Saturday, September 20, 2008
The New Stone Age
Barry Ritholtz is an economist who writes a blog, The Big Picture. Even though he's sophisticated, which is to say an actual expert in these matters, Ritholtz usually writes in a way and on topics that laypersons can comprehend, with a little effort.
"The Underlying Basis of Credit & Finance,"one of today's posts, is a must-read if you're at all interested in the financial meltdown, the collapse into insolvency of the United States, and the end of civilization as we know it. It's very short, by the way, and very precise about why we're where we are at this moment.
Ritholtz locates the causes of the present disaster in the years 2002-2007, the time of the Great Housing Boom. A sample:
Since real estate loans are at the bottom of all of our current credit woes, let's take mortgages as an example. The historical basis for making a loan for a home purchase was several simple factors: Employment history, Income, down payment, credit rating, assets, loan-to-value ratio of the property, and debt servicing ability. But for some crazy reason, those factors went away during the housing boom.
That may sound simple, but it becomes even more stark when viewed over a time line.
<-1 million B.C. --------------------------- (2002-07)2008->
Actually, that's about half of it. It's very much to the point.
So I guess all of us except the really super-duper rich are going to find out what One Million B.C. was like. Kind of takes you back to freshman anthropology class, doesn't it? and the voice of the old professor saying, "In those days they used Crude Stone Tools. But they were not as crude as they used to be because this was the New Stone Age."
Anybody reading this who knows how to knap flint, please post how-to instructions on the net somewhere before the plug gets pulled and we're all sitting here grunting at each other by candlelight.