Tsunami: the Making of the Financial Crisis

The financial crisis happened in a way that seemed rapid, abrupt, and without warning — three distinguishing characteristics of a tsunami.  Digging deeper, this analogy actually sheds a lot of light on how the crisis came to hit us.

Like so many other things in life, the economy took decades to be built, but only a short period of time to be destroyed.  Yet, like a tsunami, there was plenty of build-up that only a few experienced seamen were able to recognize.  Where were the rest of us?  We were out on the financial beaches, waiting to be hit.

Image via Wikipedia

Like tsunamis, the financial crisis was born a very long way from where it hit, but instead of traveling great oceanic distances, the crisis traveled over a great length of time — years, actually, and maybe even a decade.

A Subtle Birth

So where did it start?  It started with a simple fact: the population of America is continually being replenished with a new, uneducated, inexperienced population.  This has a lot to do with why we end up repeating history so much: newer generations cannot absorb all the experience and knowledge of the previous generations, and so a lot is lost.  Yes, this is a long way from financial crises, but this has a lot to do with it: newer generations are coming into the world, and all the politicians, businessmen, and consumers who experienced and learned from the Great Depression are leaving us, along with the lessons they learned.  They are being replenished with inexperienced, naive, opportunistic, pipe-dreamers.  In fact, it wouldn’t be surprising if this is one of the root causes of economic cycles in general.

Inexperience, Meet World

With all these new people around, we have many who are repeating the same mistakes of the Great Depression.  Did you know that interest only loans were a big thing before the Great Depression started?  Did you realize that, back then, everyone was going into debt for appliances like washing machines, refrigerators, etc?  This was a time when the consumer was borrowing heavily.  This was also a silver-bullet age of financial speculation, experimentation, and schemes!  As usual, America shot itself in the foot.