Thursday, 8 January 2009

Wall Street's Structure and the Root Causes of the Financial Crisis

One of the best and clearest explanations that I have read on the root causes of the financial crisis by someone who was lived through (and helped cause) several of them:

1 comment:

  1. I agree 98%. I feel that everyone is searching for accountability and relief...but at the end of the day, everyone is responsible for their own situation.

    My 2% disagreement is with "predatory lending." Perhaps the banks took advantage of the average individual's ignorance who may not have the best grasp on finances. But at the end of the day, there must be accountability for the individual who signs their name on the dotted line.

    When my parents bought their first house 20 years ago, I think the rule of thumb was "you can afford a house 2.5x your combined annual salary." That still seems like a good rule to me. It keeps housing prices in check by linking them directly with wage inflation, so buyers never get in over their heads. But historically low interest rates and increased competition encouraged banks and buyers to mutually expand the "rule" to 3x, 4x, etc.