The Crash of 2008 part 2

We are experiencing an historic time which will be referred to in future years. What we don’t know yet is just how deep this crash is and the extent of the fallout which will come from it. What we do know is that markets are reeling and multiplied millions of people have already been affected.

Banks have been nationalised. Millions of people have lost their homes. Billions of dollars of stock value has disappeared in days. Fortunes have been lost and won. International summits have been called. Moments of hope have been established, only to be demolished by the next wave of bad news.

You’ll be able to tell your grandchildren you went through the Crash of 2008!

The Big Question

The big question that people want answered is, “What is really going on?” Is this the end of the world or just a bump along the road to progress? Will everything right itself or will the carnage continue?

To help you understand what is going on I have pulled together a list of factors that have contributed to our current situation.

Greed

Greed or the Love of Money gives people a willingness to put all at risk in order to get a profit. And greed is a big part of the operation of modern markets, whatever people are dealing with.

Back in the days of the South Sea Bubble the Poet Alexander Pope pointed to greed as a key factor in the huge losses of his day. He said of the South Sea debacle – “See Britain sunk in Lucre’s sordid charms”. By this he saw that it was the lust for “lucre” (money) that had dragged Britain into the quagmire of terrible losses.

The Apostle Paul taught that the “love of money” is the root of all evil – 1Timothy 6:10. Christians must be free from the desire for “greedy gain” (filthy lucre) 1Timothy 3:3,8, Titus 1:7,11, 1Peter 5:2.

I have often heard it noted that our present financial systems are dominated by Greed and Fear. These emotions dominate our markets and most financial decisions.

So greed is clearly one of the culprits in our present situation. If the world’s finances were to move to a better footing they would be based on the use of money for noble purposes, not to indulge people’s greedy ambitions.

International Power Brokers

There are people with sufficient financial power to control what happens to the rest of us. A number of the financial busts that have happened over the centuries have been created by financial manipulators.

It is claimed that one crash in the USA was planned four years in advance, so the bankers could buy farming land from bankrupted farmers. For those who want to get some idea of the history of international financiers acting as power brokers check out the Money Masters videos on YouTube.

Orchestrated Financial Machinations can enable those in control to gain the wealth and assets of others. For example, one strategy could be to allow people to make money and start new industries, then create a bust so you can buy the proven winners cheaply, then allow another boom, so you get the profit from other people’s innovation and hard work.

If people have borrowed money then they can be trapped into having to sell their asset to pay their debts. Thus their assets get taken off them.

In the present situation we will probably never know the extent to which the problems have been orchestrated by high-level power players. It is safe to say, however, that it is likely that people of power and influence have been active in the markets, steering things to their advantage when they can.

Divine Intervention

God is bigger than all the banks and governments in the world. When God brings judgement on a people or nation those being judged will suffer all kinds of negative things.

The Bible reveals how God brought enemies, famine, diseases and trouble upon the nation of Israel and other nations. God even prophesied in advance that those things were going to happen.

God also promises that if His people humble themselves and pray He will “heal their land”. “If my people, which are called by my name, will humble themselves, and pray, and seek my face, and turn from their wicked ways; then will I hear from heaven, and will forgive their sin, and will heal their land.” 2Chronicles 7:14

I am confident that God is at work in this present situation. I also believe that if God’s people will humble themselves and get right with God then further upheaval can be averted. I rather suspect, however, that we are heading down a rough road and people will persist in their rebellion for a while longer.

Sin has a Part to Play

The Bible says that sin is a reproach to a nation.

“Righteousness exalts a nation: but sin is a reproach to any people.” Proverbs 14:34

God promises to curse people who reject Him, with famine and financial loss. See Deuteronomy 28 for the extensive discussion of blessings and curses on those who respond differently to God’s Word.

When nations give themselves over to selfishness and sin they bring problems and calamity onto themselves. The selfish determination to live as we please is sin, and God has every right to judge us for such defiance of His claim upon our lives.

Mammon is Ruling the Nations

Jesus said we either worship God or Mammon. Mammon is the desire for gain and the elevation of material wellbeing and self-interest over our willingness to worship God.

I have pointed out in other places that western culture is given over to the worship of Mammon. Instead of living for God and glorifying Him whole nations are living for self and glorifying themselves.

God says “Love Your Neighbour”, and Mammon says “Exploit Your Neighbour”. God says “Trust Me and I Will Bless You”, but Mammon says “Serve Me and I Will Bless You”.

Western Culture and much of the world are ruled by the desire for gain, not the willingness to bless others.

What is Going On?

What is going on is that we are reaping what we have sown. Greed, Power Games, Sin and Mammon worship have set us up for God’s response. God is intent on having us worship Him, as is our responsibility, since He gave us life and everything in it.

So the next concern we have to think about is, “What is God doing in all of this?” That is what I will take up with you when we come to the third instalment in this discussion.

The Crash of 2008

We are living through the Crash of 2008. This time will be long remembered and it will be used as a reference point, just as the 1987 Crash and the Great Depression are. So we should take stock of what is going on and what we are going through.

This Is Your Crash!

Just last month, in September 2008 world markets crashed and entered a time of great volatility. In the weeks since then governments have taken drastic action to save their banks. Panic has hit the markets. Uncertainty and fear grips most economies. And in the lead up to this crisis millions of Americans have lost their homes. And to top it off the nation of Iceland is on the verge of bankruptcy.

People want to know how far this is going. Where will it end? Is this a recession or a depression? Is this survivable or is society going to change from this year on?

History of the Crisis

Firstly let’s review the history of the current crisis. It springs in large part from the Sub-Prime Lending problem. Following deregulation of the banking and financing sectors in many countries during the 1980’s money was made available to people whose ability to pay was not as reliable as was previously required to borrow money.

Prime Lending is for those who have good credit rating and strong asset backing. Sub-prime means they do not meet that standard. Loans were also treated as an asset by the banks and having a large number of loans meant lenders could sell those off.

In the 1990’s many new lenders paid good commissions to sales agents for selling their loans to people. Consequently millions of people who were not good credit risks ended up taking loans.

The large volume of business made the lending companies appear successful. International banks were keen to invest their money into the USA home market because of the high return they could get. Everyone knew it was risky, but no-one expected to get burned.

Problems with the subprime lending game were evident in the early 2000’s as many loans began to go bad. In Sept 2002 USA Home Foreclosures were at a 30 year high.

Yet the subprime lending boom continued and more billions were poured into this risky business from people around the world who wanted part of the profit.

By early 2007 the problem had escalated. In the first two months of 2007 22 American lending companies went bankrupt. There were 1.7 million foreclosures in America in the first 8 months of 2007.

By August 2007 international fall-out from the Sub-Prime Lending problem became a house-hold topic in Australia as we realised that many Australian and international banks were going to be hurt from their lending to the USA Subprime players.

Over the following year the shock-waves of the problem continued to reverberate, until last month, September 2008, when two major home lenders in the USA, Fannie Mae and Freddie Mac were taken over by the USA Govt.

The repercussions on many international banks who were players in the USA home lending market, either directly or through various indirect connections, means that some banks have bone bust while others have had to be bailed out by their governments.

The recent $700 billion USA commitment and $1,370 billion Eurozone plans are just part of the scramble to stabilise the world economies.

The Bigger Historical Picture

This is not the first great crash and it may not be the last. What is happening here is part of a long history of people getting caught out while trying to make a profit. Prognosticators have warned for decades that balance of payment issues, high levels of personal and national debt, and other pressures spelt doom for our economies. Yet corrections, collapsing markets, booms and busts have been part of history for a very long time.

Speculation, Boom, Bust and Bubbles

What tends to happen over and over again is that people who are keen to make a profit and get rich quick will catch on to something that seems popular. They are all hoping to strike it rich and make their fortune. This feeds speculation, inflates bubbles and leads to some of the booms and busts.

Millions of people have crossed oceans and faced all kinds of hardship because someone found gold in some place or other. These Gold Rush enthusiasts left whatever they had in the hope of finding much more.

In the same vein investors and dreamers have all jumped on the bandwagon when various things looked profitable, often losing all they had in the hope of gain.

Bubbles in the Bubbling Economy

A “Bubble” is created when false expectations are set up and a venture is made successful only because people invest in it. There have been many famous Bubbles down the centuries.

Holland had tulip mania in the 1630’s.

In 1720 just about everyone who had money in England was drawn into investing in what is known as the South Sea Bubble. English and American investors lost huge amounts of money in the hope of profits from ships going to South America. Isaac Newton and Mark Twain are said to be among those who lost money in that bubble.

There was the British Railways Bubble of the 1840’s.

The US Bull Market of the 1920’s created what we know of as the Roaring Twenties.

Florida had a Property Bubble from 1920-1925.

More recently we have seen the Junk Bonds in the USA, the Japanese Bubble economy of the 1980’s, the Dot.com boom of the 1990’s, Hedge-Fund Mania and even Enron Mania.

What is Really Going On?

So much for the background. That is cold comfort when we still don’t know where we are going and how bad it’s going to get. To take this discussion further I need to discuss what is really going on. That is the topic of a follow-on article which I’ll be posting in the next week.