ping
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CRA + Political Correctness x ACORN x SEIU = bust
BOOKMARKED!!! (even before finished reading!!!)
Part II of five part series on "Housing Bust"
It was Senator Phil Gramm who came up with his 262-page amendment called the Commodity Futures Modernization Act, in December of 2000. This amendment, stuck in a government re-authorization bill, gave birth to the $62 trillion market for credit default swaps (CDSs). It was one of the last bills that President Clinton was to sign. Gramm’s amendment freed financial institutions like Fanny Mae and Freddie Mac from the risks and oversight of their CDS transactions which before they were solely responsible. This opened up the hedge fund and derivatives trade market which became the Achilles heel to our economic system.
We should have known from history that it caused a similar world economic collapse in the Panic of 1907. In the late nineteenth and early twentieth century, the little guy who wanted to trade stocks usually did it in a bucket shop rather than through a stockbroker. Bucket shops were set up in all sorts of premises, such as drug stores, hotels, cafés, etc. A bucket shop is a brokerage firm that books retail customer orders without actually having them executed on an exchange. Basically they were places where people could place bets on the performance of Wall Street. Joseph Kennedy made his fortune in Bucket Shops. It was the same type of mechanism that if found today in the credit default swaps market. What this tells us is that back in 1909, 100 years ago, people understood the risks and potential instability that comes from gambling on securities prices.
People who forget history repeat it. Wall Street firms like Bear Stearns, Lehman Brothers, Merrill Lynch, etc. started selling what they called derivatives, which were bets on how the market would do. Would it go up or down? One type of derivative was created which would bet on whether mortgage owners would pay or default. So, when the mortgage crises hit, the credit markets went upside down because there were a huge number of derivatives that bet on mortgage payments. The people who bet on mortgages would not get paid. These were people who were supposed to be paid off when a default occurred. Many of these people were banks who had huge amounts of money betting on these derivatives. But the folks who invented these derivatives had not set aside enough money to do that, and so it all came crumbling down like a house of cards.
For a good look into Gramm’s destabilization of the US economy, here is this post by Peter Cohan, President of Peter S. Cohan & Associates:
So as our economy is in grave danger, there has been no talk about fixing the real structural fault in our economic system. It is like the I-35W Bridge in Minneapolis with poorly designed gusset plates. The Obama Administration has ignored the cause of the economic failure and has used it to justify a spending spree that will cause further economic turmoil due to inflation and increased taxation. When the Democrats blame the economic collapse on the Bush Administration, tax cuts for the rich and greedy Capitalists they are purposely ignoring the true cause. All we hear is the continuous mantra that it was President Bush’s fault. However, we should understand that there is a deeper fault with our economy that needs to be addressed.
Bump for later. I Love Dr. Sowell.
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