No. 28: What Caused This Financial Crisis?
January 15th 2009 20:31
Need Refueling
"Change is inevitable in all things." The world's economies are not immune to ups and downs either. Our lovely planet has suffered economic recessions and depressions before. After we come out of this one, down cycles will occur again.
In free markets, these changing economic conditions are usually a result of supply and demand. Sometimes, however, they are the result of stupid decisions made by those in power, both politically and corporately. They leave in their wake, the rest of us--watching and adjusting to the dynamics. Most of us can not afford the time and legal money to sue over every loss, and there is not always a judge to hear our grievances. More often than not, even if a judge is available, power and money appear--prominently--to drive his/her decisions.
Yes, there are plenty of people, organizations, and firms deserving the wrath of the American people for causing the current economic trouble, which exists not only in the U.S. but throughout the world. Congressional members, and their bureaucratic cohorts, appear to be allowing most of the blame to zero in on corporate leaders. Some of this may be justified, but their prevailing attitude is to project the faults onto others and leave their personally-perceived infallibility intact.
Their answer is to throw more and more taxpayer-owned money at the problems they have created, without regard to the immorality of passing the indebtedness onto our children and their children. This happens every time anything less than optimal happens under their watch. They were doing this with the propped up Savings & Loan troubles of the 80's when they changed the reserve ratios for those financial institutions and then blamed the firms for the problems they incurred.
I encourage you to watch the Youtube videos of Barney Frank and others attempting to remove the blame from themselves, all the while they were saying the problems with Fannie Mae and Freddie Mac were the faults of regulators and not the companies themselves. Could this be because they were personally at the front, cajoling others to lessen the rules for loan eligibility in order to make themselves appear greater and magnanimous for encouraging more home ownership?
To get on the right road for correcting this mess, our leaders should take a second look at some of the laws and guidelines established after the last Great Depression. After all, for over 60 years, they seemed to be working--or at least until the American Congress started changing and deleting them.
Here are some of the stupid actions I believe have contributed to this mess and the ways we can get on the road to recovery.
1) In the early 1990's, Congress struck down the interstate banking regulations that prevented banks purchasing banks across state lines. Just today, Citi-Bank may go under, and Bank of America is under financial stress, both banks' problems reportedly due to their size and acquisitions.
2) During the late 1990's, the Clinton Administration encouraged, and Congress enacted, legislation allowing the banks, brokerage houses and insurance companies to merge their entities, assets, and activities. This was, in my opinion, the most stupid decision of them all. Bank of America had no business buying Countrywide or Merrill Lynch. The old adage-- "when one fails, it can bring down the other," appears to be happening. AIG's insurance companies are all reported to be financially sound. It was their acquisitions and other activities around the globe that is causing it trouble. Oh! Excuse me. With the new attitude by our leaders, this means it is causing ALL of us trouble too.
3) Lessening the guidelines for mortgage financing eligibility. We discussed this earlier.
Thanks to changes in attitudes, satellite communications, and the Internet, more and more people throughout the world are asking questions as to how this happened. They want to know how we can get out of this mess, how to punish the willfully negligent and subversive, and how to establish guidelines for lessening the number of future occurrences. Many are tired of just watching and adjusting.
Readers: We are in trouble! There is not much a non-politically-connected person can do but may all of us try to become more informed, more involved and more determined. If you think I am right, please inform your leaders.
Please keep it between the lines.
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Comment by S.L.
The Political Brief
Comment by Anonymous
I saw this first hand with the Savings & Loan "crisis."
My wife worked for a profitable, successful, one with 29 branches in Florida. It was purchased by a larger one in Philly. One day, out of the blue, the FDIC said the holding firm was in trouble and had to divest itself of its Florida branches. The Florida executives rounded up financial investors with "impeccable" credentials to make a bid for the local Florida branches.
At a contrived meeting in Philadelphia, an offer was made before the FDIC. The FDIC appeared not to be listening and then ordered the holding bank to sell its Florida operations for 1/2 the offer made by the Florida principals--within 30 days! This is the kind of stupidity I referenced in my post!
When the fall-out came, my wife lost a longstanding job, pension, and thousands in stock. We have felt it ever since.
Oh! Incidentally, later it was accurately determined that neither the Florida branches nor the Pennsylvania holding firm had ANY financial difficulties.
Comment by S.L.
The Political Brief
It was the bailout that caused it, I'm quite sure. With no oversight and no rules to control them, the mucky-mucks can get away with anything, even the stunt they pulled on your wife. They'll now be able to get even more money for their pockets because her office was sold so cheap.
Any politician who voted for the bailout scam should never get elected to anything else again!
Comment by Edward Allen
Sanity Road
They will socialize and remove any hope for a future open market and free enterprise with these bailouts. Sometimes, I feel all of this financial mess was planned. Let us hope it is just an anomaly.
Comment by Jim Stillman
Political Certainty
Comment by S.L.
The Political Brief