Yes, the financial mess will continue
Q: How is money created?
Virtually all money is created through the fractional reserve process (not the government). Here is an example, although the numbers are not 100% accurate. Bank A lends $100,000 to Consumer A that buys a house from Seller A that deposits that money into Bank B. Then, Bank B will keep $5,000 in reserve and lend $95,000 to Consumer B that buys a house from Seller B that deposits that money into Bank C. Then Bank C will keep $5,000 in reserve and lend $90,000 to Consumer C and so on and so forth. From the original $100,000, the banking system can end up creating an infinite amount of money in theory so long as the reserve rate stays at zero and the money keeps on skipping from bank to bank.
Q: So how did this financial mess come about?
Greenspan and bedfellows thought it would be engenius to remove banking regulations set in place after the last major financial crisis (the Great Depression) and keep the reserve rate super low for a long time. So banks ended up creating a heap load of money through the fractional reserve process (one giant pyramid) by extending loans to consumers that were not in a position to repay the money. One bad loan can magnify problems for banks throughout the whole system because of how the same money ends up getting loaned out by several banks. We know this can magnify problems because interest-only mortgages trashed banks in the 1930's. So it was brilliant to reintroduce those into the banking system.
Q: So how do we get out of this mess?
We don't! Money drives an economy and the housing industry is an enormous source of new money through the fractional reserve banking process. When a consumer buys a new home or when existing home prices increase, then new money enters the economy and the velocity of that money trading hands can rev up the economy and keep things going. When people stop buying new homes, homes go into foreclosure or existing home prices fall, then money becomes more and more scarce. If money is not available to support all the current transactions and things start to sag, then people get scared, the velocity of money trading hands slows and people overall will just not have the same amount of money crossing their paths.
Q: When will this be over?
In a really long time. We bubbled the housing market. This is a key industry for putting new money into the economy. Even if banks regain their footing, which will take a lot of government money and intervention to come, there still won't be much reason to borrow from banks and place new money in the economy. So you can assume that we will face problems for at least the next five years. Foreign banks can take up a lot of slack and make credit available, but again, we bubbled the housing market and it will take some time before demand for housing recuperates. Well, at least sensible demand from consumers that can actually afford the loan. Until that happens it will be hard to push money into the full economy for everyone to use to buy coats from China, gas from the Middle East and mangoes from India.
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October 10, 2008 |
Jenson Hagen | Comments (28 so far)
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Posted by: Steve Bucknum | Oct 10, 2008 8:20:39 PM
Q: When will this be over? In a really long time.
People think that this really got going these last few weeks. In reality, this has been going on in one form or another for over 2 years now. The housing market is a slow market. It takes time, even in a hot market, to sell a house. A month is a really quick sale. More typically, the time from listing a house to date of sale is 4 to 6 months. So, the housing market first showed a slowing and contraction way back in 2005. The Pacific Northwest was the last region of the US to continue to have increasing sales prices, up to late 2006/early 2007.
This light has been in the tunnel for a long time. The only surprise is how many people who ought to "know better" were in denial right up to this week (or perhaps three weeks ago).
I think it will take the housing market about 1 more year to hit bottom, with some regions that have population growth seeing market bottom this next spring/summer*. *But to have sales, as Jenson has pointed out, you have to have credit. If all the money disappears, and it looks like it might - then the market bottom is put off/delayed. Saying this another way, if a way can be found for a modest supply of money to be available for credit/lending, then we can see the beginnings of a turn around in a year. In terms of that trickling up into the economy - another year. If credit remains tight - no telling, but a lot more than 2 years.
Posted by: darrelplant | Oct 10, 2008 10:13:06 PM
Did it have anything to do with the fact that 1) Politicians pushed for years to force banks to loan money to low income folks
You must have missed all of the lending that was done to developers for medium-level and high-end houses and condos that weren't aimed at selling to low-end buyers. Or the lending that was done to commercial developers to build office and store space that nobody actually wanted.
And nobody "forced" banks to create financial instruments they themselves called NINJA loans for "no income, no job." Seriously, how stupid was that?
Posted by: Sue Hagmeier | Oct 10, 2008 10:26:15 PM
What you leave out of this is what always comes out at the end of a Ponzi scheme: Some players are sucking money out of the top of the pyramid. The original mortgages are not even the bottom of the pyramid. They only had to exist in theory, and the more mortgages written, the more could be claimed as assets in the "derivatives" market.
Posted by: Steven Maurer | Oct 10, 2008 10:37:04 PM
Rob Kremer: Politicians forced Fannie Mae to lower the credit standards for the loan paper they would buy
You never cite any evidence, because of course, there isn't any. You're just pulling this idea out of your ass.
The truth is that Republicans' penchant for victimizing the weak, scapegoating them for problems the GOP itself caused, isn't working anymore. So they're going into overdrive, becoming so deranged it's laugh out loud funny. Two days ago some Republican banker in an elevator butted into a conversation I was having with a coworker about the political fallout of the financial crisis, announcing before stalking off that this was all the fault of President Jimmy Carter! A girl in the same elevator burst into laughter after he left. She was in her twenties, and I realized: Carter had left office before she was born.
Oh, and let's not forget illegals. They're all to blame. Never mind the fact that they have lower delinquency rate than U.S. citizens. Facts never get in the way of wingnut hate. And that's what all diehard Republicans are these days: wingnuts.
Posted by: Jägermeister | Oct 10, 2008 11:31:24 PM
Just as a side note - The required reserve ratio in the United States is 10%, not 5% as is used in the example. In several other industrialized countries however, there is no reserve requirement, the most prominent being the UK.
Posted by: Tom Civiletti | Oct 10, 2008 11:42:53 PM
The problem with conservatives like Rob Kremer is that they try to understand the universe through a short list of rhetorical talking points. The conservative talking point on our current economic woes is that government pushing lenders to give mortgages to poor people created the whole mess. This is understandable, because conservatives like to blame government and poor people for whatever is wrong with the world [unless they can pin the blame on Hollywood liberals], but it more fantasy than reality. Banks have tremendous motivation to loan as much money as they can, especially if it is imaginary money, which is quite inexpensive. The main restraints to this are realistic interest rates and effective regulation - both of which have been absent.
Blaming the market crash and credit crunch on low income people who wanted their own homes is ignorant scapegoating.
Posted by: Sue Hagmeier | Oct 11, 2008 7:59:35 AM
I won't paste the whole thing here, but here's a piece I wrote on this a couple of weeks ago: Life in the Casino
It's an extraction economy, and the middle class is being mined.
Posted by: Harry | Oct 11, 2008 9:26:34 AM
The DOW Jones crash last week was due to two things:
1) The fiscal credit crisis becoming known to everybody who has money in the markets (ie Ma & Pa with their IRA), and who were jamming for the doors.
2) Smart money getting out because they are forecasting Obama is going to win, and that is bad for Smart Money on Wall Street.
Total Democrat control in Washington, DC spells disaster for the Good Times enjoyed by American investors.
But Total Democrat control spells good times for the socialists who benefit from the Redistributionist policies of Obama.
Posted by: Ted | Oct 11, 2008 9:45:41 AM
One of the main reasons for this crisis is that we don't teach basic economics in public schools. One of the reasons for the crisis in democracy is because few public schools still require classes in civics.
So you get these kinds of overly simple analyses throughout the media which don't help anything, except to keep people ignorant so cronies like Paulson, Rumsfeld, Bush, etc., who all seem connected back in the Nixon days can keep screwing the masses.
The reserve requirement ratio is actually zero for most of the deposits in the banking system, the 10% referred to is indexed from a 3% base that was set and only applies to transactional deposits like checking accounts, NOW accounts, etc. The RRR is one of the three tools the Fed legally has (buying AIG is not something the Fed even had authority to do!) in setting monetary policies and was never adjusted (as it should have been) to help counter the banking crisis. If there was 10% reserve in all banking system deposits, the crisis would not be nearly as severe.
Basically, the contraction must occur, but now rather than have the contraction simply devestate the balance sheets of financial firms, the contraction is being shifted to the consumer by devaluing the dollar and running up a credit line for future generations to pay. It's a scam folks. Citi, Goldman Sachs, etc, should have been allowed to collapse in on themselves just like dot coms did. New banks would form and the public would have some fresh new players in the system. The bailout obviously isn't doing anything to save your 401Ks, but Paulson and Bernanke knew it wouldn't anyway. What the bailout does is protect the existing ruling class on Wall Street and in Washington, even though it is ultimately going to make the recession much worse and basically guarantee that your children and grandchildren will not have it as good as all you baby boomers did when you were sleepwalking through the shopping malls of life and shirking your responsibilities for democratic vigilence.
Aren't you all glad Pelosi kept impeachment off the table? Aren't you glad the Democrat leadership just ignores it when people like Rep. Conyers and Robert Kennedy, Jr. present solid evidence of voter fraud that stole the last election? Don't you all feel comfortable that big oil got bigger (Exxon-Mobil), big media got bigger (Clear Channel, Disney-ABC), banking got bigger (First Interstate, Security Pacific, etc, absorbed) but the Dems didn't do a thing to enforce anti-trust laws? Maybe if our Democratic "representatives" actually did their job and upheld their oaths of office, we wouldn't be in this mess.
Posted by: Sue Hagmeier | Oct 11, 2008 10:36:12 AM
"One of the reasons for the crisis in democracy is because few public schools still require classes in civics."
And you know this how?
A lot of people throw this claim around. I doubt that Oregon is unique in requiring 3 credits of social science. That is configured to include Global Studies, US History, Economics and Government. You may not think it's enough, but since you know so much about curriculum requirements, what subject would you reduce in order to accommodate more economics?
School doesn't happen in a vacuum. The civics lessons shown in the media tend to dumb down these subjects, relentlessly. Blaming schools for it fits right in.
Posted by: Bill R. | Oct 11, 2008 11:37:59 AM
Ah, the dittoheads are taking the marching orders. Why are the financial markets going down the toilet?... because of poor people.
George Soros gives a good analysis in his book, "The Credit Crash of 2008." The policy of "Free Market Fundamentalism". It's dead now. The naive and disastrous belief that the public interest is served by the unrestrained pursuit of the short term, and often irrational personal interest. The markets will police themselves. News flash - Bear Sterns, Lehman Bros., and the rest of the crowd don't police themselves, they steal, they cut and run. They commit fraud when they can get away with it,and they run when they can't.
It's over, the entire fraud that has been perpetrated on us since the 1980s. You can borrow money and not have to pay it back. You can run deficits and they don't matter, or worse, you can cut taxes and it will pay for itself in increased revenues. The financial markets and institutions will police themselves. The whole delusion has been exploded these past two weeks.
As Soros says, the ideology of Market Fundamentalism is just as flawed and destructive as the Marxist ideology of Socialist Fundamentalism. Any system must be a self-correcting open system that assimilates new information and adjusts. It can't operate on ideological doctrines but by agents who can reason and referee the system in a rational way who are agents for the public interest. A game has to have rules and referees. What a concept!
Posted by: Wizened1 | Oct 11, 2008 11:49:47 AM
Kremer's 2 points have been circulating on the wingnut blogs for some time now. While the ideology motivating them is despicable, I have no idea how much truth, if any, there is to the claims. Can some one point to(1) hard data identifying the percent of subprime loans made that qualified for CRA credit and (2)the nature of the shift in Fannie and Freddie underwriting stds he alludes to?
The financial press frequently suggests that neither Fannie nor Freddie could purchase or insure subprime loans, though this may be simply a matter of definition with no clear substantive answer. But some facts would be useful to counter the emerging conspiracy narrative--that the republicans strove heroically for years to keep the economy alive under the crushing structural burdens imposed by liberal foolishness, only to fail in the end because the damage done was too severe even for superman to correct.
Posted by: Rob Kremer | Oct 11, 2008 12:08:06 PM
Maurer, Civiletti, Wizened 1:
Is the New York Times a good enough source for proving that Clinton pressured Fannie Mae to ease its credit standards?
Or were they just repeating Republican talking points back in 1999 when it was pointed out in their article that lowering the standards like Clinton wanted could blow up in our faces?
Is the NYT a wingut blog, wizened?
The sad part of all you folks is how much you deny reality. This has been common knowledge for years, yet blinded as you are by ideology, you probably truly were not aware of it.
Unreal.
Posted by: Tom Civiletti | Oct 11, 2008 1:36:36 PM
Rob Kremer,
That Democrats pressured Fannie to make mortgages available to lower income people is not in question. Blaming that for Fannie and Freddie's meltdown is not reasonable, however. Blaming it for abuse of the fractional reserve system is bizarrely over the top, not unlike, say, blaming global warming on cigarette lighters.
Posted by: Jian | Oct 11, 2008 1:37:36 PM
Money is like energy. It isn't really created or destroyed, just moved. Debt and worldwide depression isn't a huge setback to the money masters. More indebtedness definitely isn't something they shirk from you accepting. Just watch out for the IMF's "help"!
Posted by: Ray Duray | Oct 11, 2008 1:49:45 PM
Hi Jensen,
You inquire: "Q: So how did this financial mess come about?"
In addition to the brief answer you provided, I'd say that readers might also wish to look at the nature of "financial innovation", particularly as it relates to derivatives. This has been a "golden child" and outrageously risky profit center for the financial industry for over a decade. Some will recall the LTCM blowup in 1998, caused by a miscalculation by managers there of the risks that their arbitrage bets involved. To put the present crisis in perspective, the financial markets locked up for several days in 1998 and eventual the NY-FRB sat the CEOs of several Wall Street houses down and crammed down a buyout which cost about $3.8 Billion. Compare that to the auction yesterday which settled Lehman Bros. credit default swap obligations with counterparties now obligating them to pay somewhere between $200 Billion and $350 Billion to clear the book. You might well imagine that this has shell-shocked even the most experienced hands, and you'd be right.
And why has the derivatives market become a likely financial weapon of mass destruction? In large measure this can be blamed on "The Maestro", Alan Greenspan who will go down in history as one of the most grotesquely irresponsible and mean-spirited officials in this nation's history. Greenspan browbeat any legislator who dared to propose any sensible regulation of the derivatives market which largely operates beyond any supervision whatsoever. The derivatives markets are "opaque". That's why I can't value the loss to Lehman's counterparties any closer than the range I provided. The derivatives markets have been deliberately excluded from regulation. And the result is a pending catastrophe. Nice job, Alan. Brilliant.
Posted by: Ray Duray | Oct 11, 2008 1:55:38 PM
I've come across a couple of useful discussions of our looming financial disaster and possible cures:
Posted by: Steven Maurer | Oct 11, 2008 2:31:00 PM
Rob Kremer: Is the New York Times a good enough source for proving that Clinton pressured Fannie Mae to ease its credit standards? ... The sad part of all you folks is how much you deny reality.
Awwww. Isn't that cute. A conservative wingnut actually trying to make a fact based argument! Let me give you a proverbial pat on the kindergartner head for what must be a most difficult challenge to you. Though I encourage you for trying, try not to hurt your brain by learning to think too fast.
Unfortunately for you, you are completely and entirely wrong. The "worries" mentioned in the New York Times article you reference did not pan out. In fact it's exactly the reverse. The Community Reinvestment Act has been a welcome anomaly in the foreclosure crisis, with most indications that the CRA actually deterred irresponsible lending.
How do I know this? Because of a January 7th study, titled:
The Community Reinvestment Act:
A Welcome Anomaly in the Foreclosure Crisis
Indications that the CRA Deterred Irresponsible Lending
in the 15 Most Populous U.S. Metropolitan Areas
No, the truth, as it always is, is that poor people (or illegal aliens), having little money to begin with, are usually extremely responsible with what they have. (If you've dug your way up to the middle class, the last thing you want to do is to sink back down.)
No the real household villains were all the of Republicans trying to Make Money Fast on real estate, by leveraging their loans to the max, thinking that with a never ending rise in real estate prices, they'd be able to refinance or sell for massive profits.
Remember the Real Estate seminars in the newspaper? The show: "Flip This House"? I sure do. The interesting thing was, if you noticed, often the person buying wasn't someone who wanted to live in the house, but an "investor", themselves interested in a quick buck. Or, as Paul Krugman noted in 2005: "These days Americans make a living selling each other houses, paid for with money borrowed from the Chinese. Somehow, that doesn’t seem like a sustainable lifestyle.”
Posted by: Steve Bucknum | Oct 11, 2008 4:24:22 PM
Rob Kremer writes, "2) Politicians forced Fannie Mae to lower the credit standards for the loan paper they would buy, ensuring any mortgage house or bank that wrote the loans that their risk would be basically nil?"
Actually, Fannie Mae increased at least one set of standards in 2004. Noting a high default rate in manufactured homes, they increased their standards in two areas: 1. Appraisers were required to do a more detailed report and were required to include the cost approach (not required with other types of housing); and 2. The loan to value ratio was changed to 70/30 for standard loans (versus 80/20 for a standard stick built home). The ratios were gotten around with a "package" loan involving a Fannie Mae first, and other money for a second position - but these standards were tightened.
Furthermore, Fannie Mae hasn't been looking the other way, or letting standards drop in other areas. As an Appraiser, I can tell you that in those cases in rural appraisal work where the Fannie Mae standards could not be meant, I had to practically write a book explaining why. (Example, Fannie Mae has a guideline that comparison sales adjustments not exceed 15% net or 25% gross. When they do exceed that, and in rural areas where there are few sales it is common for them to exceed those guidelines - in must be explained in detail.) If Fannie Mae were really letting in bad risks, then it must have been in urban areas only - they were still tough on rural appraisal work.
What people don't seem to understand is that what is really going on has nothing to do with the normal cycle of the residential real estate market - it's what came after that. Foreclosures will happen. Foreclosure rates are now double when the market was "good", and that is not unusual for the real estate market - it's happened at least four times in the last 30 years.
I think of Fannie Mae and Freddie Mac as the "bar" in the classis barbell. On one end is a big ball of loans being originated by mortgage brokers, banks, and other lenders. On the other end of the barbell is a big ball of buyers of mortgage securities. Fannie Mae and Freddie Mac just pass through the mortgages in pipeline fashion after setting up standards of acceptability, and then bundling up the output.
It's actually the other end of the barbell, not the mortgages but the securities, where the problem lies. There are at least three problems on that end:
1. The amount of risk was not fully disclosed. Standard and Poors and Moody's rated most mortgage securities as AAA, the best. What was in the bundles was known and unknown risks of foreclosures. It was assumed that the real estate market would go up or stay level. It is simply not the fault of the mortgage lenders or mortgage holders that these securities were misrepresented. This is the one area where Fannie Mae and Freddy Mac have some guilt - they knew there were higher risks if the market had a downturn - but did nothing to fully disclose the risk.
2. Investors knew there was risk, but instruments called "swaps" were invented to handle the risk. These are insurance like instruments, that an investor would purchase along with a bundle of mortgage securities. In other words, a third party agreed to make good on any default for a fee. The companies that issued these instruments (the big players at least) were Lehman Brothers, AIG, Bearns Stearns, and Citi group. Three of those are now dead or taken over.
3. The Federal government looked the other way. The "swap" instruments are in fact insurance. Federal regulations call for insurance companies to keep a reserve in case of defaults or pay-outs. The companies that did the "swaps" did not keep reserves - a complete failure of the Federal government to enforce regulations.
The total amount of one to four unit housing mortgage in the United States is just over $10 Trillion. The total of the "swap" paper is in the range of $40 to $60 Trillion. This sounds crazy until you realize that these securities and their derivatives were sold and resold in leveraged ways where the original owner kept a share, and subsequent owners had reduced shares.
So - where the assumption of a upward or level market proved untrue like it was bound to - and when the companies that insured the securities had no money to pay out on their insurance - the whole thing unravels.
To date, the total amount of mortgage foreclosure is around $200 Billion. That this caused a problem with up to $60 Trillion in consequences is on the side of the barbell away from the borrowers.
To sum up - frankly - the Bush Administration and its de-regulators really screwed this up, and the real estate part will take at least a few years to clear up - and a generation will have economic consequence from this.
Posted by: Chris Lowe | Oct 11, 2008 5:05:09 PM
In addition to the points others have made in response to Rob Kremer's idiotically reductive "explanation," there is also the fact that 3/4 of the sub-prime mortgages were made by mortgage brokers, not banks subject to the CRA, who turned around and sold them to financial organizations that bundled them with derivatives and debt swaps and conforming mortgages and then further sold those "instruments" onward into the system, a system in which older boundaries among types of banks and other "financial services" organizations such as insurance companies had all but evaporated.
Thus the relatively small proportion of lending under the CRA that was truly problematic was not only just part of such lending, but it was an even smaller portion of the whole mortgage system and not at all the largest source of subprime mortgages, and not at all the source of "bad paper" derivatives etc.
So "it's all CRA's fault" just doesn't wash.
That the fault was bipartisan is a good deal truer. Many, too many Democrats collaborated actively in the regulatory changes that created the vulnerabilities and allowed the creation of the "creative" Ponzi-like "financial instruments." Recent weeks have seen tons of hypocrisy by some of those folks and also their continued voting more according to the interests of their allies & backers among the financial classes than the broad public interest.
But Democrats were much more divided on the mistaken deregulations than Republicans, who almost all supported them, and the faux-populist voicing of anti-Wall Street rhetoric by John McCain and others is no less and often greater hypocrisy.
Finally, the sell-out by those Democrats joining the Republican prime movers was sustained by Democratic buying into and repeating and reinforcing conservative knee-jerk market ideology, contributing thereby to decline of critical reporting, analysis and commentary in the media, which for the most part repeat what politicians say, and don't wish to appear "out of the mainstream."
To me the question is not so much blame, as who will do what next. Will conservatives and Republicans give up their failed knee-jerk market prescriptions? Will Democrats who bought into it change course?
Rob Kremer's comments and the whole "blame it all on CRA" strategy suggests that the answer to the question about conservatives is "no."
As for Democrats, I think some of those who helped make the conditions for the problem will genuinely change course to join those who had remained critical of magic markets ideology, while others will put on a bit of a show short term or in general rhetoric, but not change at the level of details. Popular pressure may make some difference as to how many change seriously for how long.
Posted by: Harry Kershner | Oct 12, 2008 2:16:20 PM
While the immediate origins of the current meltdown lie in the collapse of the Greenspan housing bubble, it has long been understood by elites that financial liberalization, freeing the markets as much as possible from government regulation, is a powerful weapon against democracy. Investors and lenders thus work to oppose government programs if they are considered "irrational", i.e., for the benefit of people, rather than concentrated private power.
This did not begin with Bush or even with Reagan. A study by international economists Winfried Ruigrok and Rob van Tulder 15 years ago found that at least 20 companies in the Fortune 100 would not have survived if they had not been saved by their respective governments, and that many of the rest gained substantially by demanding that governments "socialize their losses," as in today's taxpayer-financed bailout. Such government intervention "has been the rule rather than the exception over the past two centuries", they conclude.
"In a functioning democratic society, a political campaign would address such fundamental issues, looking into root causes and cures, and proposing the means by which people suffering the consequences can take effective control." (Noam Chomsky, Anti-democratic nature of US capitalism is being exposed)
Shame on you if you continue to support regressive candidates who supports bailouts for the rich, militarism, and anti-democratic institutions.
Posted by: Tom Civiletti | Oct 13, 2008 9:16:38 AM
Harry Kershner wrote:
Shame on you if you continue to support regressive candidates who supports bailouts for the rich, militarism, and anti-democratic institutions.
Harry, your evaluation of US political dynamics is reasonable, but the electoral calculus is not so straightforward. Calling shame on those who see differently than you is not justified and is impolitic to boot.
The candidates who support the dominant economic paradigm are, unfortunately, the only ones who can be elected in the current system. Of course, that is an engineered situation, as is apparent to anyone who studies the process of candidate winnowing. Although you do great service by pointing out the systemic pseudo-democratic scam of our electoral politics, you only alienate potential allies by deriding their decision to work for the preferable candidate among those who pass muster with the elites.
It is true that their choice will not likely lead to the end of business-driven imperialism or trickle-up economics, but the differences between, say, Obama and McCain can lead to longer, healthier, and happier lives for millions of people. Supporting that is not something to be ashamed of, and suggesting so closes minds to the truth you speak.
Posted by: Dan Petegorsky | Oct 13, 2008 12:26:21 PM
Can some one point to(1) hard data identifying the percent of subprime loans made that qualified for CRA credit and (2)the nature of the shift in Fannie and Freddie underwriting stds he alludes to?
Private sector loans, not Fannie or Freddie, triggered crisis
Posted by: Harry Kershner | Oct 13, 2008 3:06:43 PM
"As the public begins to grasp the depth of the betrayal and abuse by our ruling class, as the Democratic and Republican parties are exposed as craven tools of our corporate state, as savings accounts, college funds and retirement plans become worthless, as unemployment skyrockets and as home values go up in smoke...
The Patriot Act, the FISA Reform Act, the suspension of habeas corpus, the open use of torture in our offshore penal colonies, the stationing of a combat brigade on American soil, the seas of surveillance cameras, the brutal assaults against activists in Denver and St. Paul are converging to determine our future...
I place no hope in Obama or the Democratic Party. The Democratic Party is a pathetic example of liberal, bourgeois impotence, hypocrisy and complacency. It has been bought off." (Chris Hedges, America’s Political Cannibalism)
Posted by: gl | Oct 14, 2008 3:01:34 PM
So how did this financial mess come about?
Greenspan and bedfellows...
Wow I hope you have not recieved your CFA.
Posted by: gl | Oct 14, 2008 3:01:37 PM
So how did this financial mess come about?
Greenspan and bedfellows...
Wow I hope you have not recieved your CFA.
Posted by: RW | Oct 26, 2008 1:21:20 PM
Down the road long view: watch the meeting in Switzerland this coming session. Keep your eye on the ball and prod your political representatives to do the same.
http://www.bloomberg.com/apps/news?pid=20601109&sid=a9wVqOPk.T_4&refer=home
Become Cassandras, geeks and gadflys in the less-sexy aspects of public life. THIS is one meeting to watch for and engage public pressure in the runup as well. These congregations do not act in a vacuum unless we allow it. Institutes must get their money from somewhere.
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Posted by: Rob Kremer | Oct 10, 2008 8:12:45 PM
"So banks ended up creating a heap load of money through the fractional reserve process (one giant pyramid) by extending loans to consumers that were not in a position to repay the money."
So why did banks do this, Jenson? Did it have anything to do with the fact that 1) Politicians pushed for years to force banks to loan money to low income folks, and 2) Politicians forced Fannie Mae to lower the credit standards for the loan paper they would buy, ensuring any mortgage house or bank that wrote the loans that their risk would be basically nil?
I'm afraid your explanation falls woefully short. Banks would have zero incentive just to hike up the money supply by making a ton of bogus loans.