in his academic work, playing games with a wrinkle on a specification of a long-obsolete model of human decision making in order to simulate without explaining patterns of economic activity.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Oct 16th, 2008 at 12:54:09 PM EST
[ Parent ]


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