The REAL cause of all recessions (that nobody talks about)

i'm done i want out it's just money 1637 1797 18 19 37 1901 29 1937 1974 1987 jesus didn't that [ __ ] [ __ ] me up good 92 97 2000 and whatever you want to call this it's all just the same thing over and over we can't help us the law of gravity hit wall street today and financial markets around the world right is worse you're going to see one of the biggest recession in financial crashes of all time so for decades in new york we've had this thing called the pizza principle which essentially says that the price of a subway ticket is the same price as a slice of pizza but this balance was broken this year for the first time in decades and of course the problem doesn't relate specifically to pizza it's just about everything that's going on in the world global chaos inflation looming financial crisis cryptos rose and fell it promised millions of dollars and then collapsed it took people's futures with it starters are closing down people are losing their jobs and expensive pizza is really the least of our problem it's just money but the question in all of this the question that i think that we have to ask ourselves more often is who is to blame for all of this shouldn't we have seen this crisis coming i want to explore how we got here in today's very special extended episode of company forensics [Music] welcome to our slide green house in brooklyn whenever our overseas team needs to work out in new york this is where they'll stay we rented this apartment a couple years back so that it there'd be a place that feels like home but rent on this place went up by 800 this year over 30 percent increase and that brings me to the beginning of today's story because there was a point in time where you could buy an entire house with this we're going back to holland or the netherlands in the 1700s the dutch were powerful there was this company that essentially ruled the seas they had they had a private army for themselves the east india trading company now there's one crucial cultural context that you need to understand about the dutch most of the population back then were calvinists that was that's one of the strictest forms of protestant religion now calvinism forbids them from parading around from showing any luxury or from even wearing any fancy clothes so get this you're a 1700s entrepreneur you have a startup you have trading spices you live comfortably you're making money you need your profit chairs you visit your occasional coffee shop how can you brag about this newfound social status in a religious approved way well the answer is tulips i mean tulips are pretty but in 18th century holland this was the symbol of luxury that didn't break any rules you could put them on hats and dresses or you could just carry them around honestly tulips got so expensive that one meant that you were rich and owning many implied that you were somehow filthy rich and people even started valuing special or defective tulips the same way they do like coins today like the ones with color stripes that are caused by virus were extra extra special and tilt prices went up and up and up but so far things were still normal until these guys stepped in now the thing with tulips is that they only bloom for a short season in the spring everybody was getting better at growing tulips but you could still only get tulips in the spring so what our stockbroker bros did was come up with this sort of contract a contract that you could buy anytime in the year and that would guarantee that come spring you could get your tulips at a pre-set price now this was of course great because not only are you guaranteed to have your own looks for the summer you have this paper you have a paper that guarantees your tulips at a fixed price and well this means that if people start getting really excited about tulips this year or maybe they sacked some other caribbean town and they have some extra gold lying around you can now sell your tulip more expensive better yet you could sell your contract for a better price you didn't even have to wait for the tooling now this contract that we're talking about this is called a future and yes we still use futures to this very day and at some point tulip futures were truly more expensive than a house some reached 5 000 gilders when a yearly salary back then was 250 and what a lot of people don't get is that this boom was not created by the flowers it was created by the speculators i don't expect anybody to ever have actually physically traded a tulip for a house like the madness that happened was over these contracts over the speculation over the brokers but what people really wanted was the flowers not the papers not the speculation so in no time these contracts these features that they had come up with had no buyers chaos prices plummeting suicides and lawsuits no of course not that's a very common misconception actually as historians researched more and more into this story they actually found no evidence to suggest that this tulip bubble ever rattled the nation in this way there's not even a single record of individuals filing for bankruptcies around this tulip bubble now some people did lose a lot of money but the country didn't even enter into a default i mean the dutch didn't do it very well after that so it wasn't a success story for the dutch but it wasn't because of the tulips anyway the urban legend of sorts happens because we we sort of love saying i told you so we sort of love to be the smartest person in the room we want to brag about that insight that we know that nobody else has but who was really to blame in this situation the bro that invented the future or the people that wanted some quick books or the religion that banned other luxury items hold that thought for a second let's get into the next door [Music] the 1920s were crazy times in the states i want to paint this picture to you so the great war is over the u.s has come out victorious and post-war economic booms are not rare if you're a farmer you're suddenly maximizing productions to feed all these soldiers that just came back home henry ford had just mechanized the model t and people wanted their cars and their houses and their latest technology whatever that was that means the demand for wood and rubber and steel was growing it's estimated that the u.s economy doubled in size from 1920 to 1929 and that's all great but there's a very big catch fast growth usually means having to borrow money now borrowing money is not necessarily bad farmers for example took out mortgages so they could pay for more equipment and for more land factories expanded and they hired people to ramp up production and they might have borrowed some money to do that even regular folks used credit to buy this new technology so the entire u.s economy had doubled but it had done so using credit and the us was printing money like crazy at this time just to keep up with all of this activity with so much money so much money lying around people suddenly wanted to start investing in the stock market this is regular people but the stock market was growing really fast it had reached historical heights and people were confident that it would never drop i couldn't believe what was going on in those days so how did this crash become so bad well it's because of banks banks here saw an opportunity they saw an opportunity to profit from this new and thriving stock market now what they would do is loan money so people would use that money to invest in the stock market and when money run out when banks run out of money they just borrowed more money from other banks or in other institutions loans on top of loans all of this money going to bet on the stock market now this little creative instrument is called margin trading that's when you borrow money you borrow money to gamble i mean to invest to invest in something uh let me just give you an example let's say that you want to buy some tesla stock because you're sure that this stock is going to go to the moon now you've got ten thousand dollars that you'd like to invest in tesla shares and for example at the end of 2021 that would have been about nine tesla shares at eleven hundred dollars each now that's very cool and all but that's not too many shares i mean it's just nine if your shares gained say a hundred dollars per share you've made 900 10 that's cool but the guy next door he's making a lot more money than you you want more money because you're sure the tesla stock is going to go up so these stock brokers can help you fund this bet with margin trading and all you need is ten percent collateral so if you show that you have ten thousand dollars in your trading account what they'll do is they'll lend you the other ninety thousand dollars and that way you can invest a total of one hundred thousand dollars for tesla stocks mind you it's not that you're gonna invest ten thousand dollars of tesla stocks you will own the full hundred thousand dollars of tesla stock thanks to this little loan now you have 90 tesla shares and then you can go and brag to your friends for also trading now this is called a leveraged trade or a leveraged position now fast forward a few months and then tesla stock drops as it actually did and now each share is worth 639 dollars now your 90 shares are now worth 57 000 you've lost 43 000 but remember you only had 10 000 to begin with you actually now owe your broker bros 33 000 and they don't really care about the stock price anymore they care about this loan that they gave you that you agreed to take and you bet in the wrong company this is called a margin call and it's gonna be really really important in just a second leveraged or margin trading is very dangerous today it's accessible to everybody truly with just a click but even back in 29 it was pretty easy to do margin trading and nobody likes to think about these bad scenarios everybody just wants more and then these guys know it from 22 to 29 the dow jones increased by 220 and at its peak it reached 381 points in september of that year people would invest in companies and more people decided to bet on companies with money that of course they didn't have and then some would say that it's almost obvious that this makes no sense again nobody likes to think about these things people hate to think about these bad things happening so they always underestimate their likelihood but at some point somebody realizes that the price of the stock versus what this represents a piece of a company the price of that stock doesn't really make sense because if you look at the actual company well the company's not that big i mean it need to be twice as big to justify the value of the stock today nobody likes to think about these scenarios but sometimes sometimes they just hit you in the face people panic people sell in mass so company values began tanking the stock market started freaking out and the world was moments away from chaos but that's not all there's another element to this perfect storm now i don't want to dig too deep into this whole interest rate part but you need to understand some basics the fed which is in the us the central bank defines the base interest rate from which all banks and lenders operate so the 1920s fed was not at all happy with all of this margin investment and all of this spending it might lead to inflation so in order to control the spending what they can do is spike interest rates that means immediately means that borrowing money is gonna be more expensive it might also mean that the loan that you already took now pays a little bit more interest now it also means that if you put your money in the bank maybe they'll pay you more interest just for having the money in sitting there on your account so people are now encouraged to just go with the safe bank account or a certificate of deposit rather than just betting money on the stock market so other countries also raised their rates to just keep up with the us and overall people borrowed less and spent less and all of these companies all of these companies ramping production to keep up with all this demand now they have things that they can't sell in him and lo and behold the perfect storm companies started firing people and cutting wages to keep up with all these losses things that they can't sell so people didn't have the money to pay all those debts that they got one person defaulted and then another and then another and then another so started this little chaos this little house of cards as soon as the bell rang on a new trading day this collective panic sparked a selloff crowds started gathering outside the stock market and they were watching as this valley was plummeting and in this very terrible week this man jumped to his death someone fell out of a window we're not really sure if it was because they were like committing suicide because their shares were down but the point is one man died and everybody just decided to panic even more because people now are jumping up buildings because the stock market is crashing the point is brokers started doing margin calls remember those they came back to haunt people and there was one very big problem the problem was that these were regular people these were average individuals retail investors with no more money the brokers demanded such large sums that it was just impossible for people to pay people tried desperately to sell what they had to pay off these margin calls but you can't sell a car or a house it's impossible to do that in a short term especially if everything is crashing at the same time so now it's october 29th this is black tuesday the stock market doors open with just one word which is sell but nobody was there to buy stocks were now worthless people rioted inside the stock exchange and outside on the streets entire fortunes disappeared the stock market dropped 23 in just two days and there was nothing you could do to stop it on black tuesday alone the stock exchange lost 14 billion dollars which equates to 240 billion dollars in today's money that's in just one day in total this crash cost 600 billion dollars in losses in today's month banks ran out of money they ran out of money so they started defaulting the banks and they were unable to pay other banks that they had borrowed money from and so money truly ran dry people just couldn't even afford to eat farms all over the u.s saw their income drop by up to 50 and again there was nobody to buy those cars or those houses or anything entire factories closed down the crash did not stop until 1932 and by then one of every four americans was out of a job and banks didn't far any better half of the us banks went bankrupt half the u.s banking system had collapsed so almost 100 years later we know and understand the story and of course we can blame the brokers maybe we can also decide to blame the 10 people that decided to gamble their money on stocks but the whole point of this is we know the story we knew the story it's 100 years old and shouldn't we have learned from it isn't aren't there some similarities with what was going on in 2021 compared to what was going on in 1929 shouldn't it have set up some alarms from us so let me fast forward a bit almost 100 years not before i thank churn mogul for sponsoring today's video now as you know our business is not making youtube videos we don't really make a lot of money from youtube our company is a fundraising operating system for founders it's a software as a service and the platform that we've used for years to track our revenue and our conversions and our subscriptions and our cancellations has always been churchmongo long before they even sponsored this channel long before we even had a channel i've seen sas companies with millions of dollars in revenue doing this tracking with spreadsheets or not doing it at all at least not understanding these metrics and again i've used your mobile for almost 10 years and i can personally vouch for their product they are the best sas tracking platform they automatically report mrr and arr and revenue and customer churn rates you can create your cohort tables and analyze customers behavior over time or separate them by country or even the marketing campaign that brought them and compare how they behave it's a truly powerful analytics tool for any sas business and it's free it's free for any company under ten thousand dollars of mrr so you can start using it today you can just sign up with that link in the description and if you have over ten thousand dollars in subscriptions you're getting six hundred dollars off again by just using the link in the description thanks again to the turmoil team for sponsoring a bunch of videos this year let's now fast forward a little bit let's move to the year 2001 almost 100 years we're down by between three and four and a half percent generally across these markets let's talk about the speed with which we are watching this market deteriorate we're red everywhere essentially down by four or five percent but we're not here in 2001 because of the dot com bubble we already covered that in actually one of our most watched videos in this channel please go watch it it's a great video anyway the world was recovering from the dot-com bubble and people suddenly wanted to invest in something something that wasn't as risky as these tech stocks something that wasn't very dusty lo and behold this very stable this very tangible asset that we have been sitting on houses but who has money to buy an entire house up front to invest or speculate on a house of course not you need to take out a march i mean a mortgage a mortgage now how could i confuse margins with mortgages margin trading is very risky no background checks a 10x leverage on your money it's nothing like a mortgage i am truly half kidding on this one you'll see why in a sec the point is a mortgage does require a good credit record and if you don't pay well well the lender there's something to respond to it the lender can take possession of the house which is a very real very physical tangible asset and they can resell it to collect the money so for those lending the money this is kind of like a safe win-win it's a safe bet who doesn't pay their mortgage but now if everybody's buying houses then the lender needs liquidity they need more cash to be able to lend more money to customers so what they can do is they can package all these mortgages into a pool let's say this is a pool of 1 000 mortgages in this pool this pool is called a mortgage-backed security and you can take this pool of mortgages and you can go and sell it to investors investors investment banks the lender recoups the cash and then the investors get an asset that pays them interest and that is backed by houses by physical houses and people's mortgages which is beautiful and safe now this idea was so popular that the investment banks then figured out and started doing it became huge and we can go we could go really deep about this and we've actually done it once again using monopoly so it's a much better explainer but what you need to understand today we need to understand is that these investors could trade these securities these mortgage-backed securities like stock they could sell the right for these interests to other investors and with the extra money they would have cash to buy more securities which of course motivated lenders to create more mortgages the problem was that at some point there just weren't enough mortgages because everyone everybody wanted to lend more money and speculate with these things but there was not enough average people to get a mortgage to buy a house they already had one so requirements to get more mortgages got loose like really loose and other people wanted it on the action for example insurance companies they began insuring the mortgages meaning that they would the insurance would have to pay if people didn't pay their mortgages but who doesn't pay their mortgage so this drug spread throughout the us and people were loving real estate from the real estate agent to the realtor to the lender to the bank to the insurance company and everybody else that gets involved in selling a house anyway this bet this bet that the market would crash would never happen because everything was going great nobody was ever not going to pay their mortgage so you just could keep on betting in this thing and then others could invest on those bets others could profit as long as people paid their mortgages you could bet things on top of things as long as the underlying thing which is the mortgage is safe but it was right so with so much cash available to buy real estate housing prices started to spike up just like stocks start spiking up when a lot of people want to buy them so now you could even refinance this house because it was worth a lot more maybe you could get another mortgage to buy another house a second vacation home the real estate market in the states went from one trillion dollars in 2000 to 50 trillion dollars by mid-2008 this is a cycle of bets on bets on margins on a way that truly the world had not seen before and they were gambling on people's dreams on the their a very real tangible dream of owning a house on the assumption that people would always pay and and that might have been everybody's intention but many many of the loans that these homeowners were getting were a type of loan called a subprime subprime loan that's a loan that has a very low interest rate for a few years and then after a certain point that interest rate spikes not everybody understands how this works people didn't understand this they just look at how much they have to pay for the first two years they didn't care they can always refinance the house but the rates were really really much higher high enough to make people default now this started this domino effect a domino effect that toppled all the financial institutions in the united states because people weren't paying they weren't getting any loans houses became worthless so banks couldn't even sell the house to collect on the cash a bunch of these investment banks went out of business in a matter of days this is the biggest bankruptcy in history so much so that the us government had to step in to save their economy and it was all their fault it was all their fault for speculating for gambling and for being responsible but that is of course not the end of the story things are going to be much worse than anyone anticipating it's not easy to to come in and move a family up i pull up to my apartment and all of my things were outside it's not just a house it doesn't just seem fair i don't know what to do nearly a quarter of a million homeowners are in danger of losing their homes so whose fault was it i honestly didn't really understand what had really happened in all of these crises until very recently dare i say as we were making this video but now that i do i have to say like shouldn't have we seen this coming like if history does repeat itself if we see these cycles of thriving economy followed by downturns and crashes shouldn't we all have smelled that something was coming after what happened in 2020 and 2021 bubbles are always hard to ascertain uh the uh originators of there really aren't any originators everybody got caught in some some were foolish some were crooked some were both but you had a mass uh illusion that it could go on forever the problem here is that it's so hard to resist when bitcoin doubles its price in weeks it's just so hard to resist the urge the urge to take that gamble especially when we were constantly bombarded with content from people who took the gamble and won it's it's inevitable fomo and people have stopped trusting their governments they have stopped trusting banks take all your money buy bitcoin that's a lie and they have certainly stopped trusting wall street and at least we have learned that much through this we can all agree that they carry much of the blame what we forget is that we us we are part of a privileged field we are the few that can get a grip on futures and margin calls and leverage trading by watching some beautiful stop-motion animations from some guy on youtube we are a select few that subscribe to this channel but for so many people what goes on in the twisted world of finance is just too far off they're not even close to understanding it they may still identify with a much simpler story with the story of this broker from the bronx that made it big and now does motivational speeches around the world and how to get rich like him i want you to deal with your problems by becoming rich that probably means that they're more susceptible to falling for the pyramid schemes or for the get rich fast content that already plagues the internet or even worse they wanted nothing no part in this world of finance they didn't want to bet their money but they still lost half of their pension because somebody invested it in bernie madoff's ponzi scheme it may just be money but it is livelihood it is education it is your life savings it is your retirement it is your children's future we are a privileged few who care to watch that i don't know 30 minute documentary on this thing let's not waste that knowledge anymore who is to blame for all of this if we keep letting this happen if we keep fueling this just unfounded hypes then the culprit may be staring right back at us thanks a lot for watching [Music] you

Channel: Slidebean

Views: 606,425

Keywords: slidebean, caya slidebean, company forensics, caya, startups, startups 101, recession, recession 2022, recession explained, recession in usa, 2008 financial crisis, 1929 crisis, tulip bubble, 2022 recession, recession coming, global recession, recession in 2022, company forensics youtube, recession meaning, global recession 2022, great recession, upcoming recession, us recession, are we in a recession, economy, downturn, stock market crash, explained, signs of a recession

Id: wsTLVCGwuDY

Length: 25min 49sec (1549 seconds)

Published: Sat Jul 23 2022

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