The Making of a Global Financial Crisis: A Visual Guide

As someone who's had his own struggles with understanding how all this financial meltdown stuff started, I decided to try to put my now greatly improved (though admittedly still limited) understanding of what got us all here on the precipice of this calamity into an easy-to-digest illustrated form.

Understanding how exactly these complex events unfolded is challenging enough in its own right, but further occluding the issues, there are serious political stakes involved and that naturally means the real issues can be hard to separate from the surrounding political rancor and partisan spin-doctoring.

So to try to cut through all the jibber-jabber and get to the heart of it all, below is my simple, visual guide to how the financial crisis unfolded. You'll probably want to zoom in on the diagram for a more detailed view (just click the image and it will open in a full-sized view), because there's really no way to present it here in a more practical size.

We're Doomed.

With the latest news about gas runs and price spikes here in Florida, I can only conclude that America is doomed, if our best hope for the future depends on our abilities to manage our affairs as informed citizens.

Why? Because there is absolutely no good reason we as consumers should be falling for this kind of blatant price-gouging scam again, and yet, here we are. And we'll probably blame it all on the Democrats not wanting to drill of the coast of Florida (never mind that those rigs would be just as susceptible to the impact of hurricanes like Ike).

Responding to increased demand fueled by rumors and what can only be described as a child-like superstitious belief that Hurricane Ike is bound to cause near-term gas shortages and drive up the price of oil, Florida gasoline wholesalers have apparently decided to raise their prices by some 50% or so. This despite the fact that oil prices and oil futures are actually down right now, with the current price of a barrel of oil dropping to a new low of $101 just today. From the linked news article:

Andy Klein, director of legal affairs for the company that operates Gainesville’s Kangaroo stations, said Thursday he could not say for sure whether gas prices might spike overnight.

Customers in some stores said they believed there would be an increase in gasoline prices because of Hurricane Ike, which is forecast to hit Texas early Saturday.

In other words, even though it's not true, customers are willing to believe Ike might have some kind of impact at the pump, and gasoline wholesalers are willing to indulge them in that fantasy, and between those two facts stands a lot of money to be made.

And what are the odds, I wonder, of certain state politicians trying to spin such a fictional gas shortage on the Gulf coast in favor of the energy lobby? Hmm.

America, Please Don't Be Stupid

While the conventional wisdom continues to be that Republicans are better for business, the actual hard data consistently demonstrates this to be wishful thinking. As a recent article in NY Times observes (see below), historically, even those on the higher-end of the economic spectrum have tended to do better under Democrat administrations on average than under Republican administrations.

The reasons are simple: Democratic administrations provide more ground-up economic stimulus and social services that offset costs normally absorbed by consumers. This stimulus works its way around the economy promoting growth at all levels--in a consumer-driven economy like America, the economy is only as strong as the spending power of ordinary people. Their spending benefits the private sector both directly by increasing sales of goods and services and indirectly by increasing state and local tax revenues, which increases local government spending for private-sector goods and services.

Republican economic policies radically undercut consumer spending power in a short-sighted grab for tax relief at the upper-end of the economic spectrum. This fairly quickly leads to an overall economic contraction that proceeds according to a non-linear function--in other words, it pushes the economy into a negative feedback loop that quickly begins to impact virtually everyone's bottom line.

In the 80's, Republican ideas about supply-side economics (popularly known as "Voodoo Economics") had a demonstrably negative impact on America's overall economic health and were broadly rebuked. McCain's platform would continue to perpetuate many of these same spurrious economic ideas, at a critical point in American history when doing so could well lead us into an irreversible spiral leading to long-term economic collapse.

Placing a vote for McCain in the upcoming election amounts to adding your signature to a collective economic suicide note.

Sure, when the collapse comes, there may be a few well-connected actors who end up wealthier than ever, just as the Great Depression created new fortunes for some. But far more fortunes will surely be wiped away. And to gamble on coming out on the winning side of such a catastrophe at the expense of all the other hardworking Americans who also deserve a chance at improving their economic circumstances would represent not only an act of self-deluded pride, but the most poisonous kind of self-centered ambition.

Economic View
Is History Siding With Obama’s Economic Plan?
By ALAN S. BLINDER
Published: August 31, 2008
The United States economy has grown faster, on average, under Democratic presidents than under Republicans, a new book says.

(Yeah, I know, I said no more politics a while back. Well, I guess I'm becoming more and more like a politician myself every day, because I lied.)