The Subprime Crisis

There’s been a lot of comment on blogs recently, almost all of it blaming the other side.

I have a friend who worked in that industry overseas. He informs me that the problems were many fold.

  • Values were given to subprime securities without any solid factual basis
  • Managers were not questioning the values – actively so (my friend was told to mind his own business when he questioned them)
  • Auditors were turning a blind eye to all this

The fact is, that the case for runnaway capatilism is not without basis.

Capitalism is in fact a victim of it’s own success.

While comunism delivered only misery upon misery, capitalism has frequestnly delibered good times under prudent managment. However, as times get better, prudency inevitably goes out the window. Some boffin suggests “this time, the markets will not go down”.

Then, just as the last idiot is convinced to leverage all he has and put in into the ever-rising markets, they crash.

Too many people saw the dollar signs as the property markets went up. They wanted to make more and more money, and when the market peaked, many were left with assets that were in fact worth absolutely nothing. Rather than face the reality, they started lying to make themselves look better.

Which of course only made them worse.

And here we are.

Regulation won’t make the problem better. It’ll only teach people not to take responsibility for their own actions. Because it’s by the members of the market learning from their mistakes that capitalism moves forward.

Ultimately, wealth is created when a person exchanges a set amount of money and recieves value greater than that value. What many people today have to learn is what previous generations had to learn (see Warren Buffett) that those values have to have some real, solid basis in reality.

Unfortunately, goverments seem hell bent on “stimulous” packages which are designed to take wealth from one area and pump it into another. What they’re doing in reality is taking wealth, wasting considerable amounts and pumping into areas where it cannot possibly generate more wealth than was origionally withdrawn from the economy.

Like, crushing brand new cars.

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