 What would you pay to clearly understand the financial crisis? Turns out the small fee to attend the Michigan Policy Summit may have been all it would have taken. If you are not here with us today in Detroit, visiting the blog Beat The Press, may be a nice free alternative.
Unfortunately, I fear our country will be paying a high price for a vary long time, for lacking the basic understanding of how this crisis came to be. I mean I love that classic quote, "Those who forget their history are bound to repeat it." We have no hope of remembering our mistakes if we don't at least try to understand them now.
Thankfully in walks Dean Baker to the rescue. Dean is the co-director of the Center for Economic and Policy Research in Washington, DC and was the Keynote Speaker at the Michigan Policy Summit in Detroit.
Dean offered clear, concise answers to why we find ourselves in this mess, and as he said, why it shouldn't have taken a super sleuth to see this coming. The truth is many people did see it coming, they simply were not heard, or were not motivated to do anything about it.
The housing bubble is one of two primary conditions to blame for economic crisis. So how did we get here and why did it happen?
The housing boom spurred economic growth through such means as the tremendous increase in housing construction, as well as the wealth people obtained by borrowing against their overvalued homes.
As housing values continued to climb (tripling in some areas such as DC) understandably people began putting less into their 401(k)s as their retirement seemed assured in the value of their home.
The problem was this wealth was not real, economists knew these inflated values were not sustainable, and yet the public was not properly educated.
While this was happening the US had another critical flaw. We were not exporting enough American goods. A contributing factor to this situation was the overvalued US dollar. The effect of an inflated US dollar, is the same as if we had tariff on all of our exports. Our products were too expensive to the rest of the world, and their products were a bargain for us, and Americans do love a deal!
Simultaneously, the housing bubble was able to continue for so long because of creative financing on behalf of the banks. This short cited policy virtually guaranteed a collapse of our financial system.
Dean offered some wonderful solutions, and opportunities that this crisis presents for us, but I don't want to go there yet. For now I want to focus on understanding how we got here so that I can know our history, before I even think about forgetting it... |
