SQJ Taipei

Some of you know that my degree is in accounting. I probably wouldn’t choose that one again if I could go back (I’d choose physics, most likely), but I did enjoy studying business, finance and economics. I found such study valuable in much of my work after college and before coming to Taiwan.

I’m not claiming to be an expert, but I’m fascinated with all of the discussion surrounding the recent economic troubles.

I enjoy the challenge of wading through the political spin and getting to the root issues. Turns out that *political spin* actually *is* one of the root issues… but that’s the world we live in these days.

When looking at any issue, I like to get all the information I can from all the sources I can find. Over time I’ve come to trust some sources over others, but I’m always interested in a broad spectrum of perspectives. This may take more time and effort, but in the end, this approach helps ensure that we don’t look for “facts” that fit our biases and throw out the rest.

Here’s a few non-partisan links that I’ve found helpful (so far)…

First, a simple Google search for Community Reinvestment Act will bring up some good links about the single greatest cause of the current crisis. I think each person’s quest for answers should start here.

And now the rest in random order of importance.

I’m sure that you’ve heard that one of the causes is “deregulation”. Actually, the opposite is true. Although I don’t agree with much of the piece, Sebastian Mallaby is 100% correct in his conclusion that deregulation is not the cause and regulation is not the answer. The next president will be under HUGE pressure to enact MORE regulation and since both candidates lean that way already… it seems that the American people will continue to feel the pain.

So blaming deregulation for the financial mess is misguided. But it is dangerous, too, because one of the big challenges for the next president will be to defend markets against the inevitable backlash that follows this crisis.

Russell Roberts’ piece in the Wall Street Journal, How Government Stoked the Mania, is a clear and fair analysis of multiple ways that the legislative and executive branches of the federal government created this current mess. It’s hard to find a small part to quote because it is all so important… I’ll go with the article’s own intro…

Many believe that wild greed and market failure led us into this sorry mess. According to that narrative, investors in search of higher yields bought novel securities that bundled loans made to high-risk borrowers. Banks issued these loans because they could sell them to hungry investors. It was a giant Ponzi scheme that only worked as long as housing prices were on the rise. But housing prices were the result of a speculative mania. Once the bubble burst, too many borrowers had negative equity, and the system collapsed.

Part of this story is true. The fall in housing prices did lead to a sudden increase in defaults that reduced the value of mortgage-backed securities. What’s missing is the role politicians and policy makers played in creating artificially high housing prices, and artificially reducing the danger of extremely risky assets.

The Money Meltdown is a blog/website with a simple format and some excellent links… be sure to check it out.

Andrew Hill sums it up nicely…

If you owe the bank $10, it’s your problem. If you owe the bank $10m, it’s the bank’s problem.

If you and a million others owe the bank $10 each, it’s still your problem – but it’s also the bank’s problem.

If the bank then sells to an investor the $10 you owe, it ought to be the investor’s problem.

But if you have a problem repaying the $10 – and so do a million others – it’s both the investor’s problem and the bank’s problem.

Your problems and the investor’s problems mean the bank now owes another bank $10bn. That is both banks’ problem. But if neither bank will pay the $10bn it owes the other, it can quickly turn into a $700bn systemic problem.

And if the government then owes the banking system $700bn, it’s your problem.

Where Do We Go From Here? How About Back To The Basics is a simple (some would say obvious) list of ways the “average person” can keep above water now and in the future, come what may.

1. Live within your means starting TODAY.
2. Budget your income starting TODAY.
3. Formulate a plan to get out of debt TODAY.
4. Seek ways to diversify your income TODAY.
5. Save something out of every paycheck TODAY.

The Christian Science Monitor has a Global Credit Crisis Blog with some good posts if you wish to follow it more closely.

I hope these links are helpful. I think they will be, but I encourage you to do your own research, come to your own conclusions, and make a good plan for the future.