The differences between 1929 and Today

[DcifrThs]

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Yes. Conceptually, I have always had a problem with the financial ratings system. Basically, the ratings system exists to encourage people to buy financial instruments. Naturally, they are only going to say things that will make those instruments look attractive. It's kind of an incentive to fudge things. Shades of Enron.

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one thing to add here is that the ratings agencies were suspect when yields on a AAA rated CDOs were higher than similarly rated securities. but the excess liquidity forced investment into these since it was so attractive and so cheap to borrow.

one thing that wasn't aken into acct by ratings agencies was liquidity premium and other trading type considerations. these certainly affect the yield on securities and the market saw things that ratings agencies didn't.

Barron

[theseus51]

It was the fed printing too much money to begin with. Yeah, there was a "gold standard", but the fed kept printing money anyway. The only reason we went off the gold standard in 1933 was too many people wanted to redeem their paper federal reserve notes for real gold. We went off the gold standard once that couldn't be achieved, because there wasn't enough real gold to back the worthless pieces of paper issued be the fed.

What that means, is we never really had a gold standard to begin with. If we did, we wouldn't have run out of gold, and be forced to confiscate everyone's gold to make up the difference, as FDR did.

Cheap credit caused people to over invest and over speculate, leading to bubbles, which eventually burst. The depression of 1929 may not happen in exactly the same way (what two recessions are exactly the same anyway?). But I fear the federal reserve has set us up for a big downturn in the coming years.