Financial explanations

I can’t remember how I ended up subscribing to the feed for chooky fuzzbang. I think it had something to do with his coverage of the Tour de France a couple of years ago, which I got into briefly (and a little too late into Lance Armstrong’s career – although he may be helping me remedy that later next year). Whoever writes the site is clearly in the finance business. Here’s his historical perspective on the chaos that we’re currently in. Best write up I’ve seen on the subject.

“I was going to post a very in depth description of what is going on in the markets but on second thought it’s not that complicated. So I’m going to keep it very simple.

The Federal Reserve, largely under the command of Alan Greenspan has kept interest rates far too low for far too long. That’s in it a nutshell. It all goes back to that.

By keeping interest rates low, the Fed was the cost for prime banks to borrow money from the Fed very cheap. As a result they borrowed lots of money. That money works its way through the financial system by way of cheap lending to hedge funds, mortgage companies, credit card companies, etc from these prime banks. Because the rates to borrow money were low, asset prices went up. Think of it this way, if everyone can get a hold of lots of money and they bid for an asset the price will go up. As an example housing prices went up because it was so cheap to borrow the money to buy a house.”