Notices
Results 1 to 3 of 3

Thread: Proposed Regulation For Financial Crisis: Supply and Demand

  1. #1 Re: Proposed Regulation For Financial Crisis: Supply and De 
    Forum Ph.D. Leszek Luchowski's Avatar
    Join Date
    Jun 2008
    Location
    Gliwice, Poland
    Posts
    807
    What I find perplexing in the present crisis is that nothing has physically gone wrong. All the recent hurricanes didn't dent the world economy the way the credit crunch did.

    Imagine if we had technologically advanced friends on a nearby planet and they heard about our woes. They would ask:

    - hey, good old human friends, how can we help you? Just name it, we can manufacture it! Do you need food, energy, oil, air, water, gold, steel, bricks, spider repellents, brake shoes for vintage Pontiacs, context-sensitive spell checkers?

    - No thanks. I mean, sure, all of those would be great, but they have nothing to do with our present crisis. Could you please send us financial liquidity, corporate solvability, and credit worthiness?

    - And what the [----] are all of those? What are they made of?


    Leszek. Pronounced [LEH-sheck]. The wondering Slav.
    History teaches us that we don't learn from history.
    Reply With Quote  
     

  2.  
     

  3. #2  
    Forum Professor
    Join Date
    May 2005
    Posts
    1,893
    The problem is that the law of supply and demand only works properly when people have access to correct information. In the case of the mortgage crisis, everyone thought that the mortgages securities were a lot safer than they really were. Supply and demand was operating correctly, but the demand was based on faulty information.


    Reply With Quote  
     

  4. #3 Re: Correct Solution Before Correct Input 
    Forum Professor
    Join Date
    May 2005
    Posts
    1,893
    Quote Originally Posted by Post-Science
    The banks and the Federal Reserve should have more than enough resource to calculate the correct housing price based on supply and demand. Thus far, no one has done so, as far as I know.
    Actually the problem wasn't so much that people didn't know the "correct" price for housing, it was that people over-estimated borrowers' ability to pay back loans. A vast amount of money got tied up in mortgage-backed securities that everyone thought would have a relatively low default rate, but the default rate suddenly went up much higher than anyone expected.
    Reply With Quote  
     

Bookmarks
Bookmarks
Posting Permissions
  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •