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Investment Analysis Clubs / Macro Economic Trends and Risks
|Subject: Banking Crisis cycles||Date: 10/8/2012 10:00 AM|
|Author: qazulight||Number: 405543 of 476217|
We have been seeing posts about the causes of banking crisis. Most have settled on the idea that bankers are greedy and stupid and need to be regulated, or bankers are greedy and smart and they will run to the next crisis in spite of the regulators.
There are a few who say the regulators are the problem.
I submit that banking crisis are a symptom of normal economic cycles and that the troubles are not causes be evil people so much as that they are caused by people being human.
If you go back, (and this is based on the memory of a short post a long time ago so feel free to correct the history,)to shortly after the turn of the 20th century you had an economic system based on the horse. The horse needed grain. Farmers produced grain. When the automobile came out, the demand for grain fell, and the underlying value of the loans made to purchase farm land fell. Thus a banking crisis.
These technological changes ripple through out society changing what is valuable to worthless, and what is worthless to valuable. The problem with bankers is that they make loans on what has been proven to be safe. Unfortunately, what is safe of necessity changes as one wealth generator fails and gives way to another.
We marvel at the failure of Detroit. Many wag their heads and say "Oh it was the corruption." others say "It was the unions." I say it didn't matter. Detroit grew and prospered with unions and corruption. The problem is not that Detroit is made up of bad people, the problem is that the technology and business ideas that made Detroit, ceased to be the wealth generators that they were.
When you look back a the the 1970's and 80's you can see the baton of wealth creation being handed off from the old line manufacturers to the "technology" companies on the West Coast. With Facebook being the latest and greatest technology company now, why would you wonder about the falling real estate values in California? I hear people bleating about the high taxes and high regulation in California, BAH! HUMBUG! There were high taxes and high regulation when Silicon Valley got its start. No the problem with California is: the wealth generators is finished and the baton is being handed off to something else.
These transfers of power between technologies and localities always cause upheavals in the banking industry,it is almost a requirement because banking is a backward looking industry.
Finally, one more thing. The U.S. has been the wealth creator in the world for our lifetimes. There is no reason to think that this is a fixed thing. That the U.S. is GOD's country, or that our Democracy, or religion, or form of commerce is the beginning and the end wealth creation. Just like wealth creation gets handed from technology to technology, wealth creation gets handed from society to society.
As investors, we should not focus on what was, rather attempt to find what will be and buy into it.
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