How Did This Happen? (The economic mess)

American Thinker ^ | March 01, 2009 | Randall Hoven

[21twelve]

I thought this video had a fairly good (perhaps too simple) explanation of why. But yeah - some pure Capitalism might be nice for a change.

http://www.youtube.com/watch?v=1RZVw3no2A4&annotation_id=annotation_918789&feature=iv

[woofie]

very good

[ChicagahAl]

"There is a limit to even Barney Frank's ability to do evil."

False.

[FFranco]

Tomorrow.

[KTM rider]

this thinking is in line with a theory I have about the 3 root causes of poverty

1. government control/oppression

2. lack of production

3. lack of resources

I believe the present crisis is caused by the first two. which also happen to be symptoms of socialism

[Swing_Thought]

While he reaches the right conclusion (let's try capitalism) how he arrives there (we have a lot of socialism so let's try something else) isn't particularly convincing. If this is the best opponents of socialism are going to be able to do, then we're unlikely to make much headway convincing the average guy to vote our way.

Fortunately, it really isn't that tough to understand what happened and why it wasn't capitalism, but governmental intrusions into the free market, that brought about the mess.

Meltdown does a great job of explaining what happened and why, as well as how to fix it so that it doesn't happen again.

[Proud_USA_Republican]

People confused debt with equity and this confusion was global.

[zeestephen]

A couple small corrections needed here.

AIG is in trouble mainly because it wrote insurance policies on mortgage derivatives and mortgage securities. In good times, that's like minting your own money. In bad times, well, no need to explain that.

Q4 GDP for America was revised down from minus 3.8% to minus 6.2%. The annualized rates in Japan, Germany, France, England, and Italy are all worse than the USA.

Fannie Mae and Freddie Mac have a combined loss of $1 trillion. Their losses come almost exclusively from actual mortgages, not from derivatives. Fannie and Freddie hold about two thirds of all bad USA mortgages.

Although home prices nationally have fallen in the 5%-10% range, the prices on sub-prime homes that have gone into foreclosure have fallen in the 20%-30% range. Between 2004-2007, about 25% of all new mortgages were sub-prime, so that is a very big deal.

The author does make one very good point.

How did all this happen?

I read about this crisis in detail, every day, and I still don't understand it.

It seems to me if the US Treasury had stepped forward early in the crisis and promised to purchase every bad mortgage at face value, the crisis would have ended instantly.

If the mortgage is guaranteed, there can be no insurance loss, and there can be no confusion about the value of the derivatives.

The total loss would have been in the range of $1.5 trillion.

In retrospect, $1.5 trillion would have been a bargain.

[jamaksin]

Oversight (adversarial oversight) is a verb, not a noun.

[cajungirl]

Oversee is a verb. Oversight is a noun.

[musicman]

[PowderMonkey]

On a personal level, here's what happened to me: thank God I had the fortitude two years ago to tell a mortgage broker to shove his offer of a $270K mortgage approval on a second home up his tail pipe. My wife was furious with me, but I kept shaking my head, saying "I don't care if we've been 'approved'. Where the Hell is the money going to come from?" Also, people in my age brackett have no business gambling (investing) their life savings no matter how sweet the deal. The name of the game was "House Flipping." Buy a second home (investment). Hold for a few months. Sell for quick profit. Well, we all know what happened to that bubble, don't we? Predatory lending? No. Human greed. Mine. Despite being assailed by family and friends for not taking advantage, striking when the opportunity presented itself, I managed to tell the greedy side of me to sit down and shaddup. I'm certainly no financial genius. And, when it comes to being frugal, well let's just say my house is a leper colony, and I'm the one with the most fingers. It's simply that the arrangement didn't pass the smell test with me. So...I drive a 12-year old Ford Escort with 118K miles on it. Runs like a Swiss watch. We can still pay our bills, put food on the table, and keep a roof over our heads. So far, so good. Now, will somebody please explain why I have to foot the bill for the other guy's severe lapse in judgment?

[Vaduz]

4. over spending by congress

[opaque soul]

ummm... don’t you mean, Bawney Fwank?

[Moonman62]

It is a lie to act like what we had been trying up to now is laissez-faire capitalism or a free market. If deficit spending stimulated an economy, President Bush stimulated our economy his last seven years straight. If regulation fixed things, the 80,000 or so pages of regulations already on the books (30 times more than the middle of the New Deal), including Sarbanes-Oxley, should have worked. If increased government spending, especially on education and health care helped, Bush helped a lot more than his predecessor.

W gets nailed, just as he should.

[khnyny]

I agree for the most part - $1.5 trillion does look like a bargain now.

What happened is that these mortgages were “sold” repeatedly - worthless mortgages, made oftentimes to people who had no realistic chance of repaying these loans, but nobody cared as everyone was making money on the deals. Then the music stopped and the game of musical chairs came to an end. Whoever was left holding the bag became liable for the debt.

The only rational I can come up with (besides total corruption, greed or worse) is that the industry as a whole thought that if there were massive defaults, it wouldn’t matter, as the housing prices would continue to increase and they would still have the value of the “assets”.

[2harddrive]

The cause of the economic crisis has been traced to MSNBC’s.....Rachel MadCow.

[jacob allen]

You mean like forcing banks to make loans to people who never could have paid them back. And $4 a gal. gas. Then when people started saying “Drill, Drill Now” the internal polls must have looked real bad. So by Sept. 18 the Money Lenders Pulled their money out of the US to help the Election of their Mo-si-a!

[blam]

"Now, will somebody please explain why I have to foot the bill for the other guy's severe lapse in judgment?"

Just being a straight, White male is good enough reason.