Posted on 01/05/2009 6:13:15 AM PST by WayneLusvardi
In his November 2004 message to Americans, Usama bin-Laden stated the 9/11 attack was chosen in order to continue the "policy of bleeding America to the point of bankruptcy." He added that it appears to "some analysts and diplomats that the White House and we are playing as one team" towards "the economic ruination of the country even if the intentions differ." He cited the Royal Institute of International Affairs estimate that the attacks cost al Qaeda just $500,000.
For related prior post on January 2 at Pasadena Sub Rosa see below (text in full):
ALL FOR THE LOSS OF A NAIL..............(AND 9/11)
by Wayne Lusvardi
Jonathan G. Shibley’s letter in the Long Beach Press-Telegram (“Deregulation was culprit”) blaming a “neocon philosophy of laissez faire and deregulation” for our current financial crisis fails to account for the effects of 9/11.
(SEE LETTER BELOW THIS POST)
What brought about our present financial crisis was 9/11. After 9/11 and the rise of terrorism, foreign investors were looking for a safe haven for their money. What could be safer than U.S. real estate? To avoid a major recession after 9/11, the Federal Reserve cut interest rates and stimulated huge infusions of cash into the economy.
Prior to 9/11, U.S. government regulators had pressured banks, insurance companies, and savings and loans to reduce their investment in real estate after massive overbuilding in the 1980’s. Developers and property owners needing capital had little place to go for money but to stock and bond markets.
Soon after 9/11, Wall Street invented collateralized mortgage bonds and securitized stocks which injected trillions of dollars of foreign money into U.S. real estate, thus circumventing the U.S. central bank which conventionally manages the money supply.
Gauged by contributions to the two major U.S. political parties, Wall Street at the time was dominated by investment firms supporting the Democratic Party contrary to the popular notion that Wall Street is “Republican.”
This massive infusion of foreign capital resulted in an oversupply of money, historic low interest rates, the diminishing value of the dollar, a skyrocketing price for oil as a substitute for the exchange rate, and a real estate bubble. The shock wave of foreign money into real estate collapsed lending and regulatory standards as loan underwriters just handed off the risk to others in the financial food chain by packaging loans into derivatives.
The idea of derivatives was to spread and reduce risk; for example by selling the cash flow from each year of a home loan to a different investor. But these loan derivatives became unforeclosable when homeowners defaulted on paying their loans because they were spread out over the whole world.
Fannie Mae and Freddie Mac, run by high-profile Democrats, had to be taken over by government due to mega-billions in bad derivatives. Ginnie Mae, run by a Republican, is still sound and has no derivatives.
The real estate bubble boosted the homeownerhip rate in the U.S. from 64% to 69% and subprime loans to low income families went from 5.6% in 2001 to 20% in 2006. In other words all those “laissez faire” capitalists Mr. Shibley blames for the financial crisis inadvertently brought about a huge increase in homeownership for former renters even though “Republicans” got no credit for it. Anti-redlining laws also helped expand homeownership but coupled with "hand off" loan underwriting, such laws have unintentionally left many low income families straddled with loans with ramping up interest rates.
Both political parties are implicated in our current financial crisis. But politicized finger pointing ignores the bigger story of how the effects of 9/11 resulted in the real estate bubble and eventual financial meltdown, as described in the book Niagara of Capital by Anthony Downs (2007).
How’s that Benjamin Franklin rhyme go? (paraphrased) For loss of a nail the shoe was lost. For loss of a shoe the horse was lost. For loss of a horse the rider was lost. For loss of a rider the battle was lost. For loss of a battle the kingdom was lost And all for the loss of a horseshoe nail.
Just substitute 9/11 for a nail and you have an analogy for our current financial mess. Moral of story: “People, like nails, lose their effectiveness when they lose direction and begin to bend.” Walter Savage Landor
JONATHAN G. SHIBLEY LETTER EXCERPTED FROM LONG-BEACH PRESS TELEGRAM 1-1-09
Culprit was deregulation
You recently ran an article which asked if 2008 could be the start of a great depression. It could well be. I have never seen anything like this in my life and I have been around for several decades.
One thing is certain: it was adherence to the neocon philosophy of laissez-faire capitalism and deregulation which brought us to where we are now.
The American people were warned about this by the savings and loan crisis of the late 1980s (subprime's little brother) and the recession of 1990. Reagan and his successors engaged in deregulation of the airlines (now a shambles) and industry in general.
Laissez-faire capitalism did not work under Coolidge and Hoover in the 1920s, it did not work in the 1980s and it did not work under Bush this century. Free enterprise is necessary to a viable society. However, government regulation is often necessary.
Jonathan G. Shibley
Long Beach
It looks as though our elected officials have done what OBL couldn’t do.
a stated target of al quaeda was the economic intellectual assets of America. I believe that I saw that in one piece over all the years.
That's like saying "the red car won!" when being asked to comment about the NASCAR race.
I am referring to the current financial condition in our country. Congress was supposed to oversee the mortgage loan programs, and they failed to do their job. Some of our leaders have done what UBL said he would do.
So you want more regulation of our businesses?
No, I want them to do the job that they were supposed to do.
The only way bin Laden had squat to do with our financial difficulty is if he had Barney Frank and Chris Dodd on his payroll.
Big deal, Freepers have been predicting financial ruin for years.
They did their job. The free market can regulate itself.
They did not do their job. Congress failed with their oversight of Freddie Mac and Fannie Mae.
I hope next time, Congress regulates really well.
(sarcasm)
“I hope next time, Congress regulates really well.”
If an enterprise is NOT in the private sector (Fannie Mae & Freddie Mac are quasi-governmental) and is backed up with taxpayers dollars, I damn sure hope it will be overseen and regulated.
To not do so, or to bail out companies like GM is an invitation to fraud and theft on a massive scale.
I don’t believe it was the bursting of the housing bubble that will do us in...I think it’s the bailout that’s going to kill us.
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