Skip to comments.What Cooked the World's Economy? It wasn't your overdue mortgage.
Posted on 02/02/2009 12:41:18 AM PST by Tempest
The basic story line so far is that we are all to blame, including homeowners who bit off more than they could chew, lenders who wrote absurd adjustable-rate mortgages, and greedy investment bankers.
Credit derivatives also figure heavily in the plot. Apologists say that these became so complicated that even Wall Street couldn't understand them and that they created "an unacceptable level of risk." Then these blowhards tell us that the bailout will pump hundreds of billions of dollars into the credit arteries and save the patient, which is the world's financial system. It will take timemaybe a year or sobut if everyone hangs in there, we'll be all right. No structural damage has been done, and all's well that ends well.
Sorry, but that's drivel. In fact, what we are living through is the worst financial scandal in history. It dwarfs 1929, Ponzi's scheme, Teapot Dome, the South Sea Bubble, tulip bulbs, you name it. Bernie Madoff? He's peanuts.
(Excerpt) Read more at villagevoice.com ...
It's also a kick in the pants to those in denial thinking that the government had to force banks into rescue and that banks were doing just dandy. It also emphasizes how large the issue is and how free market deregulation opened up a can of worms.
The bad loans are about 1.2 trillion dollars of the problem. The CDO's is the 599 trillion dollars of the rest of the problem...
Intersting article you might want to look at.
The recession is NOT the problem. It is the solution.
We need to stop spending, start saving, pay off our debts, and become far, far more productive. As individuals, as well as a nation.
I’ll have to print this out for later study. It’s very complex, and I’ve had trouble getting a bead on how we got here. That’s important for all of us to do, so we vote accordingly to make sure it doesn’t happen again.
I just don’t think the Obama plan is going to help.
Neither the reccesion nor Obama is the messiah.
We do need to be better off as a society and holding those accountable for this disaster is what will make us better.
At least we have a bright new president. He’ll give you a job painting a bridge.
I hope that was an attempt at sarcasm.
Well I hope you find it informative. I think the Obama stimulus was flawed to begin with but it’s a total Frankenstein now. And any more bank bailouts would just be like rewarding the criminals. I say screw the CDO’s, let the corrupt banks fail and default on the derivatives.
yes that was sarcasm. geesh.
Sorry I thought the village voice was some ultra-left, liberal BS, maybe I’m mistaken.
I’ve come to expect anything from the nuts who believe in the GWB Hurricane machine.
They have a lot of writers. Bill Kristol used to write for the NYT. The author places most of the political blame on Clinton.
the GWB Hurricane machine.
LOL! That never gets old!
While I agree with approaching the Voice commies with caution, I’m trying to absorb as much of this stuff as a non-economist can, from all points of view. So I’m glad this was posted. I just don’t think we’re getting the whole story from Rush Limbaugh, who I enjoy and trust, but who seems to defend anything any banker does, ever.
The worst part is we haven’t repealed any of the legislation/regulation that got us into this mess.
“Its very complex, and Ive had trouble getting a bead on how we got here.”
Yes it is, but it is not just in the USA.
The entire world is in the same boat.
One has to believe in the idea that if the USA sneezes, the world catches a cold.
Personally I don’t have a clue but to see this as a cyclical
The 1.2 trillion is real. The rest is primarily an uninformed generic rant against derivatives in general and thus constitutes a red herring in this case. Notice that the author hasn't even differentiated between the types of derivatives such as futures contracts, forward contracts, options and credit default swaps which shows that the article has been very poorly researched. I'm not saying that a lot of derivatives are necessarily good, but they're not what blew up in the world's face. The subprime mortgages did.
If only it were 1.2 trillion dollars we would be out of this mess already and it wouldn’t be a global crisis.
Red herring? are you smoking crack? did a red herring bankrupt Iceland? Does a red herrig threaten to do the same to England?!
1.2 trillion doesn’t cause this level of problems in a global economy!!! Wake up! *sigh*
30 trillion is the first installment. the rest is coming soon.
The "Commodity Futures Modernization Act of 2000" (H.R. 5660) was introduced in the House on December 14, 2000 by Rep. Thomas W. Ewing (R-IL) and cosponsored by Rep. Thomas J. Bliley, Jr. (R-VA) Rep. Larry Combest (R-TX) Rep. John J. LaFalce (D-NY) Rep. Jim Leach (R-IA) and never debated in the House.
The companion bill (S.3283) was introduced in the Senate on December 15, 2000 (The last day before Christmas holiday) by Sen. Richard Lugar (R-IN) and cosponsored by Sen. Peter Fitzgerald (R-IL) Sen. Phil Gramm (R-TX) Sen. Chuck Hagel (R-NE) Sen. Thomas Harkin (D-IA) Sen. Tim Johnson (D-SD) and never debated in the Senate.
The Republican leadership of the House incorporated "The Commodity Futures Modernization Act of 2000(H.R. 5660)" by reference, as Section 1(a)(7), in a long and complex conference report to the 11,000 page long "2000 omnibus budget bill" formally known as "The Consolidated Appropriations Act for FY2001(Labor, Health and Human Services, and Education Appropriations Bill) (H.R. 4577)." 157 Democrats and 133 Republicans voted for the appropriations bill. 51 Republicans and 9 Democrats opposed the appropriations bill vote results in the house. The Senate version passed by "Unanimous Consent." President Clinton signed it into Public Law (106-554) on December 21, 2000.
#&*$%& idiots and greedy b*st*rds. All of them, both parties.
You do understand that the sub-prime mortgae default rate is less than 20% don’t you???
While doing some searching for something else this weekend I came across all sorts of material about the world economic situation that supports your point. Indeed this is a global situation, and since economies don’t end at the border, it may be one of those situations so complicated that economists will be debating just what the heck happened forever.
Thanks for posting! ;)
Isn’t this the Gramm-Leach-Bliley act (CFMA)? I could be wrong.
If this is that act the only reason the Democrats voted for it was because they made sure banks were subject to CRA inspection.
I’m about ready to go Libertarian anyway.
A much better article posted in FR than this one is "A better way out of banking morass" written by Ira Stepanian who proposes a workable solution, not this article written by some Leftard with zero financial credentials who wants to keep the disastrous subprime mortgage lending structure intact and suggests throwing people in prison and getting rid of all derivatives the latter of which particularly is nothing but an ignorant pipe dream.
Wow you didn’t even read the article. You’re just like an attack muppet.
I believe it is.
CRA - loaning money to those you know can not pay it back.
Hedge Funds and derivatives — ready to reap the rewards of the defaults.
This administration won’t put a stop to it. 0bama has just reshuffled the deck of cards with his cabinet appointments.
Isn’t it just amazing( /s )that Geithner, a Rubin protege, is also a tax cheat too. But oh our lice ridden congress couldn’t come up with a reason not to confirm him.
U.S. government, it seems to me, should have let AIG go down in flames.
Appreciate it if someone who's financially saavy could explain why the U.S. bailed AIG out... :o)
It's basically silly, not to mention impossible, to try to fix the world's problems for them. They wouldn't let us if we tried, on top of that.
And even you apparently agree that the dead ender author of this piece doesn't have any workable solutions to offer. Mostly because he doesn't have a clue in the first place.
What Cooked the World's Economy? I'm trying for the printer friendly link.
Losses have been estimated at almost $600 trillion. This is beyond absurd.
Nonsense. What free market deregulation? The financial services industry is one of the most heavily regulated industries ever to have existed. Government regulation and currency inflation crated this mess. The market had nothing to do with it and is our only hope now.
Wow that's not true. I read the whole effed up thing.
It wouldn't surprise me if you continued to attack me personally which is not advisable in this forum.
"Throwing some people in prison" would be far too merciful. Governments are collapsing, several nations are experiencing massive civil unrest, and most likely many people will die because of this financial mess.
What would restore some confidence in the markets and governments is hanging the corpses of these corrupt bastards from every lamp post up and down Wall Street and all over Washington, DC, and leave them hanging for the next few centuries.
That's what most people say after reading leftist rants from the Village Voice. Reality is that Americans are already saving --too much. Last Friday's BEA report on the GDP has spending dropping by twice the drop in incomes and this has become a major part of the problem.
However the biggest part was foreign trade: exports are down 20% (imports are down too but that drop raises the gdp). Of course, we won't see that in the Village Voice because they're a bunch of lefty protectionists whimpering about "deported jobs with NAFTA".
Bloomberg agrees with the assesment of a 500 trillion dollar value for the CDO market.
You see attacking you with “facts”.
Please continue with your conjecture...
You better start looking at Congress! Charles Schumer, Chris Dodd, And Barney Frank to name a few! They are the ones that help come up with the idea that everybody could afford a house if they had a job or not. Don’t discriminate!
Credit levels increase until there is not enough money to pay the interest then investors back off and credit levels unwind.
The faster the cycle ends the faster the next cycle can begin. Unfortunately government intervention is prolonging the cycle as it did in the 1930s and most recently in Japan.
This topic has been argued at length on FR. Subprime mortgages are just a small fraction of the "problem," yes. But, they just so happen to be the "problem" that caused the whole mess to start tumbling down.
Subprime mortgages, Alt+A mortgages and conforming mortgages were sold, divided up into tranches, sold, and resold again. There was insatiable demand for mortgage backed securities. When the backing for these securities could no longer be properly valued, due to declining values in real estate, as well as the inability to calculate an income stream from mortgage payments, everything began to freeze up.
So, subprime mortgage defaults did not so much cause the economic nightmare we're in, as they put the whole thing into motion. The straw that broke the camel's back, so to speak.
There are very informative articles and discussions here on Free Republic, as I mentioned.
What would make you think that Village Voice has anything intelligent to say?
The free market system is designed to punish mistakes. It works. The writer of the article wants to remove free market and replace it with authoritarian government-controlled enterprise where mistakes, or perceived mistakes, will be punished by criminal code.
It did not work any where it has been fully implemented. Soviet Union perished. China realized that it has to liberalize or perish. Europeans are trying to do it half-way and got consistent 2-digit unemployment and growth rate half that of United States. Why would we want to emulate Europe, Soviet Union or pre-liberalization China?
OMG this makes me angry! It needs to be sorted out and aggressively prosecuted! Where is our AG? These derivative sellers and “counterparties” need to give back. Especially in cases where there was “replication”.
Obama has sooooo much money, given to him during the election, much of it from financial Wall Street types. Man, I hope he is not so beholden to them to not prosecute.
And, yes, the Clinton signed, CMFA (Commodities Futures Modernization Act) of 2000 needs to be repealed.
I want to see Joseph Cassano in cuffs and Brooksley Born as Attorney General, with Black as his first assistant.
These names need to become household words.
Ill have to print this out for later study.Interesting that you say this. I too want to set aside some time later today to read this whole article. And in the past I too would have printed it out.
But nowadays, my transformation to a screen-head is complete. I will read this whole article, but I'll read it on my screen, much more comfortably (especially since I'll be able to look up things easily when I want to) than if it were printed out.
Sorry for the off-topic but I couldn't help noticing what you typed. I'm not criticizing you, I'm just noting the change in myself.
Thanks for posting...
The VV is a liberal rag...but this author does make some points.
It is quite obvious that the housing market crash was not the main reason for the financial collapse. With all the bad loans...you are looking at 300 billion, at most....which does not explain the over 1 trillion loaned...and the trillions more proposed
I agree that the best solution is to let the banks fail. There are financial institutions that are not bad and they will assume the assets...without govt subsidy
The fact that we are now subsidizing the world’s financial system is scary....Marx couldnt have envisioned such govt takeover so quickly
The reason AIG was bailed out is that they provided the insurance for many of the bad loans....at least that it was one of the reasons
Personally, I would have let AIG crumble....bailout didnt help much as now they are asking for more money
” Notoriously lax and understaffed, the SEC did nothing to limit investment banks that bundled, pitched, and puffed non-prime mortgages as the raters cheered.”
I think the above line from the article, substantiates what you are saying. The sub-prime loans were the largest part of the problem. The author seems to want to gloss it over. It was still a quite informative article, fingering a large number of crooks in all administrations.
That website is trashy.
...and leave them hanging...
My exact thought. It may not cure the problem totally, but it sure would help.
I agree. The real problem is a lack of transparency with the derivatives, and a non-functioning market that makes the underlying assets difficult to price. Once all the derivatives are netted out, the big scary numbers go away.
Allowing AIG to crumble would have led to a full on collapse. They're something of a linchpin in this whole mess.
They'll be asking for more money, and they'll get it, so long as the money is there to give, imho.
Is this "right?" In an ideal world, no it isn't. Do you want to lose your retirement, your savings, all value in your home and most likely your job? That's how bad it could get.
We allowed Lehman to go under, and that had us literally hours away from a banking collapse. We're sort of stuck helping some of these @-holes.
Jeb Bush had no business letting that hurricane get past Florida in the first place!
There may be usable information in the article, d/o the writer one supposes, but remember than any article or quote from the Village Voice needs a barf alert on g.p. Those guys are usually so hoarse from screaming liberal shibboleths and indulging their cultural proclivities that their message is a little scratchy and incoherent with radical gay rage at the best of times.
The best that can be said about the V.V. is that they have reaped heavily the flattery of imitation: The Village Voice is the Soho birdcage liner that Pinchy Sulzberger would like The New York Times to become.
The Village Voice certainly has a POV on rhe cause of the global financial problems but I seriously doubt the VV will offer anything that will be unbiased...what is the history of this Lawyer/Activist/Writer, James Lieber?
Ok, everyone on here has been all over the credit markets, etc. But this started with the price of oil driving up the costs of food. Everyone started cutting back as evidenced by the gov’t bean counters who track miles. People began to cut back on non- essential spending, at first, only a little. Housing prices were too high because of the over- priced market and easy credit. This was a two- fold event. The rates went up after oil prices, as I recall. I could be wrong, my memory isn’t what it used to be.
Anyway, all in all, this is evidence to the people that the government rewards those fat cats who needed a bailout. More money to people who weren’t doing their jobs to begin with. The credit industry and the oil industry. Drill here! Drill now! D@mn the costs! (the oil industry made such a profit, which is ok with me, but now they whine that drilling offshore is just not worth the costs. Not a very patriotic industry!)
When the price of gas went up here last week, everyone panicked. Immediately they recalled the $5 dollar a gallon gas! They stayed home and kept their money there as well.
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