A functional financial system is essential to peace, order and good government, and to liberal democracy. A broken one leads to totalitarian governments.
Enjoyed this a lot & am already a fan of Michael Hudson, David Graeber’s work - but one point re: debt. Surely some debt is extinguished & written off by non-payment? It’s true that a lender may seize assets but in a spiral these may not hold their value. In fact, this is surely the cause of financial crises? The non realisation of debt & seizure of assets that no longer have their mark to market value? So debt is often written off during financial crises? The problem in 2008 is that Govs made banks whole with public money instead of forcing repayment plans on banks?
Just how financial crises happen is part of the argument.
Financial crises tend to happen because people are borrowing money to buy and flip assets - the ever-growing debt and prices reinforce each other on the way up. The increase in price is not being driven by improvements - it's being driven because more people have access to credit. This is "speculation". People aren't looking for long-term value, they are looking for a short-term increase.
The problem for the economy is that the speculation is in housing, which is a necessity of life, so the cost of real-estate and rent go through the roof.
At a certain point, people start defaulting, but not everyone will default. Lots of people will be caught "underwater" - they will still owe the money they borrowed, on an asset that they can't sell without taking a loss. They are trapped paying debt - and much of that debt has already been paid back in full.
Enjoyed this a lot & am already a fan of Michael Hudson, David Graeber’s work - but one point re: debt. Surely some debt is extinguished & written off by non-payment? It’s true that a lender may seize assets but in a spiral these may not hold their value. In fact, this is surely the cause of financial crises? The non realisation of debt & seizure of assets that no longer have their mark to market value? So debt is often written off during financial crises? The problem in 2008 is that Govs made banks whole with public money instead of forcing repayment plans on banks?
Just how financial crises happen is part of the argument.
Financial crises tend to happen because people are borrowing money to buy and flip assets - the ever-growing debt and prices reinforce each other on the way up. The increase in price is not being driven by improvements - it's being driven because more people have access to credit. This is "speculation". People aren't looking for long-term value, they are looking for a short-term increase.
The problem for the economy is that the speculation is in housing, which is a necessity of life, so the cost of real-estate and rent go through the roof.
At a certain point, people start defaulting, but not everyone will default. Lots of people will be caught "underwater" - they will still owe the money they borrowed, on an asset that they can't sell without taking a loss. They are trapped paying debt - and much of that debt has already been paid back in full.