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Wednesday, 4 February 2009

I now understand the financial crisis much better

I now understand the financial crisis much better. Back in September when the credit freeze was first becoming a matter of public discourse, I listened to a fantastic episode of This American Life that explained in layman's terms, what the crisis was about. This was followed up by a great FreshAir interview with NY Times financial reporter Gretchen Morgenson. Both highly recommended.

After those two shows I thought I understood, but the other day I had a flash of insight that brought it home in a much more personal way.

I'm lucky in many ways, one of those is that I have a good savings account that basically allowed me to retire at a very young age. Managing this nest egg is super important for me, it's what I live off. So in January I got the willies about the stock market and sold everything, moved it into cash. I did eventually start buying stocks again, slowly, but let's keep it simple and assume everything I own now is either in government bonds or the most conservative money market fund possible.

A picture named ron.gif Turns out I was early, I saved a lot of value by selling in January, because later in 2008 a lot of other people did the same, causing the market to crash. At that point I never once entertained the thought of buying bonds or stocks of any kind. Never mind the explanation of not knowing which banks had a dishonest balance sheet or toxic assets, I was basically keeping my assets in a shoebox under the bed. I was and still am totally risk averse. I won't lend my money to anyone, I'm keeping it all for myself. I don't care if I earn zero interest, or even negative interest. I want to hold, hold, hold. As close as possible. I'm scared, freaked out even by what I see in the financial world.

There you have it. I'm not lending money to anyone. Same with everyone else. That's exactly why the economy is stuck.

You want to go first? I don't.

That smiley is there just so you know that there's still something worth laughing at in this crazy mess we call an economy.

BTW, what made me think of writing this up was an email I got from Citibank this morning offering unprecedented rates on a CD to which I said out loud "Fat chance buddy."

Dave is, of course, spot on. Banks don't even trust each other enough to lend to each other. It hasn't quite got that bad here in Australia.
Yet.
Dave's right about another thing too. The link he suggests is an excellent explanation of what's been happening.
In fact, This American Life has had several excellent specials about the crisis which explain the full horror very well.
As well, National Public Radio (US) has a daily podcast which has been following economic developments in an interesting and revealing way.
Check it out.

[Scripting News]
7:26:42 PM comment []

Really?: The Claim: Sitting in a Sauna Can Relieve Cold Symptoms

Really?: The Claim: Sitting in a Sauna Can Relieve Cold Symptoms. Saunas have been recommended for arthritis, asthma and chronic fatigue, but do they work for colds?

The short answer? Probably.

[NYT > Health]
7:01:56 PM

comment []