Sunday, October 26, 2008

Did They Do It On Purpose? The Housing Bubble & Its Crash - Engineered by the US Government, the Fed & Wall Street?

"Wassup?" "Change!" First off I want to give props of the year to Watertiger for his graphic depiction of exactly what the last eight years have brought to the U.S. populace (h/t to Driftglass). Watch it and weep. I also seem to remember how the economy, which had been tanking prior to the 2004 election, perked up considerably due to the (Alan Greenspan-) created boom times in the housing market. Well, at least he got rich for his efforts (and to retire comfortably!). I'm only kidding a little. I know he had plenty already put away (but didn't they all?). And speaking of the last eight years, how many times have you thought recently "Did they do it on purpose? Did the people who benefitted to the tune of hundreds of millions in profits/bonuses from the derivative-driven market chicanery know from the first that the taxpayers would be the debt holders of last resort (and that they could depend on them to mutely accept the consequences)? Richard Cook at Global Research certainly has thought deeply about this and his history is impeccable. Among many others, one fact seems to stick out like the proverbial sore thumb: the ailing J.P. Morgan Chase, which was bailed out by the thunderstruck taxpayers, paid $1.9 billion for Washington Mutual which had assets of over $300 billion. Nice work if you can get it. (Emphasis marks are mine.)

During the Clinton administration, the government required the financial industry to start expanding the frequency of mortgage loans to consumers who might not have qualified in the past. When George W. Bush was named president by the Supreme Court in December 2000, the stock market had begun to decline with the bursting of the dot.com bubble. In 2001 the frequency of White House visits by Alan Greenspan increased. Greenspan endorsed President Bush’s March 2001 tax cuts for the rich. More such cuts took place in May 2003. Signs of recession had begun to show in early 2001. The stock market crashed after 9/11. The U.S. invaded Afghanistan in October 2001 and Iraq in March 2003. The Federal Reserve began cutting interest rates, and by 2002 a home-buying frenzy was underway. Fannie Mae and Freddie Mac went along by guaranteeing the increasing number of mortgage loans. According to a mortgage broker this writer interviewed, word began to come down through the mortgage banks to begin falsifying mortgage applications to show more borrower income than borrowers actually possessed. Banks that wrote mortgages began to offload them when Wall Street packaged them into mortgage-backed securities that were sold around the world as bonds to investors. Risk-analysts at the leading credit-rating agencies, such as Standard and Poor’s, Moody’s, and Fitch, gave their highest ratings to mortgage-backed securities whose risks were later acknowledged to be grossly underestimated. Mortgage companies, with Alan Greenspan’s endorsement, began to offer more Adjustable Rate Mortgages (ARMs), loans that would reset at much higher rates in future years. Mortgage brokers fed the growing bubble by telling people they should buy now because housing prices would keep going up and they could resell at a profit before their ARMs escalated. Huge amounts of money began to flow into the economy from mortgages and home equity loans and from capital gains on resale of inflating property. Meanwhile, in the world of investment securities, the Securities and Exchange Commission greatly reduced the amount of their own capital investors were required to bring to the table, resulting in a huge increase in bank leveraging of speculative trading. George W. Bush was reelected in 2004 at the height of the housing and investment bubbles. By 2005 the housing bubble was accounting for half of all U.S. economic growth and yielding huge tax revenues to all levels of government. Despite the tax revenues from the bubbles the Bush administration was running huge budget deficits from expenditures on the wars in Afghanistan and Iraq. ABC News reports that during this time risk analysts at Washington Mutual, one of the nation’s largest banks, were told to ignore high risk loans because lending had to be maximized. Those who objected were disciplined or fired. State attorneys-general moved to investigate mortgage fraud but were blocked from doing so by orders of the Treasury Department’s Comptroller of the Currency. There was no federal agency that was charged with regulating mortgage fraud. In February 2006, Ben Bernanke replaced Alan Greenspan as Federal Reserve Chairman and held interest rates steady. Homeowners began to default as ARMs reset. The housing bubble began to collapse in 2006-2007, with the economy showing early signs of a recession and the stock market starting to decline by August 2007. Home prices began to plummet in most markets, with millions of homeowners owing more on their homes than their new appraisals. Homeowners began to default, with over four million homes going to foreclosure from 2006-2008. In many cases, homeowners simply walked away, dropping off the keys to their houses at the bank. The U.S. economy shed 60,000 jobs in August 2008. In a year, Wall Street had cut 200,000 jobs. State and local governments began to cut budgets and jobs. The “toxic debt” from the collapse of the housing bubble brought about a full-scale crash of the U.S. financial system by September 2008. The stock market immediately fell, with 40 percent of its value—$8 trillion—now having been lost in a year. $2 trillion of the losses were in retirement savings. The crash of the U.S. economy began to reverberate around the world with bankers and the IMF warning of an onrushing global recession. Massive bailouts by the U.S. Treasury Department and the Federal Reserve failed to stem the tide of the crashing markets. By late October 2008 the recession has begun to hit in force. As the situation worsened, big banks like J.P. Morgan Chase received government capitalization even as they were buying up banks that were failing. J.P. Morgan Chase paid $1.9 billion for Washington Mutual with assets of over $300 billion. The U.S. government joined with the nations of Europe in planning a series of economic summits to explore global financial solutions. President Bush will host the first summit in Washington , D.C. , on November 15, after the U.S. presidential election. The U.S. military shifted combat troops from Iraq to the U.S. to contain possible civil unrest. Most major retail chains began to close stores and lay off employees even as the Christmas season approached. The Washington Post reported on October 23, 2008: “Employers are moving to aggressively cut jobs and reduce costs in the fact of the nation’s economic crisis, preparing for what many fear will be a long and painful recession.”

Richard C. Cook is a former U.S. federal government analyst, whose career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, NASA, and the U.S. Treasury Department. His articles on economics, politics, and space policy have appeared in numerous websites and print magazines. His book on monetary reform, entitled We Hold These Truths: The Hope of Monetary Reform, will soon be published by Tendril Press. He is the author of Challenger Revealed: An Insider’s Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age, called by one reviewer, “the most important spaceflight book of the last twenty years.” His website is www.richardccook.com. Comments or requests to be added to his mailing list may be sent to EconomicSanity@gmail.com. You may access a series of his speeches on YouTube.

And, FYI - U.S. helicopters just bombed Syria. Suzan ___________________________________

2 comments:

Bukko_in_Australia said...

I think they did it all for political reasons, but they were too clever by half. They've added too much instability to the system. It's atarting to devour rich bastards who have invested in hedge funds.

The millionaires (not Bill Ayres!) are getting eaten alive as hedgies go bust. Billionaires in Russia and other just-outta-ThirdWorld countries are starting to get flayed. The pool of rich fuckers is dwindling.

The big players in the investment banks (except they're not investment banks any more, are they, in exchange for that FDIC guarantee? HAH!) might make a profit from the gyrations, especially if they're behind these massive price shifts up and down in oil, the U.S. dollar, various stock markets... They know what's going up and down, and can place their bets accordingly. But for everyone they swindle, that takes another player out of the game of global financial Monopoly. Only unlike the board game, when you eliminate everyone else, the losers can pick up guns and shoot your ass, then steal back your money.

How long will it be before websites are posting pictures of the little grey men who run the big institutions, like Tim Geithner at the New York Fed? Do you know the facial features and home addresses of any Fortune 500 corporate board directors that live in your town? Could you stand outside their garage on a dark night and plunge a knife into their carotid artery as they walked toward their front door?

Probably not. Same for most Americans. Which is why crime really DOES pay. There are no consequences. Carry on, gents. Business as usual.

Suzan said...

Thanks for the comment, Buck!

You say "too clever by half."

I say "too incompetent to manage anything except a holdup in broad daylight where the guards work for them."

And the political reasons were?

Well, how about thinking the populace would be so upset at having their pensions/retirement savings stolen that there would be riots in the streets, which would allow them to lock up all the troublemakers in the new Halliburton-constructed prisons (before the election!) who have already been identified by the data mining going on since Bush declared himself King in early 2001.

Of course, the sheeple disappointed them and didn't rebel (hey, the public reaction disappointed me. They were a little miffed sure, but once again the Rethugs overestimated the response to their actions).

Heck, most of the sheeple are still waiting mutely for the rest of the economy to disappear before they enter the polls to vote Rethugli-Con again.

Just kidding on that last item. I think it will prolly be 50.1 - 49.9 after the Diebold-electronics finish with the count and McCain is briefly President until he disappears and Mrs. Impale-you-on-a-Pike (and blame you for being there) is installed as the new President for Life.

Or that would be the scenario of the Rove/DeLay/Lindsay Graham/Mitch McConnell/(Cheney) fair-and-balanced faction of the Rethugli-Conts.

But it's a great country don't you think? Where companies like JP Morgan Chase (and don't research the money behind this "successful enterprise" - please!) can get bailout money and use 1.6 billion of it to purchase another bankrupt company worth 300 billion.

Good times, huh?

And don't worry about the populace rising up to punish any of these thieves. That only happens to the good guys who threaten established interests (and I bet I don't even need to start the litany of those who were really punished - JFK, MLK, RFK, Paul Wellstone . . . .).

The only unknown is which nation will be selected for the next aggressor-role requiring the use of our airpower to put down the barbarians again. The Russians and Chinese will not take lightly being the designated hittee - but who cares, right? We've got plenty of nukes at the ready for such emergencies.

Everybody go vote!

S

P.S. Thanks for giving me my laugh of the week!

Only unlike the board game, when you eliminate everyone else, the losers can pick up guns and shoot your ass, then steal back your money.

As if.