The Economy of the Twenty-first Century

First, the stock market in the 1990s was easy because it was predominately risk free and the market itself was supposed to be for dot-com stocks, which later became the Dot-com Bubble of the late 1990s. “In the ’90s, the no-lose, risk-free, high-yield return was supposed to be dot-com stocks.” (Thomas Friedman, NY Times) However, some of the best and smartest people among Wall Street and the financial industry in general, forgot one of the oldest rules in investing, which is there is no such thing as a risk-free return. “Wall Street — the financial industry — became a bubble in recent years thanks to an excess of liquidity and the oldest bubble maker in history: greed. Some of the smartest people forgot one of the oldest rules of investing: There is no such thing as a risk-free return. When you reach too far for yield, sooner or later you get burned.” (Thomas Friedman, NY Times

The 21st century version of the market is primarily based upon subprime mortgages and financial stocks, and just like the dot-commers, the financial stocks became inflated to ridiculous levels and the salaries of Wall Street executives reached ridiculous heights where companies of superior status, such as Lehman Brothers, either collapse or are bought out.

“This decade’s version are subprime mortgages and financial stocks. Just like the dot-comers in the 1990s, the financial stocks got inflated to ridiculous levels and salaries for Wall Street executives reached ridiculous heights. You are now watching live and in color that bubble burst: “Thank you for playing, Lehman Brothers.” That’s really sad for a 158-year-old company.” (Thomas Friedman, NY Times)

It is now very obvious why this financial bubble became so big. It all started when you went out and got subprime mortgages, which allowed many people in the same situation to become homeowners. As the housing marketing began to give way, people could not cover their mortgages or sell their houses, which meant that their investments lost value, therefore the bank lost capital, and the pyramid began to fall. This event just created a domino effect where the bank lost capital and because of this they stopped lending, which then led to the current credit crunch. This credit crunch is what makes this calamity extremely lethal and the country cannot tolerate any prolonged situation where banks will not lend period.

In conclusion, this domino effect was created because people of the mid to late nineties thought they could basically use their houses as a bank to obtain the things that they desired. In other words the people were greedy to get their hands on things they wanted because they thought that the market was a risk-free region. As stated before, this is a big no-no in the financial district. Therefore, greed, one of the seven deadly sins, is a major reason why the economy of the 21st century is falling drastically. I like the way Friedman puts it, “We need to make sure that what happens in Vegas stays in Vegas — and doesn’t come to Main Street. We need to get back to investing in our future and not just betting on it.” (Thomas Friedman, NY Times

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