Crisis will happen again, it’s human nature

It is human nature that will make sure another crisis will happen again, according to Mr Alan Greenspan, the former head of Federal Reserve, in a recent interview with BBC. I couldn’t agree more. However, I think we differ on what part of human nature will be more responsible for the crisis.
I am pretty sure none of us will blame the starving children in Africa. We will probably not blame the factory workers at GM plants around the US, if GM is still around. As for bankers that arranged cheap mortgages or whatever the next bubble will be, sure they will probably be somewhat responsible, because Greenspan is right. It is human nature to be greedy. I think it’s called survival instinct.

Mr Fed misses the point though and that is that someone provided bankers before this and the last stock market crash with very cheap money. What do bankers do with cheap money, or what do any businessman do with cheap commodities? They start producing and push out a tonne of products at rock bottom prices, because they know they will sell and they will make millions in the process. Just look at China and South East Asia. The cheap commodity there is labour. Well it used to be a lot cheaper, but you get the point. Put it to work and produce a lot of what the western consumers want at very low prices as long as it works, which is until China’s low wages aren’t that low anymore.
Banks and bankers work the same as any other company. So, bankers took the cheap money form… hmmm… the Fed and produced mortgages that were so cheap that people could just not resist to take out another one. Who doesn’t want to live in a big house rather than a little one? It’s human nature.
This was all facilitated by very cheap money from the Fed and Greenspan at 1% for a very long time. More money means more people can buy houses, means that house prices go up. If you keep the price of money low for long enough people expect it to last forever, hence house prices will go up for ever.  Until money isn’t cheap anymore. We’re getting off the point though.
“Bankers knew they were involved in an under-pricing of risk and that as some point a correction would be made”, says Greenspan
And so did Greenspan, or he must have. I knew it, and I have just been around in the markets for a decade or so, but I know how to spot a mispriced assets. The difference between me and Greenspan is that I don’t have the power to change the development. All I can do is to sit back and watch, place my bets on what I believe is right and wait. Greenspan however could have raised, or better still not have lowered them to 1% in the first place.
Since Greenspan knows it’s human nature to use cheap commodities to excessively build and sell products at rock bottom prices he should also know that it is human nature to build and sell fewer products as commodity prices go up and margins decline.
Perhaps the point Greenspan has missed is that money is a commodity like any other commodity, which is a shame since he was the chief of money for 19 years.
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BBC NEWS | Business | Market crisis ‘will happen again’