What caused the economic crisis?

Posted by David Richins in Blog on 02 11th, 2009 | one response

This seems to be a popular topic, so I thought I’d go ahead and weigh in on it.   There is no shortage of opinions on what the real cause is:

The last bullet seems to make sense.  It is also part of the mystery, and a source of disagreement.  Somehow, multiple sectors got caught up in some kind of groupthink, where everyone acted in concert to produce the wrong result.

The answer to the question of what caused the crisis is not of little consequence.  We see significant actions being taken in response to the crisis, and yet politicians and experts still do not agree on what underlying conditions or actions created the problems.

Before we rush to act, wouldn’t it make sense to figure out what false ideas led to this groupthink?

To get the ball rolling, let me put forth some possible assumptions and see how well they hold up to scrutiny:

  • Housing prices always go up.  (Only a few years ago, “experts” were still saying this)
  • It is good for real estate values to go up.  (What about people who can’t afford to buy a house? What if housing prices go up faster than incomes?)
  • Governments can stimulate the economy by controlling the money supply and interest rates.
  • Governments can stimulate the economy by investing in infrastructure

Are these assumptions true?

Ronald Reagan said: “Property is not just something enjoyed by a few, but can be owned by any individual who works hard and makes correct decisions.”

Is this statement true?  If not, what makes it untrue in today’s society?

One Response to “What caused the economic crisis?”

  1. emmanuel says:
    April 28, 2009 at 3:51 pm

    I would like to have a clear explanation of the current crisis. Im trying to figure it out but always confuse. As i see on the top can you explain what we are blaming them for?
    -Greedy lenders/banks
    -Government
    -Community reinvestment act
    -Borrowers
    -a bunch of stuff
    Thanks for helping

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