The Wall Street Mess Culprit (as we suspected) is SPECULATION
First, a definition: Speculation is the process of taking large risks, gambling, with the hope of winning big.
Miranda Marquit wrote a brilliant blog post about CDS’s as the culprit behind the current financial mess. But these CDS’s (Credit Default Swaps) are just the vehicle. The real culprit is SPECULATION. Here is how it has played out:
The CDS’s allowed banks to make riskier loans and pass off those risks to someone else. From The Market: The idea, of course, [of the CDS’s] was to encourage more and more risky investment. And, of course, pump up Wall Street profits and allow for more speculation.(my emphasis).
As with any speculation, eventually it comes back to bite you. The collapse of the mortgage market and the resulting drop in mortgage values caused a “perfect storm” of a problem. And the house of cards has collapsed , the bubble of speculation has burst.
This isn’t the first time mass speculation backfired. From the Dutch Tulip Bubble in the 1500’s to the South Sea Bubble, to the Great Depression and the Crash of 1987, to the Dot Com Crash, humans have learned that speculation results in disaster.
Our economic structure has always recovered, and there’s no reason to believe it won’t settle down again. And for a while we will be cautious. Then a bunch of people will start speculating again, and away we go…
Tags: credit default swaps, economic crash, perfect storm, speculationRelated Stories
POSTED IN: Boomer Businesses in Difficult Financial Times, Finance, Just Because You Can
3 opinions for The Wall Street Mess Culprit (as we suspected) is SPECULATION
Kristen King
Sep 18, 2008 at 7:07 am
I think you meant to say that humans SHOULD have learned that speculation results in disaster, because clearly the message didn’t sink in yet. :)
kk
Miranda
Sep 18, 2008 at 7:37 am
Thanks for calling my post brilliant! :)
Part of the issue we have, though, is that now, more than ever, we have this illusion that there must always be growth. We have this idea that the natural downcycles are bad and must be halted at all costs. What that serves to do is stimulate artificial growth (while people are “confident”), making the whole system more unstable.
Related to this problem is that now the economy is based on debt and consumerism. This means that measures taken to keep growth coming all revolve around ordinary people spending more money and remaining in just enough debt to keep making interest payments to other people.
So yes, it will happen again. But it will continue to get bigger, and more dramatic, until it results in total collapse.
Kimberly
Sep 25, 2008 at 10:08 am
Another other fine mess you got us into…..
So who’s got all the Money from this …Who lined their pockets then took the Money and ran…Does any one KNOW that ’s even willing to say or is it just easy to rip off the American people and leave everyone else holding the bag or BILL for the obvious greedy people who really caused …This debacle goes back the early 1970’s when money in America stopped being currency. Wall street figured out they were playing with monopoly money and obviously took advantage of the relaxed law’s to steal dirty sexy money. How true… Hollywood coins a phrase clearly describes how the greedy Wall Street players ripoff America … rich always figure out how to get richer & richer and walk away …Now want US pay their tab….So clever. Hands are still in the cookie jar and no
one really care’s …In every crime story it’s simple to follow the money…Who made the most just before the bubble burst …LOOK and see so simple ..Greed greed greed…. pointing fingers.
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