The short movie Bubble Bust Boom

The short film Bubble Bust Boom is a representation of the global financial crisis. Because the fundamental concept that was being reinforced was pretty monotonous, the director added cartoons and puppets to make the movie more engaging. There is a reconstruction of Sesame Street with a special emphasis on the subprime mortgage meltdown. In the film, the word bubble has several connotations. It has been used to describe a state of exhilaration, hope, and folly. The movie suggests that the bubble is not destined to last and most of the time it excites people who fail to see past it. The bubble leads to an over inflation in the demand for something which leads to the value of the commodity to sporadically go up. Most people hardly see past the bubble due to the fact that the social norms or the prevailing trends that are witnessed that encourage people to acquire a particular good. There is usually a specific type of hype that accompanies the bubble and it is believed that it happens as a result of marketing gimmicks.

The movie lets us know that people are not sound. We are conditioned to have specific predispositions and blind-spots which originated from the season of our primate progenitors. Budgetary emergencies are prompted by those blind spots with regards to capitalism. Furthermore, when somebody sees the issue unmistakably, they are frequently slighted until long after it’s past the point of no return. The issue is, the film doesn’t make the following stride and inquire as to why policymakers and financial experts keep on thinking in a similar manner and take after similar examples starting with one emergency then onto the next. The first reason is that the top financial experts in the world and government authorities basically all have a similar foundation. They went to a modest bunch of schools, got their education under a couple of dozen of similar teachers, have perused similar books and blend in similar circles. They are all white and male to a large extent. When it comes to people having a diversity of thought, this does not encourage it. The diversity of thought is usually important when it comes to dealing with financial issues.

Bubbles always burst due to the fact that there the economy has reached a point of saturation. This is after so many people have taken out loans in order to venture into that lucrative business model such as real estate with the prospect of getting high returns. Due to the fact that real estate was been seen as a more stable, until the 2008 crisis, banks had been lending out loans for people who had some considerable amounts of deposits in order to invest. This is the process of leveraging. You would find an individual who suppose, had $ 30, 000 and the bank would give him a $ 300,000 loan to invest in the real estate. Due to the fact that many people knew about the profitability in the industry, the number of people who invested on the whims of striking it rich grew exponentially. This led to a sudden drop in the value of the houses that people had bought. A house that would have otherwise cost $ 300, 000 suddenly depreciated to about $ 240, 000. This was bad for the regular American who was still servicing a loan of the $ 300, 000 yet the value of their asset has already gone down.

The housing sector led to a major recession that not only affected the American economy but also other individuals and entities in other areas that had invested within the United States. In the early 2000s, there was a housing bubble boom with everyone rushing to acquire either a parcel of land to build a house or buying one that has already been built. This led to a lot of speculations in the real estate sector and realtors saw this as a goldmine. The upshot of this is that the potential homeowners had to dig deep into their pockets to ensure that they were able to repay the loans they took in order to leverage on their real estate investment. The was a belief that real estate was one of the most secure assets that one could have and the money lenders were very comfortable giving out loans since there was a possibility of charging the property in order to recover their money. As soon as the market real estate market become saturated and the homes became very expensive for the general public, the prices dropped suddenly and this lead to tremendous losses to the financial institutions who had lent out the funds and also to the homeowners who had leveraged on the value of the asset. This led to a crisis in the economy and many banks incurred losses leading to the great recession in 2008.

The film was premised on the belief that the traditional economists were unable to foresee the ramifications of the housing bubble. This was due to the fact that the economists then preferred the bubble due to the fact that it exuded some elegance. They failed to highlight the importance that came out from the acquisition of the assets. Most of them also did not evaluate the importance of the financial institutions in the economy. After the crisis, it was now evident that the banks played a very crucial role in the economy and the giving of risky loans to very many individuals was a major problem to the entire economy.

The Hyman Minsky theory shows how fragile the financial market is, the shape that the economy is in, and the investment outcomes in which arise from the financial market. As Minsky went into more research in understanding the state of the financial economy he focused his attention on the future of the financial market. He often had disagreements and argued economists about how the financial system was run. Minsky broke down the different processes which range from stability to instability and include the three stages of debt hedge, speculative, and Ponzi. The three stage process of borrowing explains as the market becomes increasingly risky it becomes stabilized. The longer the market holds this stability, the riskier and unstable it will become. Thus the hope of security leads the investors to form an opinion of stability in the future.

Minsky’s hypothesis was widely ignored by many economists and policy makers until the economy and financial system in 2008 collapsed. During the financial crisis, there was an increased interest in the implications of Minsky’s theories, the central bankers ruling that the central bank policy opened their eyes to the bigger picture that Minsky was trying to get others to stop and notice. Hyman Minsky’s moment entails when lending and debt levels have built up so much to the point of unsustainable levels. The Minsky moment also details the 3 different scenarios that were involved in the financial crisis. In the following paragraph, I will be explaining these 3 stages in detail.

From Hyman’s theory it is evident that there are 3 stages of borrowing. The hedge stage is described in terms that buyer’s cash flow covers both the interest and principal payments for borrowers that obtain a debt to thus buy an asset. The second stage is the speculative stage and here things become riskier. In this stage, the cash flows cover only the interest payments, but not enough to support the principal. Thus meaning this stage in the process is less stabilizing. The longer an economy is at a stabilization effect, the more incentive there is to leave it at a speculate stance. The Ponzi stage is the final and last stage in which the cash flows won’t cover the interest rate or principal. The Ponzi stage depends on the rising asset prices that keep the borrowers’ heads above water. This stage requires the government to step in to assess a bailout for the financial system in order to rest the damage done to the market. As you can see Minsky’s theory sow’s together much of the 2008 financial crisis where the crisis left public and also private risk regulations relaxed, and also left a mark of speculative and Ponzi borrowing going on in the US housing market. A few examples of these outcomes are financial market regulation, accounting standards that were lowered, and also the importance of mortgage risk assessments that were abandoned.