A spark on a haystack.

Its seem like people never learn. After every financial crisis, lots of people would write books, articles, columns, about what seemingly went wrong(its always the same points that just a few months before they were singing praises about), about lessons learnt, blah blah blah. But it always appear to be the same kind problem.

Fundamentally, the scale of the financial crisis is always due to the fact, that the finance world is based heavily on credit. Money that is not yours. Spending money, be it investments, consumption, that is not yours, in hopes that you could somehow repay the guy who lent you the money with profit plus interest. This is a most risky business, because the person spending money that is not his, has no or reduced marginal costs. IF he is unable to repay you your debt, whats the most you could do to him? Make him bankrupt. Big deal. He originally had no money anyway, which is why he had to borrow money. But you would have lost that money you lent, for nothing. Almost as if you threw money into fire, at least throwing money into fire could make you warm. The result, is 2 guys that are now poor, and likely to reduce their level of consumption if the sum on money involved was proportionately large. Now imagine banks doing this on large scale, with each other, over many countries. When something fails, you have a large problem, coupled with a widespread problem. A financial crisis just started. In short, you have a catastrophe.

Funny how before a catastrophe occurs, people always tend to underestimate the costs involved. And when it does occur, people always tend to overestimate the costs involved. Suddenly, everyone refuses to lend any money out, everyone starts saving more, cut consumption, and we can see now that a financial crisis has become an economic depression.

Now they say the age of cheap credit is past. I think its always will return eventually. My next bet when the next crisis will occur? Probably around, 2017.