| Author | Message | ||
     Indy_bueller |
I had to write a research paper for the Intermediate Composition course I am taking while I work towards my B.S. I chose to write about the home mortgage crisis, since you can't seem to get any straight answers on what really happened from the media. While writing it, I tried to be as even-handed as possible, giving credit where credit is due, REGARDLESS of political affiliation. There are a great many people responsible for what happened, and I don't even get into the congressional hearings in 2004 and 2005. They were such a white-wash of the impending crisis it's sickening. Anyway, my intent here is to get honest feedback, not to cause a ruckus. I realize that this will probably happen anyway, and I would ask Blake to move it to the Backfire Board if it becomes to rediculous. Here it is in it's entirety, including citations. Feel free to critique, pick it apart. The current home mortgage crisis is one of the most devastating events in financial history. The collapse of American mortgage-backed securities, once thought to be one of the safest investments available, has caused financial ruin world-wide. Normally, one would expect one political party or the other to be shouting from the rooftops, blaming the other for the mess. Strangely enough, this has not happened. The Bush Administration has taken the majority of the blame for the situation, largely due to the fact that it was in power when the crisis erupted. However, I have found that the Carter, Clinton, and Bush Administrations as well as the American People, Congress and many banks and home mortgage lenders all deserve portions of the blame. The enactments of the Community Reinvestment Act of 1977 (Carter), the National Homeownership Strategy of 1995 (Clinton), the home refinancing boom of the late 1990’s (the American People), the “A Home Of Your Own” initiative of 2002 (Bush), and the practice of approving mortgages to people that clearly could not afford them (Banks and Mortgage Lenders) all combined to create the situation. The foundation for the crisis really began with the Community Reinvestment Act of 1977, signed into law by President Jimmy Carter. This act was intended to encourage banks to invest in the low and middle-income areas of their communities, by providing mortgages to people who might not otherwise get them. The government enforces this requirement by requiring lending institutions to be evaluated periodically (“Background and Purpose” par. 1). Essentially what this did was force mortgage lending institutions to lower their credit standards for people that lived in “blighted” areas. Beginning in 1995 the Clinton Administration, as a part of its “National Homeownership Strategy” began more aggressive enforcement of the CRA and expanded it scope, pressuring Fanny Mae to lower the credit requirements on loans that it could purchase from banks and other lenders (“Homeownership and its Benefits” par. 36). The intent of the Clinton Administration in doing this was to make it easier for low and middle-income individuals to acquire mortgages to purchase homes. Being that homeownership is vital to the development of wealth by individual citizens, this was certainly a laudable goal. Unfortunately, it set the stage for Fanny Mae to become overloaded with “toxic” mortgages. The New York Times quite accurately said that “In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.” (Holmes par. 7). As we all know, this is exactly what happened. The result of the “National Homeownership Strategy” was simple but devastating. Knowing that the federal government would buy or insure the “sub-prime mortgages” (loans made to people with poor credit), mortgage lenders were freed from the credit restrictions that formerly regulated who they would lend to. They then began lending money to almost anyone that asked for it, and collected the origination fees. Then they would ask Fanny Mae or its sister company, Freddy Mac, to either buy the mortgage from them, or insure it. Since Fanny Mae and Freddy Mac are government-backed institutions, the government absorbed the risk, which is exactly what the Clinton Administration intended. One would hope that they did not realize just how destructive this policy would be, but certainly someone must have taken notice of all the loans sold to Fannie Mae that were made to individuals with poor credit. While this was going on, plunging interest rates combined with a flood of new “sub-prime” mortgage lenders opening for business sparked a home refinancing boom in 1998 (Cohn par. 1). As they cashed out their home equity Americans went on a spending spree. Consumer spending spiked, and the US economy boomed. Unfortunately, the same predatory lending practices that were sowing the seeds of disaster in the home mortgage industry were also at work in the home refinancing business. It is the authors’ opinion that this level of spending was unsustainable, since the source of this money was an exhaustible resource. That resource was the previously built-up equity that Americans had in their homes, and it could only be used once. It is no coincidence then that the stock market has returned to 1997 levels. The booming economy of the last twelve years was a straw house, built on a foundation of sand. The last act of the tragedy was played out in 2002. Hoping to boost the economy after the September 11th attacks, President Bush signed his “A Home of Your Own” initiative. Bush not only continued Clinton’s policy but expanded on it, providing billions in additional dollars for Fanny Mae and Freddy Mac to lend. He encouraged mortgage lenders to continue the dangerous practices that had already begun to put the nations’ financial future in jeopardy. The people targeted for assistance by the “A Home of Your Own” initiative had a multitude of problems preventing them from purchasing homes. Among those problems were poor credit and a lack of money to make down payments and pay for closing costs. (Executive Summary par. 4). In other words, the people Bush meant to help buy homes were exactly the people that could not afford to purchase homes. The homes that many of these people purchased are now in foreclosure. I believe it is safe to say that the country would have been much better off without this policy, regardless of who enacted it. In this paper I have tried not to be too harsh or too lenient on any particular political party or group of people. I believe the evidence shows that there are a great multitude of people and groups of people who are responsible for our current dire economic situation. President Carters’ well-meaning attempt to help disadvantaged people buy homes was turned into a socialist-style policy to subsidize the home-mortgage industry by President Clinton. We, the American People share the blame in that we signed the mortgages, and we cashed out the equity in our homes leading to the “straw house” economy of the late 1990’s. We should remember that the “American Dream” does not guarantee us anything except hard work. Finally the rest of the blame lies with President Bush, who took a bad policy and made it even worse; compounding the problems we face today. In the end, we must remember there is no such thing as a free lunch. No matter how much you try to put it off, the bills will come due. This country has lived beyond its’ means for far too long, and it is time to pay the bill. Works Cited: Anonymous, “Background and Purpose” Community Reinvestment Act, June 2007. Federal Financial Institutions Examination Council, 15 Mar 2009. <http://www.ffiec.gov/cra/history.htm> Anonymous, “Homeownership and its Benefits” Urban Policy Brief Number 2, August 1995. Department of Housing and Urban Development, 15 Mar 2009. <http://www.huduser.org/publications/txt/hdbrf2.txt> Holmes, Steven A. “Fannie Mae Eases Credit to Aid Mortgage Lending” 30 Sept 1999 the New York Times, 15 Mar 2009 <http://query.nytimes.com/gst/fullpage.html?> Cohn, Laura “Home refinancing boom expected to continue” The Oklahoma City Journal Record, 2 Jan 1998. <http://findarticles.com/p/articles/mi_qn4182/is_19 980102/ai_n10117544> Anonymous, A Home Of Your Own: Expanding Opportunities for All Americans, Executive Summary, 15 Mar 1999 The White House June 2002 <http://georgewbush-whitehouse.archives.gov/infocus /> | ||
| Leftcoastal |
Here is an article by a finance person that I am acquainted with. It shows the chain of events that are behind it all. No affiliation - I just found it pretty eye-opening as to how such a situation could be happening. It's long - sorry for the thread space use. AL THE FINANCIAL CRISIS: A LOOK BEHIND THE WIZARD’S CURTAIN March, 2009 I’m tired of hearing about sub-prime mortgages. It’s as if these things were living entities that had spawned an epidemic of economic pornography. Sub-prime mortgages are as much a cause of the current financial chaos as bullets were for the death of JFK. Someone planned the assassination and someone pulled the trigger. The media, J. Edgar Hoover and the Warren Commission tried to push Lee Harvey Oswald off on the American public. They didn’t buy it. They shouldn’t buy sub-prime mortgages either. Someone planned the assassination and someone pulled the trigger. Only this time the target is the international financial structure and the bullets are still being fired. Oh yes, people took out adjustable rate mortgages they could ill afford, that were then sold to Wall Street bankers. The bankers bundled them up like gift wrappers at Nordstrom’s during the Holidays and sold them to other banks after raking off billions in fees. The fees? They were for…well…they were for wrapping the mortgages in the haute couture of Wall Street. But it didn’t start there. No, no, not by a long shot. And as the late, great Paul Harvey would say, “And now you’re going to hear the Rest of the Story.” Are sub-prime mortgages part of some larger agenda? And if so, what is it? Stay with me here, because Alice is about to slide down the rabbit hole into the looking glass world of international finance. EASY MONEY ALAN There are various places we could start this story, but we will begin with the 1987 ascendency of Rockefeller / Rothschild home-boy, Alan Greenspan, from the Board of Directors of J.P. Morgan to the throne of Chairman of the Federal Reserve Bank (a position he was to hold for twenty years). From the beginning of his term, Greenspan was a strong advocate for deregulating the financial services industry: letting the cowboys of Wall Street sow their wild financial oats, so to speak. He also kept interest rates artificially low as if he had sprayed the boardroom of the Federal Reserve Bank with some kind of fiscal aspartame. While aspartame (an artificial sweetener branded as “Equal” and “NutraSweet”) keeps the calories down, it has this itty bitty side effect of converting to formaldehyde in the human body and creating brain lesions. As we are dealing here with a gruesomely tortured metaphor, let me explain: I am not suggesting that Chairman Greenspan put Equal in his morning coffee, but rather that by his direct influence, interest rates were forced artificially low resulting in an orgy of borrowing and toxic side effects for the entire economy. THE COMMUNITY REINVESTMENT ACT Greenspan had been the Fed Chairman for seven years when, in 1994, a bill called the Community Reinvestment Act (CRA) was rewritten by Congress. The new version had the purpose of providing loans to help deserving minorities afford homes. Nice thought, but the new legislation opened the door to loans that set aside certain lending criteria: little things like, a down payment, enough income to service the mortgage and a good credit record. With CRA’s facelift, we have in place two of the five elements of the perfect financial storm: Alan (Easy Money) Greenspan at the helm of the Fed and a piece of legislation that turned mortgage lenders into a division of the Salvation Army. Perhaps you can see the pot beginning to boil here. But the real fuel to the fire was yet to come. GLASS STEGALL To understand the third element of the storm, we travel back in time to the Great Depression and the 1933 passage of a federal law called the Glass Stegall Act. As excess speculation by banks was one of the key factors of the banking collapse of 1929, this law forbade commercial banks from underwriting (promoting and selling) stocks and bonds. That activity was left to the purview of “Investment Banks” (names of major investment banks you might recognize include Goldman Saks, Morgan Stanley and the recently diseased Lehman Brothers). Commercial banks could take deposits and make loans to people. Investment banks underwrote (facilitated the issuing of) stocks and bonds. To repeat, this law was put in place to prevent the banking speculation that caused the Great Depression. Among other regulations, Glass Stegall kept commercial banks out of the securities. Greenspan’s role in our not-so-little drama, is made clear in one of his first speeches before Congress in 1987 in which he calls for the repeal of the Glass Stegall Act. In other words, he’s trying to get rid of the legislation that kept a lid on banks speculating in financial markets with securities. He continued to push for the repeal until 1999 when New York banks successfully lobbied Congress to repeal the Glass Stegall Act. Easy-Money Alan hailed the repeal as a revolution in finance. Yeah Baby! A revolution was coming. With Glass Stegall gone, and the permissible mergers of commercial banks with investment banks, there was nothing to prevent these combined financial institutions from packaging up the sub-prime CRA mortgages with normal prime loans and selling them off as mortgage-backed securities through a different arm of the same financial institution. No external due diligence required. You now have three of the five Horsemen of the Fiscal Apocalypse: Greenspan, CRA mortgages and repeal of Glass Stegall. WAIVER OF CAPITAL REQUIREMENTS Enter Hammering Hank Paulson. In April of 2004, a group of five investment banks met with the regulators at the Securities and Exchange Commission (SEC) and convinced them to waive a rule that required the banks to maintain a certain level of reserves. This freed up an enormous reservoir of capital, which the investment banks were able to use to purchase oceans of Mortgage Backed Securities (cleverly spiked with the sub-prime CRA loans like a martini in a Bond movie). The banks kept some of these packages for their own portfolios but also sold them by the bucket load to willing buyers from every corner of the globe. The investment bank that took the lead in getting the SEC to waive the regulation was Goldman Sachs. The person responsible for securing the waiver was Goldman’s Chairman, a man named Henry Paulson. With the reserve rule now removed, Paulson became Wall Street’s most aggressive player, leveraging the relaxed regulatory environment into a sales and marketing jihad of mortgage backed securities and similar instruments. Goldman made billions. And Hammering Hank? According to Forbes Magazine, his partnership interest in Goldman in 2006 was worth $632 million. This on top of his $15 million per year in annual compensation. Despite his glistening dome, let’s say Hank was having a good hair day. In case this isn’t clear, it was Paulson who, more than anyone else on Wall Street, was responsible for the boom in selling the toxic mortgage backed securities to anyone who could write a check. Many of you may recognize the name Hank Paulson. It was Paulson who left the Goldman Sachs’ chairmanship and came to Washington in mid 2006 as George Bush’s Secretary of the Treasury. And it was Paulson who bludgeoned Congress out of $700 billion of so called stimulus money with threats of public riots and financial Armageddon if they did not cough up the dough. He then used $300 billion to “bailout” his Wall Street home boys to whom he had sold the toxic paper in the first place. All at taxpayer expense. Makes you feel warm all over, doesn’t it? Congress has their own responsibility for this fiscal madness, but that’s another story. This one still has one more piece – the Pièce de résistance. BASEL II Greenspan, the Community Reinvestment Act, the repeal of Glass Stegall and Paulson getting the SEC to waive the capital rule for investment banks have all set the stage: the economy is screaming along, real estate is in a decade long boom and the stock market is reaching new highs. Paychecks are fat. But by the first quarter of 2007, the first nigglings that all was not well in the land of the mortgage back securities began to filter into the press. And like a chilled whisper rustling through the forest, mentions of rising delinquencies and foreclosures began to be heard. Still, the stock market continued to rise with the Dow Jones reaching a high of 14,164 on October 9th 2007. It stayed in the 13,000 range through the month, but in November, a major stock market crash commenced from which we have yet to recover. It’s not just the U.S. stock market that has crashed, however. Stock exchanges around the world have fallen like a rock off a tall building. Most have lost have half their value, wiping out countless trillions. If it was just stock markets, that would be bad enough, but, let’s be frank, the entire financial structure of the planet has gone into a tail spin and it has yet to hit ground zero. While there surely would have been losses, truth be told, the U.S. banking system would likely have gotten through this, as would have the rest of the world, had it not been for an accounting rule called Basel II promulgated by the Bank of International Settlements. Who? What? That’s right, I said an accounting rule. The final nail in the coffin, and this was really the wooden spike through the heart of the financial markets, was delivered in Basel, Switzerland at the Bank of International Settlements (BIS). Never heard of it? Neither of have most people so, let me pull back the wizard’s curtain. Central banks are privately owned financial institutions that govern a country’s monetary policy and create the country’s money. The Bank of International Settlements (BIS), located in Basel, Switzerland is the central banker’s bank. There are 55 central banks around the planet which are members, but the bank is controlled by a Board of Directors, which is comprised of the elite central bankers of 11 different countries (U.S., UK, Belgium, Canada, France, Germany, Italy, Japan, Switzerland, the Netherlands, and Sweden). Created in 1930, the BIS is owned by its member central banks, which, again, are private entities. The buildings and surroundings which are used for the purpose of the bank are inviolable. No agent of the Swiss public authorities may enter the premises without the express consent of the Bank. The Bank exercises supervision and police power over its premises. The Bank enjoys immunity from criminal and administrative jurisdiction. In short, they are above the law. This is the ultra secret world of the planet’s central bankers and the top of the food chain in international finance. The Board members fly into Switzerland for once-a-month meetings, which they hold in secret. In 1988 the BIS issued a set of recommendations on how much capital commercial banks should have. This standard, referred to as Basel I, was adopted worldwide. In January of 2004 our boys got together again and issued new rules about the capitalization of banks (for those that are not fluent in bank-speak, this is essentially what the bank has in reserves to protect itself and its depositors). This was called Basel II. Within Basel II was an accounting rule that required banks to adjust the value of their marketable securities (such as mortgage backed securities) to the “market price” of the security. This is called Mark to the Market. There can be some rationality to this in certain circumstances, but here’s what happened. THE MEDIA AND MARK TO THE MARKET As news and rumors began to circulate about some of the sub-prime, CRA loans in the packages of mortgage backed securities, the press, always at the ready to forward the most salacious and destructive information available, started promoting these problems. As a result, the value of these securities fell. And when one particular bank did seek to sell some of these securities, they got bargain basement prices. Instantly, per Basel II, that meant that the hundreds of billions of dollars of these securities being held by banks around the world had to be marked down – Marked to the Market. It didn’t matter that the vast majority of the loans (90% +) in these portfolios were paying on time. If, say Lehman Brothers had gotten fire sale prices for their mortgage backed securities, the other banks, which held these assets on their books, now had to mark to the market, driving their financial statements into the toilet. Again, it didn’t matter that the banks were receiving payments (cash flow) from their loan portfolios, the value of the package of loans had to be written down. A rough example would be if the houses on your street were all worth about $400,000. You owe $300,000 on your place and so have $100,000 in equity. Your neighbor, Bill, in selling his house, uncovered a massive invasion of termites. He had to sell the house in a hurry and wound up with $200,000, half the real value. Shortly thereafter, you get a demand letter from your bank for $100,000 because your house is only worth $200,000 according to “the market.” Your house doesn’t have termites, or perhaps just a few. Doesn’t matter. Of course, if the value of your home goes below the loan value, banks can’t make you cough up the difference. But if you are a bank, Basel II says, you must adjust the value of your mortgage backed securities if another bank sold for less -- termites or no. When the value of their assets were marked down, it dramatically reduced their capital (reserves) and this – their capital - determined the amount of loans they could make. The result? Banks couldn’t lend. The credit markets froze. Someone recently said that credit was the life blood of the economy. This happens to be a lie. Hard work, production, and the creation of products that are needed and wanted by others; this is the true life blood of an economy. But, let’s be honest, credit does drive much of the current U.S. economy: home mortgages, auto loans and Visas in more flavors than a Baskin Robbins store. That is, until the banks had to mark to the market and turn the IV off. THE CRISIS Mortgage lending slammed to a halt as if it had run head long into a cement wall, credit lines were cancelled and credit card limits were reduced and in some cases eliminated all together. In short, with their balance sheets butchered by Basel II, banks were themselves going under and those that weren’t simply stopped lending. The results were like something from a financial horror film – if there were such a thing. Prof. Peter Spencer, one of Britain’s leading economists, makes it very clear that the Basel II regulations “…are at the root cause of the crunch…” and that “…if the authorities retain the strict Basel regulations, the full scale of the eventual credit crunch and economic slump could be disastrous.” “The consequences for the macro-economy,” he says “of not relaxing (the Basel regulations) are unthinkable.” Spencer isn’t the only one who sees this. There have been calls in both the U.S. and abroad to, at least, relax Basel II until the crisis is over. But the Boys from Basel haven’t budged an inch. The U.S did modify these rules somewhat a year after the devastation had taken place here, but the rules are still fully in place in the rest of the world and the results are appalling. The credit crisis that started in the U.S. has spread around the globe with the speed that only the digital universe could make possible. You’d think Mr. Freeze from the 2004 Batman movie was at work. We have already noted that stock markets around the world have lost half of their value erasing trillions. Some selected planet-wide stats make it clear that it is not just stock values that have crashed. China’s industrial production fell 12% last year, while Japan’s exports to China fell 45% and Taiwan’s were off 55%. South Korea’s overseas shipments decreased 17%, while their economy shrank 5.6%. Singapore’s exports were off the most in 33 years and Hong Kong’s exports plunged the most in 50 years. Germany had a 7.3% decline in exports in the 4th quarter of last year while Great Britain’s real estate market declined 18% in the last quarter compared to a year earlier. Australia’s manufacturing contracted at a record pace last month bringing the index to the lowest level on record. There’s much more, but I think it is obvious that credit pipe can no longer be smoked. Welcome to planetary cold turkey. ODDITIES It is fascinating to look at the date coincidence of the crash in the U.S. Earlier I noted that the stock market continued to rise throughout 2007, peaking in October of 2007. The dip in October turned to a route in November. The Basel II standards were implemented here by the U.S Financial Accounting Standards on November 15th 2007. There are more oddities. Despite the fact that Hammering Hank dished out hundreds of billions to his banker buddies to “stimulate” the economy and defrost the credit markets, the recipients of these taxpayer bailout billions have made it clear that they will be reducing the amount of money they will be lending over the next 18 months by as much as $2 trillion to conform to Basel II. What do you think…Hank, with his Harvard MBA, didn’t know? The former Chairman of the most successful investment bank in the world didn’t know that the Basel II regulations would inhibit his homies from turning the lending back on? Maybe it slipped his mind. Like the provision he put into his magnum opus, the $700 billion bailout called TARP. It carried a provision for the Federal Reserve to start paying interest on money banks deposited with it. Think this through for a minute. The apparent problem is that the credit markets are frozen. Banks aren’t lending. They can’t use the money from TARP to lend because Basel II says they can’t. On top of this, Paulson’s bailout lets the Fed pay interest on funds it deposits there. If I am the president of a bank, and let’s say that I’m not Basel II impaired, why in the world am I going to lend to customers in the midst of the worst financial crisis in human history when I can click a mouse and deposit my funds with the Fed and sit back and earn interest from them until the chaos subsides? But, hey, maybe Hank’s been putting Aspartame in his coffee. No, this stuff is as obvious as the neon signs on Broadway to the folks who play this game. This is banking 101. So, given, the provisions of Basel II and the refusal of the BIS to lift or suspend the regulations when they are clearly the driving force behind the planet wide credit crisis, and considering the lack of provisions in Paulson’s bailout bill to mandate that taxpayer funds given to banks must actually be lent, and given the added incentive in the bill for banks to deposit their bread with the Fed, one gets the idea that maybe, just maybe, these programs weren’t designed to cure this crisis; maybe they were designed to create it. Indeed, my friends, this is crisis by design. Someone planned the assassination and someone pulled the trigger. THE RUBBER MEETS THE ROAD All of which begs the question…How Come? Why drive the planet into the throws of fiscal withdraw – of job losses, vaporized home equity, and pillaged 401ks and IRAs? Because when the pain is bad enough, when the stock markets are in shambles, when the cities are teaming with the unemployed, when the streets are awash with riots, when governments are drenched in the sweat of eviction and overthrow, then the doctor will come with the needle of International Financial Control. This string of ineffective solutions put forth by people who know better are convincing bankers, investors, corporations and governments of one thing: the system failed and even the U.S. government – the anchor of international finance (which is blamed for causing the disaster) – has lost its credibility. The purpose of this financial crisis is to take down the United States and the U.S. dollar as the stable datum of planetary finance and in the midst of the resulting confusion, put in its place a Global Monetary Authority - A planetary financial control organization to “ensure this never happens again.” Sound Orwellian? Sound conspiratorial? Sound too evil or too vast to be real? This entity is being moved forward by world leaders “as we speak.” It is coming and the pace is quickening. A year ago, I saw an article in which the President of the New York Federal Reserve bank was calling for a “Global Monetary Authority” or GMA to deal with the world’s financial crisis. While I have been following international banking institutions for some time, this was the clue that they were making their move. I wrote an article on it at the time. By the way, as some may recall, the President of the New York Fed last year was a man named Timothy Geithner. Geithner was very involved in structuring the booby-trapped TARP bailout with Paulson and Bernanke. Of course now, he is the Secretary of the Treasury of the United States. Change we can believe in. Once Geithner started to push a global financial authority as the solution to the world’s financial troubles, other world leaders and opinion leading voices in international finance began to forward this message. It has been a PR campaign of growing intensity. Meanwhile, behind the scenes, the international bankers are keeping their hands on the throat of the credit markets choking off lending while the planet’s financial markets asphyxiate and become more and more desperate for a solution. British Prime Minister, Gordon Brown, who has taken the point on this, has said that the world needs a “new Bretton Woods.” This is the positioning. (Bretton Woods, New Hampshire was the location where world leaders met after the second World War and established the international financial organizations called the International Monetary Fund (IMF) and the World Bank to help provide lending to countries in need after the war). Sir Evelyn de Rothschild called for improved (international) regulations while the Managing Director of the IMF suggested a “high level of ministers capable of reaching agreements and implementing them.” The former director of the IMF, Michael Camdessus, called on “the global village” to “urgently and radically” implement international regulations. As the crisis has intensified, so too have calls for a global financial policeman, and of late, the PR has been directed in favor of…surprise, the Bank of International Settlements. The person at the BIS who was primarily responsible for the creation of Basle II is Jaime Caruana. The BIS Board has now appointed him as the General Manager, the bank’s chief executive position, where he will be in charge of dealing with the current financial crisis which he had no small part in creating. A few well chosen sound bites tell the story. Following a recent IMF function, discussion centered on the fact that the BIS could provide effective market regulation while the Global Investor Magazine opined that “…perhaps the Bank of International Settlements in Basel...” could undertake the task of best dealing with the crisis in the financial markets. The UK Telegraph is right out front with it. “A new global solution is needed because the machinery of global economic governance barely exists…it’s time for a Bretton Woods for this century. “ The big question is whether it is time to establish a global economic ‘policeman’ to ensure the crash of 2008 can never be repeated.’ …. “The answer might be staring us in the face in the form of the Bank of International Settlements (BIS). The BIS has been spot on throughout this.” And so you see, this was a drill. This was a strategy: bring in Easy Money Alan to loosen the credit screws; open the flood gates to mortgage loans to the seriously unqualified with the CRA, bundle these as securities, repeal Glass Stegall and waive capital requirements for investment banks so the mortgage backed securities could be sold far and wide, wait until the loans matured a bit and some became delinquent and ensure the media spread this news as if Heidi Fleiss had a sex change operation, then slam in an international accounting rule that was guaranteed choke off all credit and crash the leading economies of the world. Ensure the right people were in the key places at the right time – Greenberg, Paulson, Geithner, and Caruna. When the economic pain was bad enough promote the theory that the existing financial structures did not work and that a Global Monetary Authority – a Bretton Woods for the 21st Century - was needed to solve the crisis and ensure this does not happen again. Which is exactly where we are right now. WHAT DO YOU DO? Let me preface this section by saying that this is advice designed to help you orient your assets, i.e. your reserves, your retirement plans, etc. to the Brave New World of international finance. It is not meant as advice about what you do with your business or your job, your personal life. Those things are all senior to this subject, which has a very narrow focus. There is an embarrassment of riches of materials that you can use to stay ahead of and on top of this crisis. Use them to flourish and prosper. This article is not an call to cut back or contract. It is to provide you information so you know what is going on and can plan. Enough said. First of all, while not likely, but just in case Timothy Geithner is shocked into some New Age epiphany and Ben Bernanke grows some real wisdom in his polished dome, what the government should do is: 1- Cancel any aspects of Basel II that are causing banks to mis-evaluate their assets. 2- Remove the provision of TARP that permits the Fed to pay interest on deposits. 3-Mandate that any funds given under the TARP bailout or that are to be given to banks in the future must be used to lend to deserving borrowers. 4- Repeal The Community Reinvestment Act. 5- Reinstate Glass Stegall. 6- Restore mandated capital requirements to investment banks. 7- And in case Congress decides to cease being a flock of frightened sheep and take responsibility for the country’s monetary policy, they should get rid of the privately owned Federal Reserve Bank and establish a monetary system based on production and property. 8- But if a global monetary authority is put in place, it should not be controlled by central bankers. It should be fully controlled directly by governments with real oversight over it and with a system of checks and balances. This you can communicate when this matter hits Congress or the White House or both (which it almost certainly will). And what do you with your reserves in this Brave New World of international finance? Modesty aside, please do what I have been recommending for a few years now: get liquid (out of the stock and bond markets) and put some of your assets into precious metals, gold and silver, but more heavily to silver. Keep the rest in cash (CDs and T-bills) and perhaps a small bit in some stronger foreign currencies like the Swiss Francs or Chinese Yuan (also referred to as the RMB, which is short for Reminbi) If you want more personal or specific advice on your investments – for example, what form of gold and silver and where to buy and what to pay, etc. - you can call or email me for an appointment, which we can probably do by phone. I charge $200 for the first half hour, which is the minimum and $325 for a full hour, which is usually sufficient for most folks. And remember that my recommendations are based on my 30 years of experience in banking, finance and investments but I have no crystal ball and make no guarantees regarding my recommendations. We are living in the most challenging economic times this planet has ever seen. I hope this article has helped shed some light on what currently happening on the international financial scene. I didn’t cover everything as I don’t have time to write another book right now. Nor did I cover everyone involved but these are the broad strokes. If you want to follow these shenanigans, log on to The Road to London Summit (http://www.londonsummit.gov.uk/en/). It will all look and sound very reasonable – all about saving jobs and homes – but you have seen behind the wizard’s curtain and the above is what is really going on. Keep your powder dry. Bruce Bruce Wiseman Wiseman Management Services | ||
| Blake |
Pretty good start. If you are going to mention Carter, Clinton and Bush, you better also make note of ACORN, Frank, Dodd, and Obama, who all played prominent roles in the fiasco, not to mention their cohorts at Fannie Mae and Freddie Mac. | ||
| Blake |
Also the attempts made by some in congress to address the issue back in 2004/2005 and the statements by others harshly opposing them. | ||
| P_squared |
I'd put a little more light on the folks who borrowed over their heads. Regardless of everything else that was/wasn't done by politicians, bankers & government(s), NONE of this would have happened if the folks had been honest in only borrowing what they could afford to begin with. The consumers are far from blameless. Otherwise, very good reading for me. | ||
| Fast1075 |
Phil, that is a too often overlooked perspective....and I firmly agree. | ||
| Reepicheep |
Good summary. I would add the fact that Fannie and Freddie were in bed (figuratively and literally) with their congressional "overseers", even at moments when auditors were trying to raise alarms that the books are cooked and the risk is massively understated. Barney Frank is the one who honks me off the most about this (there is a clear audio clip of him attacking the auditor), but he was by no means alone. I'd also talk about historic home price trends. I bought during this time, and I can't begin to tell you how many people in the business kept saying "home prices always go up". Historical trends looked to support that assertion... if I were not a statistics geek, I might have believed them. There was also a fairly rational speculative strategy by home buyers, they perhaps were more sophisticated then bankers gave them credit for. Mortages are unusual, in that when you take one, the only thing that secures the debt is the house. So when you walk away from one, the bank can just claim the house and trash your credit rating... that's it. So you buy a $200,000 house in a booming neighborhood. Probably a newly built one. You buy it with 0% or 5% down, and interest only payments, on an ARM that starts at 3%. You live there for two years paying only that interest (probably 1/2 of what rent would cost in a similar house), then when the ARM gets ready to go to 5% you just sell. In that 2 years, the house appreciated to $215,000, and you pocket the $15k profit. Or worse, roll it into a $350,000 house where you start over. If it goes badly, you walk. Bankers fell for the same suckers bet that borrowers did... trends were that people *didn't* walk away from houses. But it turns out that didn't mean they wouldn't, it just meant that previously, when people had to put 10% or 20% down, and the properties were steadily appreciating, they didn't *need* to walk away from houses. Which dovetails nicely back into your "incentive to loan" discussion. My Mom was a director at a small town bank during this time... the bank was pressured to accept loans they would historically not have touched with a 10 foot pole. They only did it because (a) they would get in trouble if they didn't and (b) because Fannie / Freddie promised to buy the loan from the bank as soon as they closed. Most banks would never have given the loans they did if they had to sell the loans on a truly open market, or carry the loans themselves. If the federal government wasn't backing an entity that was snapping them up, nobody else would have bought them... or if somebody did, it would have been on terms that had a much higher profit to offset the obviously high risk. IMHO.  | ||
| Bill0351 |
I agree with P. A big part of this comes down to personal responsibility. I liked the even handed reporting style of Indy's article. It makes me want to continue reading and actually listen to what the author has to say. The other article just read like a typical email forward. With section titles like "EASY MONEY ALAN," I already smell bias and I quit reading. Has the paper already been submitted? I often do undergrad tutoring, ghost writing, and editing. There are some very minor things I might have had you change, but nothing major. It's extremely well written. I'm sure you will get a good grade on it. Bill | ||
| Indybuell |
Personal Responsibility - BINGO No longer are folks being brought up with this core value. Why should I have to give my income to those folks who made horrendously bad decisions, and don't have enough pride to admit their mistake, and move on? I as someone who has always paid my mortgage, managed my own risks, and paid for my own mistakes, now being painted as the bad guy because I have been successful? | ||
| Indy_bueller |
Thanks for the suggestions guys. My goal here was to hit the high points. It's only supposed to be a three to five page paper, so there isn't really enough room to go into every single aspect of it. You could write a very, very large book about the mortgage industry between 1995 and 2008. | ||
| Cityxslicker |
the new American Dream No house, no car, no wife, no kids, and a pocket full of cash. Liquid and fluid, set to get outta dodge quick | ||
| Edgydrifter |
Now we are all drifters! | ||
| Thumper74 |
"Keep your powder dry." Fixed, "Keep your gunpowder dry." I feel that it was pretty well written and accurately touches all areas of responsibility with the exception of the irresponsible barrowers. You should do well unless you have a Democratic teacher... | ||
| Crusty |
I think that Harley Dinosaur oil is preferable to Mobil 1 Synthetic V Twin oil. | ||
| Bill0351 |
"unless you have a Democratic teacher..." I thought he did a great job ripping both parties a new a$$hole. Both sides deserve it. I'm a Democrat and a teacher. I thought it was outstanding. | ||
| Crusty |
Then again, I might try Amsoil. Some people swear by it. | ||
| Ft_bstrd |
You should do well unless you have a Democratic teacher... I find that, although there are some hardcore, biased "educators", most real teachers are able to separate their political views from their jobs in instructing their students in critical thinking and the use of proper grammar. I believe your discussion is definitely on the right track. | ||
| Bill0351 |
If you are trying to change the subject, you could at least try to avoid turning it into an oil thread. Tramp would have turned it into a thread about snowboarding. Can we maybe try something like the pros and cons of female breast augmentation? Silicone vs saline? Incision location? Cost? | ||
| P_squared |
There are cons of female breast augmentation???? Really??? As a sidenote, I'm waiting for a choir of angels to start singing. Fatty, Bill & I all agreed in the same thread. Only need a couple others to chime in & agree & I'll be convinced End Times are near!  | ||
| Indy_bueller |
Bill; I actually turned in the paper this evening. I would still be interested in your suggestions though. I have two years of school left, so this is certainly not my last research paper. I wanted to be even-handed for a lot of reasons. I've watched the last two presidents polarize the nation, and feel like I've seen an end to civil political discourse in this country. I've been guilty of this myself on more than one occasion. I believe that nowdays, neither political party is innocent. In fact, the only real difference I see anymore is who they pander to for votes, and who they pander to for money. Their actions are destroying the country. A few months ago I scoffed when that Russian Professor predicted the breakup of the United States. Now I'm not so sure. The one thing I am sure about is that the status quo in D.C. is what is causing it. We as a people have to stand up and do something before it's too late. No more terms for ANYONE. Vote against the incumbents in the next election. GET RID OF THEM ALL! It will take several election cycles, but it has to be done. Hell, it might already be too late. | ||
| Indy_bueller |
I'd put a little more light on the folks who borrowed over their heads. That is a valid point, and I by no means meant to gloss over it. The fact is the people who borrowed over their heads never would have done so if the government hadn't told the mortgage lenders to let them do it, because Fannie and Freddy would pick up the tab. | ||
| Indy_bueller |
BTW, if we are going to change the topic of the thread, I would rather change it to breast augmentation and not oil. Hmmm....perhaps enhanced breasts covered in oil? | ||
| P_squared |
The fact is the people who borrowed over their heads never would have done so if the government hadn't told the mortgage lenders to let them do it, because Fannie and Freddy would pick up the tab. I'd argue that most of the folks who borrowed over their heads did so because the conditions were right to enable them to do so. That still doesn't remove personal responsibility from the equation. I've yet to see anyone claim they had a gun to their head to sign a mortgage which is why they are a victim of the meltdown. The analogy is that just because my motorcycle is capable of ~170mph and I know a few stretches I'm able to use that speed, does not remove the responsibility from me to operate it in a safe manner. Make sense? That was more along the point I was getting at. Now about those enhanced breasts covered in oil.....I prefer crisco or vegetable. Can't get behind motor oil for that purpose. | ||
| Indy_bueller |
That still doesn't remove personal responsibility from the equation. You're right, it doesn't. I think what I didn't articulate clearly is that the paper is about the underlying causes of the crisis, i.e. the things that took place that allowed it to happen in the first place. | ||
| Fast1075 |
It's Titties 'n BEER....Git it right!!! This message brought to you by one of the people that Larry the Cable Guy wrote his material about!! Gitter Dun!!!! And after my financial experiences in the mid 70's where anticipated future income suddenly fell short of reality during THAT little recession...I take personal fiscal responsibility very seriously...I refuse to overextend myself. Like Cityx...liquid and fluid. (Message edited by fast1075 on March 20, 2009) | ||
| B00stzx3 |
Canada and violent video games, that's who. | ||
| Buellerthanyou |
Indy_Bueller wrote: "I believe that nowdays, neither political party is innocent." Is it possible that there might be more than just TWO choices (which would be contrary to what the two majority parties and the media would have you believe)? Check and see: http://www.theadvocates.org/quizp/index.html HellBuelly J "In Russia we only had two TV channels. Channel One was propaganda. Channel Two consisted of a KGB officer telling you: 'Turn back at once to Channel One'." --Yakov Smirnoff | ||
| Cityxslicker |
here in America we have 57 channels and nothing on (Bruce Springsteen) Personal Responsibility is always the answer, it is never popular, it is never able to get a government grant for it, you cant legislate it, you cant tax it, and you cant force someone to be it. Somewhere along the way they quit teaching it too. Its always fast and easy to fix the blame to the 'other guy'; get a bit dose of STFU and take responsibility to fix the problem. Me, I am out of the tax rolls, they can do with out my 33% (tax, fica, medicare, medicaid, social security) | ||
| Indy_bueller |
Yes there are other parties out there. However I firmly believe in the two party system. I think it's key to political stability. | ||
| P_squared |
STOP talking about political parties and personal responsibility and get back to the enhanced boobies & oil!!!!!  |
