I’m sure we could think of other options if we tried really hard.
'Thats the same thing Michael's
-The Big Short
One of the best parts of Boglehead culture is a set of short, easily remembered phrases that describe core principles. In this case, I think of the phrase "Nobody knows Nothing!", which means there has never been anyone who can consistently tell when the market is about to spike upward or downward.
Everyday, there is new money flowing into the system automatically, without any conscious decision. It's coming from 401Ks, IRAs, etc. That money needs to be put into action.
The 2008-era crisis in theory should have resulted in a whole heap of financial managers taking their companies bankrupt/to a place of horrid returns and being blacklisted from ever managing a lemonade stand. But they were bailed out, so now they got promotions instead for record returns or whatever it is they've been doing since. Since the finance industry has substantial control over what everyone else does, that leaks out into the real world.
So, the intuition is that the system is being corrupted and people with no ability to make good decisions are being put in charge. At some point that should boil over. You can fit math models to that and guess which metric will blow out first.
I'm not sure how much I buy that argument; people have an incredible ability to put up with suboptimal circumstances. But when you put idiots in charge there is always a risk that they do something spectacularly stupid so my personal guess is at some point the pensions crack and trigger something. It is a spectator sport in a way. Maybe America is productive enough that they can cope with a few bad eggs in the financial markets. Maybe the taxpayers can shoulder all burdens!
POSTSCRIPT
Just for fun, veering off topic.
https://en.wikipedia.org/wiki/List_of_bank_mergers_in_the_Un...
My interpretation is that something went wrong with bank regulation in the late 70s or early 80s. That is when the too-big-to-fail snowball started rolling; since then the stresses in the system seem to have been building. 2008 was a nasty blow.
Yes, it's called "Ronald Wilson Reagan" and was worsened when Glass Steagall was repealed by Clinton in a remarkably short-sighted move. Another poster already mentioned the Savings and Loan crisis that happened in the 90s that took taxpayers for a ride to the tune of 130 billion dollars (around 250 billion dollars today). We should have learned from it but for some reason (probably greed) we made the same mistakes again with Glass-Steagall and then not even 10 years after repealing that we reaped our rewards: subprime mortgages falling apart and taxpayers footing the bill while thousands were foreclosed on. The same is happening with auto loans right now.
For some reason, if you are a white collar criminal, the rules don't apply to you. No matter how much you fuck up and how much illegal shit you do, none of it sticks. Look at Boeing. 346 people died, but I honestly bet the worst thing that happens to any of the managers that OK'd that plane is they lose their jobs; realistically they probably won't even lose that. Maybe not get a bonus.
The common thread here is not just with deregulation being seen as the magical cure all that fixes all our problems (because as it turns out, sometimes we have regulations for very good reasons!) but that there are simply no consequences for doing bad things if you are stealing from or hurting the average American taxpayer. The only difference between Bernie Madoff and the bankers in 2008 that grifted us all is that Madoff made the mistake of trying to steal from the rich.
I'm assuming you are referring to the repeal of Glass-Steagall?
Additionally the idea that new money flowing into the system from 401Ks, IRAs, etc is extremely naive. These are long term investment instruments sure but as they are generally not actively managed they are not immune to fluctuations in the market and the market is not immune to people who have the misfortune to retiring in an economic bust. I have observed this in the second person as my grandfather was well to do before 2008, did not listen to my advice to allocate his retirement money to a guaranteed interest plan until after the market hit bottom (which was the wrong time to do that) he basically lost 500k.
Looks like 2020 is going to be an unfortunant year.
you could fix it by raising land value taxes high enough to extract all land rent and thus almost eliminating land speculation. At the same time you could get rid of most of our other taxes like capital gains and income taxes.
Also, your grandfather shouldn't have had all his money in equities. He should have retired and lived out of a savings account while the markets rebounded then re-balanced into bonds/CDs as the market bounced back. I got whacked in '08, but then made it all back and more. 2 yrs. of living expenses in cash would have prevented losing 500K.
The danger is that with such a long bull market, only God knows how many non-survivable companies there are beyond the Ubers and Lyfts.
What’s unsustainable will have to end eventually. Pushing money into the system doesn’t make the economy magically better by itself.
Not too long anymore then we will reach Peak 401K.
If anything the danger is increased because there isn't room to cut rates because they are already low.
It isn't long since organisations were happy to pay central banks to have their money stored safely.
