Financial Bankruptcy, the US
Dollar and the Real Economy
New
Posted, Wednesday,
August 29, 2007, 10:53 am
Thanks for your excellent article and cold splash of water in the
proverbial financial face. Someone has to call it. Rampant greed has led to a
kind of circular firing squad, where delimited means no one standing (or having
standing) at the end. My question is, “What was everyone thinking?”
I guess the answer may be, no one was thinking. With free market
fundamentalism, its all about not needing to think, the market will take care
of it. It's all about making money in the short term and believing we are in a
“new era” not that different from the Rapturites of biblical
fundamentalism and millennialism.
It is not surprising that biblical and
economic fundamentalism have actually gotten together with this obscene
“prosperity gospel” and have teamed up to dismember sensible
regulation. Ask not for whom the bell tolls indeed... The same ones carping
about morality are the ones binging in the most immoral and unsustainable ways.
I apologize for my country on this one. I just hope people don’t blame
alert financial observers as yourselves with “causing the crash” as
if fantasy and addiction could go on forever, until the “party
poopers” came along. That fantasy and addiction was never healthy or
fulfilling to begin with, and it is a merciful stroke to end it with reality.
Too bad, as in other addictions, that those responsible and loving people around
the addicted financial abuser (i.e. Predatory lender) end up getting very hurt
(elderly who refinanced their owned-outright houses who now stand to lose
them). Keep up the good work.
New
Posted,
Saturday, August 25, 2007, 11:34 am
I read your
article today in Online Journal with interest and appreciation. As you
described the problems and various strategies that are being used to prevent/forestall
a crisis, I found myself with several questions which I hope you don't mind my
sharing with you.
What is the force behind the marshalling of so much effort to
rescue the investors? I was interested that you described the investors in these
debt markets as both gullible and greedy. Why must they be protected from loss?
I frequently hear commentators imply that the so-called "sub-prime"
homebuying market is made up of gullible, greedy, irresponsible people who have
cause this crisis and whose losses are hardly to be mourned. Why is there no
great push toward rescuing the homebuyers? Is it all about the foxes guarding
the henhouse? If homeowners were allowed to keep their homes wouldn't that be
the simplest solution.
Don't even the best interest rates produce some profit for the
lienholder? Wouldn't it be better for investors who hoped for a killing to be
satisfied with a reasonable profit or even just to break even rather than to
bring down the world economy?
Wouldn't the slow steady infusion of cash from people who will be
paying to live somewhere anyway be far preferable to the periodic top-down
infusions of feds and central banks?
Forgive me if my ignorance makes it hard to know where to begin
with my questions. As I hope my questions demonstrate, I am working to develop
my financial literacy.
Pallas
"When I feed the poor, they call me a saint. When I
ask why the poor are hungry, they call me a communist."
Archbishop Oscar Romero
_________________________
Answer
from R.T.:
The central bank, i.e. the Fed, places some sort of safety net
underneath the financial system, in the sense that it stands ready to lend cash
to cash-strapped intitutions, just as it is the case with subprime lenders who
face a liquidity crisis with their illiquid mortgage-based paper. This does not
save these institutions from a solvency crisis, but it only provides them with
cash to remain liquid.
If a mortgage were still owned by the issuing institution, what
you say would make sense, i.e. letting homeowners keep their properties at
lower monthly payments. But these mortgages have been sold and repackaged to
other institutions, an operation that breaks the links between primary
borrowers and primary lenders. The Fed and the SEC let this pyramid of debt be
built and there is a danger that the entire building may collapse under its own
weight.
It could be the responsability of the Federal government to assist
homeowners, through guarantees or otherwise. But, as you know, the Bush
administration is open to the idea of helping rich corporations, but is much
less inclined to help poorer citizens. This is a political problem; not a
financial one.
The Fed is doing its part in saving the
financial system, but the federal government is not getting involved in
assisting home owners.
Nouveau
Publié, jeudi, le 23 août, 2007, 13:56 pm
Je
possède une formation modeste en économie (baccalauréat en
économie comprenant un majeur en économie, donc 20 cours sur 30) mais
j'ai eu l'occasion, à de nombreuses reprises, d'apprécier le
très important travail d'information que vous effectuez
auprès de la population, par l'intermédiaire de vos sites
internet. Certains de vos textes plus techniques en économie, par
exemple sur les théories des cycles et des crises, étaient courts
et allaient à l'essentiel parce que vous êtes certainement un des
Québécois les plus compétents en économie et que
vous deviez certainement être un excellent professeur.
Je
voudrais simplement vous encourager à continuer votre travail
d'information sur la politique des USA et surtout sur leur économie.
J'espère que vous êtes lu par un très grand nombre de
personnes. Votre travail est très important et vous contribuez à
faire d'internet un réseau d'information véritable qui compense
les effets néfastes de la concentration de la propriété
des médias et du rôle déplorable des grands journaux qui ne
sont qu'un support à la consommation. Vos textes sont très
"professionnels" et contiennent énormément de
références, vous ne faites pas qu'exprimer des opinions. Si plus
de travailleurs intellectuels très qualifiés faisaient comme
vous, cela pourrait servir à mobiliser une multitude de citoyens
qui sont actuellement si malmenés et désemparés.
Christian
New
Posted,
Wednesday, August 22, 2007, 13:19 pm
Thanks for all that you share with all.
This makes one want to stand tall against the wind against the
fall.
Ray
Posted,
Wednesday, August 22, 2007, 9:43 am
I am admittedly naive economically. Perhaps the following question
can nevertheless be answered:
If resetting the ARM interest rate later in the year will inflate
(pun intended) the current crisis, beginning with so many people defaulting on
their loans and losing their homes, why must the interest rates be reset? In
other words, why don't the very
financial institutions who will be affected by a growing crisis voluntarily keep ARM rates low to avoid
further bursting of the bubble?
James
______________
Answer from R. T.:
It is because the original mortgage was issued at very
advantageous terms and the total expected return included a future rate
adjustment to make it profitable for the issuer. However, the question is well
taken, in the sense that is better for a mortgage company to have a low
performing mortgage than a a default one, unless the mortgage itself has
already been sold to another outfit that must carry the risk. In the latter
case, a rate adjustment is unavoidable.
(Home:
TheNewAmericanEmpire.com)