General Question

bkburbo's avatar

What's really at stake for individuals in this financial crisis?

Asked by bkburbo (251points) September 25th, 2008

I know everyone says jobs, prices, mortgages, pensions, savings, and “our entire economic system,” but what is actually at stake? How bad could it actually get, and what would that look like?

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34 Answers

PupnTaco's avatar

Imagine the bread lines and the dust bowl of the ‘30s. Now multiply by 1000.

Judi's avatar

I think that if money can’t be exchanged then jobs will be lost, inflation will skyrocket and basic services will dry up. No jobs in finance which means they’re not spending money on service. No one spends money on hair cuts nails and massage. Everyone starts doing their own lawn so the gardeners don’t have a job, they no longer can afford to eat out so the restraunt workers loose their jobs, Oh I noticed that Dale is crafting a response. I am sure he will explain it better.

fireside's avatar

@judi – no haircuts? : )

Judi's avatar

Well, Moms across America will start doing it for their families again. Dale is still writing so I know it’s going to be good. :-)!

dalepetrie's avatar

Thanks for the vote of confidence Judi, I’ll do my best…

Here’s my understanding of some of the dangers.

#1 – The credit markets could sieze up. What this means is, banks who have all this bad debt on their books from mortgages that are going bad are essentially not very “liquid” which is an accounting term which means “easily converted to cash”. So they may have “holdings”, but they don’t really have much actual money. Since banks lend money to individuals, not just for houses, but for cars, credit cards, and other small loans, including loans to both individuals and small businesses, if that source of money dries up, no one is able to borrow money. Our entire economy is a house of cards, built on borrowing…no one lives within their means in America, so suddenly you’re going to have a situation where you pretty much have to have cash to buy anything, to expand your business, etc. And the banks aren’t going to have much patience for people who don’t pay their bills, they’re going to need that cash to just stay in business to meet all their obligations. And of course if people can’t even afford to pay off the bills they already have, much less buy new things, no one sells anything, businesses start to lose money, and if they can’t borrow money to stay afloat, they too have to shut down. Businesses shut down, people lose their jobs, and become even less able to buy things. This causes more businesses to fail, and the cycle continues until no one is working and we’re in another great depression. Banks stop turning profits because they can’t invest, no one can invest in anything so stock prices go through the floor, everyone’s pensions are wiped out, people have to spend their life savings just to survive. Of course, no one’s making money so the government isn’t collecting taxes and it has to start defaulting on it’s 11 trillion dollars in debt. We won’t be able to afford anything not even national defense. Literally, America could disappear.

#2 – Much of this is about confidence as well. So much of what happens on Wall Street isn’t about what is really happening, but about what is expected or perceived. Look at oil prices and gas prices….we expected oil to hit $150 a barrel (because of Lehman Brothers who said it would by the way, so good riddance to those assholes), but there was no actual supply and demand component making oil go that high. There was simply speculation, which drove up prices. If speculation is that we’re heading to a meltdown, then by God, we’re heading to a meltdown. And since we live in a global economy, the first real hit we’d take would be as such. Bernanke and Paulson pretty much came out last weekend and said, we need this bailout by the end of the week, or our economy will be in ruins. Now foreign investors have the expectation that if we don’t have a bailout in place by the opening of Markets on Monday, the US economy will go into free fall. So all the foreign investment that props up our economy will start getting pulled out on Monday, our stock market will go down by several thousand points and we will tip into a great recession.

In other words, we won’t fall into a depression because our credit markets sieze up, our credit markets will sieze up because we fell into a depression, brought on by the very expectation that we would fall into a depression if something didn’t happen by an arbitrary date. Basically what happened is Bush wanted to railroad in a bailout for his Wall Street cronies, so Paulson and Bernanke pretty much made this announcement knowing full well that once the cat was out of the bag, we were screwed if we didn’t go along with it. Now we HAVE to do SOMETHING and do it now or our economy WILL tank and we will be in BAD shape.

The gotcha however is that Bush had this thing written so that we had to hand over this money with no oversight whatsoever, giving Congress no right to question or examine what they were doing with it, it had no ownership stake for the taxpayer, and had no protections for people who are losing their homes. Bush knowing the corner he backed himself into now has to agree to those concessions which will make the Democrats happy (though not everything, Dems have had to sacrifice Bankruptcy Reform), but now, a plan will likely be announced this afternoon, it will have Congressional oversight, payments will be phased in, there will be caps on CEO golden parachutes and bonuses for anyone who takes the money (which in the long run will mean only what needs to be taken actually WILL be taken), and there will be ways for people to avoid losing their homes. Still however, it’s going to cost us.

The irony is, we’ve been talking for 3 years that something needs to be done. There’s NO WAY IN HELL that if Bernanke and Paulson hadn’t opened their mouths we’d STILL be looking at economic collapse come Monday….we’d still be on a slowly degenerating path where one thing or another would happen, and we’d probably have a deep recession, credit in some sectors would get harder to get for a while, but by and large we’d recover. But now, because of what’s been said, the credit markets would really sieze up, leaving us with position #1.

Geez Judi, build me up enough? I hope I nailed it.

Judi's avatar

You got it. Thanks for explaining it with all the words. I tend to get lazy and try to reduce it to a sound byte. I guess I would make a great Republican politician if I could just stomach the dogma.

fireside's avatar

I’d say you pretty much nailed it Rob.

Too bad that robpetrie for prez link wasn’t real…
Do you think Obama might do well enough in your stead?

Judi's avatar

Who’s rob?

dalepetrie's avatar

I assume he’s making a Dick Van Dyke show reference. I get that all the time.

Judi's avatar

I’m just old enough to remember the show but not old enough to remember anything about it.

tWrex's avatar

@dalepetrie Beautiful answer. I’ll be tuning to news all day now to see what is actually going to happen.

dalepetrie's avatar

I never watched the show…before my time, but I know Rob and Laura Petrie from all the people who’ve referred to me as “Rob” (thought they pronouced it PET and I pronounce it PETE, so I also get a lot of Petri dish comments).

fireside's avatar

lol, oops

That’s what i get for working and playing at the same time…

deaddolly's avatar

Petrie for president!!!!!!!!!!!!!!!!!!!!!!!!!!!!

This is all so depressing. Makes us look like even bigger idiots to people in other countries and they don’t think much of us now.

sundayBastard's avatar

You better own a gun

Judi's avatar

Dale, that was amazing. I forwarded it to all my friends! Awesome link!!

tWrex's avatar

LoL That was sweet! Great link dale

dalepetrie's avatar

Thanks. I have a lot of fun with it.

Bri_L's avatar

As always I appreciate your time Dale

augustlan's avatar

Dale, maybe you really should run for office. You seem to have a very good grasp of the issues. I’d vote for you!

dalepetrie's avatar

Thanks augustian. Seriously, the funny thing is, I’m 37 this year. This is the first year where Constitutionally I’d be able to run for President. And my whole life, I’ve always thought we need a bottom up economy, we need to change our priorities, there are just so many things that I see as wrong about how we govern that I’d like to change, and boy, in 2008, maybe I’ll run for President.

Well then I started to realize what a grueling process this really is…how you have to go out and raise like a billion dollars and have every single element of your life parsed over, have every statement you made scrutinized and twisted, and how any single flaw could just blow your chances out of the water. And I thought, well maybe, JUST maybe someone could just come out of nowhere and do this.

Then I saw Barack Obama. And the thing was, he actually said about 90% of the things I’ve thought my whole life about how we need to make this a bottom up economy and change our priorities. He actually came out of nowhere. But unlike me, a guy who pretty much just lived his life, this guy did amazing things without being a Washington insider. He did community organizing, he was a Constitutional law professor, and he was a state legislator and is now a US Senator. And yet, they call HIM inexperienced.

And I looked at my own life. Well, first of all, sex scandals aren’t going to be a problem for me, I’ve led a pretty boring life in that department. But I’m overweight, that’s a big problem, and of course, being overweight has led to other problems like type II diabetes, high blood pressure, high cholesterol. No, I don’t think I’m anywhere near death’s doorstep, but that’s going to disqualify me for a good share of the people. And what I have in writing skills, I lack in face to face skills. I’m painfully shy, not good in front of crowds…I can express myself very well in writing, but if I had to do it orally in front of people, forget about it. I can, but I get so nervous and flushed I feel like I’m going to pass out.

In fact, I took a speech class in college, no one had really tried to interject humor before, so I took that approach, and as a commedian would say, I knocked ‘em dead. The class was just busting out in laughter, tearing up they were having such a good time. In fact, the next person tried to give their speech, and people couldn’t calm theselves enough, the teacher just said, tell you what, why don’t you save your speech for next week, and we’re going to call class early. And a lot of people would have felt like the king of the world to have done that, but I was just so self-conscious and nervous, I wanted to crawl under a rock and die.

And speaking of humor, I LOVE to write humor, I have written a great deal, and it’s on the internet. Along with a great deal of non-humorous political and philosophical postings on places like Fluther. Some of it could be taken as VERY angry, because at times I have been VERY angry. Some of it was not exactly PG. These things would be used against me. And speaking of philosophy, though I wouldn’t call myself an athiest, because I believe there “could” be a God, I’m just not convinced that there for sure is one, and even if there is, I wouldn’t have the first clue as to which one is right for me, or which one is the “true” God.

As you can see, if I ever tried to run for President, my opponents would DESTROY me. Because as clear of a grasp of the issues as I have, I have an even clearer grasp of how politics works….it’s not about who has the best ideas, it’s about who can convince the largest number of people that they are the least dangerous/suspicious candidate. In this puritan country, I wouldn’t have a snowballs chance in Hell of getting elected.

So, I’ll just keep trying to win hearts and minds by making my case rationally to whomever will listen in whatever form seems to be working best for me…right now, that seems to be right here. But I nonetheless thank you for your support!

augustlan's avatar

I completely understand. The people most qualified to be president would never run for office. For the reasons you’ve mentioned, as well as the moral sacrifices one would have to make in order to be elected. I find it truly disheartening that our system is set up in such a way, and that the masses seem perfectly ok with it.

PS: I am august L an…it’s a common mistake. Those lower case Ls look just like an upper case I.

dalepetrie's avatar

augustlan, I won’t make that mistake again, thanks for the clarification.

And one of my hopes, and I know it’s a pipe dream, is that if, hell WHEN Obama is elected, he is actually able to create an entirely new publicly financed elections process, which doesn’t allow ANY party money, any 527 money, any money other than the designated amount given to each candidate to be used, and that he further creates a situation where advertising has to be fact based (maybe some sort of penalty for being caught in a lie). I think we COULD have an election system where we’re actually EDUCATED about the candidates, their records, their platforms, and that’s it. Of course, we’d still have the Limbaughs, Hannitys and Coulters shooting off their mouths…maybe he’ll force disclaimers onto those shows which require them to disclose at the top and bottom of every segment that everything they say is opinion. Hopefully 2012 will be better.

augustlan's avatar

Dale, my pipe dream is “blind” elections. NO advertising. You walk into the voting booth and are faced with a ballot with no names, no party affiliations. Just a list of the major issues facing the country, and how candidates “A, B, and C” would handle it. You would vote for their position statements in each category. Whoever got the most votes for thier policies would be declared the winner.

dalepetrie's avatar

augustlan- what a tremendous idea, lurve for you!

augustlan's avatar

Thanks. Now if I could just figure out a way to make it happen!

SpatzieLover's avatar

How bad could it get? I shudder to think.

I grew up with two sets of “Depression” grandparents that saved everything. Jars of rubber bands, food pantries stocked to the gills, clothes mended and worn for at least 2 decades before turning them into rags. Why’d they do all of this? They KNEW how bad it could get.

Your children could go to bed hungry and sick. You could HAVE to walk to work. You might need to cease all spending-Period! (People were LUCKY then…they had wood stoves & incinerators——what do you do if you don’t have a fireplace to heat your home if you can’t afford fuel or your elec gets cut off?)

It, in my estimation, could become catastrophic…And, I have been saying this to my family for 2 yrs now. I think people have their blinders on and are spending as if we all are still living during the Clinton Era.

grayreason's avatar

Well for starters your rights. With the government making a move to own peoples debts, loans, and mortgages opposition could be silenced. Just stop and think about a world where the government controlled your loans and debts. In the event that a division of the population decided to protest or start a movement, all the government would have to do is bankrupt them by calling in the loans, debt, and mortgages. Just think what would have happened in the sixties if the government could have bankrupted even a tenth of the movement.

Secondly we plunge even DEEPER into debt. With the economy in a slowdown that may not end for a year or more the government doesn’t have the tax revenues it needs for both wars and domestic affairs, forcing us to borrow more from other countries. (china currently loans the government 2 billion dollars a day). Causing foreign powers to have greater control over the American government.

Now lets say this crises turns into a depression and the markets lose another 3k points. DOUBLE the national debt within five years. The government needs more money, so it borrows more from other countries, the interest on these loans continues to build for future generations to pay off. This plus a massive poverty stricken under class (larger than any seen to date), due to the huge amounts of consumer debt, will lead to internal turmoil. Which in the worst scenario erupts into a civil war.

In essence…withdraw your money, buy material goods, then leave the country and move to a non-socialist/communist country. If this country enters into another depression it wont emerge from it.

tWrex's avatar

Fantastic answer @grayreason. And I fully agree with that we’ll have another civil war. It’s going to happen, especially if things keep going this way. I just hope to God they don’t pass this bill that has around 105 billion in pork barrel spending. if this bill is so essential to America why do we keep putting more money into it for special interests groups? exactly. it’s not. today. I hope they stand up again and say, no my constituents don’t agree with this bill.

BronxLens's avatar

Can some of you guys and gals try, give it a good go at your gray matter reservoir, and offer your take on what you see we would do more or begin doing as a positive response to things tightening? More home/public vegetable gardens? More people using public transportation/riding bikes to work? (yes, work… we as Americans, have the mother of invention on our side, and adaptation comes second nature. An exbanker has hands as good for pulling fishing nets as any seasoned sea dog; doctors move to wood areas where people continue to work as usual and where they could afford to pay for services, just couldn’t afford time-wise the darn drive to the city. Etc, etc, etc.

Please, look at what possibilities await on the other side of the proverbial coin and tell us, what do you see?

@PupnTaco, DalePetrie, Judi, why don’t you begin?...

Judi's avatar

Have you ever talked to anyone who survived the great depression? Do you realize what a crisis it would be to have the jobless rate go up to 24 percent? I’m not willing to throw away my blind mothers little nest egg or the health and welfare of an entire generation, even if one of the byproducts would be more gardens.

dalepetrie's avatar

BronxLens -

You make good points. I definitely think that fuel efficiency and greener sources of energy are definitely an idea whose time has come. Environmentalists have been seeing the need for years, but as with most things, there has to be an economic incentive for the unwashed masses to take notice. Gas going up to 4 bucks a gallon? Sure gets people’s attention, and makes that expensive alternative energy seem competitive. What I’ve thought though is that if you look at any technology, there are early adopters who will pay whatever they have to in order to reap the benefits (some because they can, and others because they care enough to make it work even though it’s far from the cheapest option), but there is a sweet spot…when R&D reaches a point that makes the new technology palatable to the masses. It’s a self-perpetuating cycle…something is expensive, more people buy it, it becomes cheaper…it becomes cheaper, more people buy it.

But it’s hard to sit there and think, OK, let me get this straight, you can sell me power you generated from the wind? Well, the wind is free, why does THIS power cost 4 times as much as the power I’m using now. Good idea, not gonna fly. But we have wind, we have solar (it’s said that 92 square miles of solar panels could power the entire United States), we have wave, we have geothermal…all these technologies that are not destructive, don’t produce waste, and are free for the taking if we just harvest it. But harvesting, storage and distribution are bottlenecks. Problem is, with those bottlenecks in place, the cost is greater than what we have today, and in order to bring those costs now, we need R&D, which costs money, which you need to raise by selling your product to people.

I think one of the best solutions we have is to invest at a governmental level in these kinds of things to inject some capital in the market to get around the problems so that the technologies become competitive in the market, which will eventually 1) remove our dependence on foreign oil, 2) save the planet via less polution, 3) make energy cheaper for everyone causing greater prosperity at the ground level which will expand our economy, 4) give us an energy source that will never run out, and 5) create an entirely new green sector of the economy which will spur job creation and expand our economic growth even further.

The next thing I’d say is, look at cars. Even your hybrids get between 30 and 50mpgs. You know what…back in the 80s, I had a compact car that I once got 43 mpgs in on a road trip. In most of Europe, you can’t even SELL a car unless it gets something like 40mpgs. But we all drive cars that seem to get 25mpgs or less, unless we want to pay MORE for a smaller car. I think we need an intiative…I wish our leaders would call on America to drive smaller, more efficient vehicles, and do what it takes with tax incentives to bring those vehicles to America. Most Americans want a bigger and bigger car, but in Europe, people often just drive only what they really need. Indeed, Ford introduced a car this week that gets 65mpgs, but they’re only selling it…you got it…in Europe. We need to try to break our bad consumerism habits of getting more car than we need. That I think is doable.

And we need to invest in more public transportation. I live in a city that is VERY myopic when it comes to this. It took 30 years of arguing for us to get a light rail system, and now that we did, it’s EXTREMELY costly, and we have one section that heads north and south for about 10 miles. We’re a city of 3 million people (Minneapolis/St. Paul), yet only a tiny fraction of it is connected by rail. But we’ve gone so far away from a rail system in this country, because we’ve gotten so individualistic and want our own little space, that we’ve gotten spoiled. But look at a freight train, it can move 400 tons of cargo a mile on a single gallon of fuel.

I do think incentivising a distribution of our skilled professionals to farther flung areas is a great idea, because I think there are huge pockets of America where we could be more prosperous if peole could have the kind of lives they want without living in the city. I think massive public transport on a national scale connecting all of America, and greater investment in internet infrastructure to allow people to stay connected while in more remote areas, could decentralize our population and lead to greater overall prosperity (more communities to build up = more jobs, more opportunities, etc).

Now, we have to be realistic…Americans aren’t all going to start growin their own vegetable gardens…some have no interest in that, and many don’t have the land. Bikes are great, but they’re only ever going to appeal to a certain segment of the population, and as streets get more crowded, it’s a more and more dangerous option. It’s also less feasible when people are living further and further away from work. So I think things can be done there, but I think we have to be realistic and accept that no matter what, some people can’t make public transport work, some people NEED a bigger vehicle for one reason or another, some people live too far away from work to bike…but we can encourage those who really don’t do these things for economic and structural reasons. We can incentivize and we can innovate…that’s what has always made America great…whether it was the industrial revolution, the post war boom, or the tech industry explosion, when we innovate, everyone benefits…we need to encourage that, and our government should take a greater role, both as a cheerleader AND an investor.

Judi's avatar

Lurve to Dale.

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