Posted on 01/30/2009 7:11:30 AM PST by marshmallow
The current economic crisis must be viewed as a gigantic wake-up call. We have been living beyond our means for some years now, and the message is clear: We must change our ways. We are so blessed with human talent and resources that we can meet the challenges and succeed.
How did this crisis get started? The effort to identify the sources of the problem can easily lead us into staggering complexity, but the outline is simple. In the first place, the environment included a prolonged period of Fed-provided, exceptionally easy money.
People and institutions behave more responsibly when they have some of their own equity at stake, some "skin in the game." The current financial crisis emerged after this principle became virtually inoperative. In an effort to make housing more affordable, financial wizards, with the implicit backing of the federal government, figured out how to give houses away: no down payment and few if any questions asked about ability to service loans.
When you give something away, demand rises rapidly, as do prices, so rapidly rising prices made the easy terms look reasonable and seemed to validate them. Meanwhile, financial intermediaries packaged these mortgages and traded in them, in all too many cases with very high (30 or more-to-1) leverage. Once again, there was little equity in these deals.
All this separated the originator of the mortgage (that is, the risk) from the eventual holders and, at the same time, created financial instruments that were obscure. So people had little equity in the game but made lots of money even while not knowing exactly what they were doing. As Charles Prince, then head of Citicorp, said, "[A]s long as the music is playing, you've got to get up and dance." What a party!
(Excerpt) Read more at online.wsj.com ...
Too bad Mr. Schultz couldn’t have come out with an article like this several years ago, when the President and Congress might have had a slim chance of acting on it, rather than the Zero chance of action there is now.
Now everyone has the answers. Yet, a few years ago, they themselves might have laughed someone out of the room had they predicted the scenario we are seeing now.
But when the Republicans are out of power, then lots of Republicans stand up and say "Here's what we ought to do!" And at that point no one cares, they have no power, and they are just wasting their breath.
Here's an idea: Maybe we should run conservative candidates for office, and maybe we should act like conservatives when we get into office.
Sorry, Schultz....speak for yourself...WE in this household have NOT been living beyond our means.....the DEMS and GOVERNMENT have, however....and made rules helping others do the same....YOU (government) are an accessory to this....not I!
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