MyDD :: What Are the Causes of the Current Financial Problems?

What Are the Causes of the Current Financial Problems?

by LesGovt, Tue Sep 30, 2008 at 07:15:21 PM EST

Many people here and elsewhere have said many things about the current financial problems. I have yet to see anyone give a definitive case about what caused these problems?

1. Was it deregulation? If so, which specific bill(s) was passed by which Congress and signed by which President that caused this problem and what specifically was it that the law did that caused the problem?

2. Was it an over-priced housing market? What caused the market to turn downward?

3. Was it loans to people who could not afford the home in the first place or loans to people who were flipping homes and got caught holding the properties when the prices fell and they no longer could sell them to recoup their investment? If so, who was at fault for this being possible and what specific action caused this to happen?

4. Was it caused by greed of people? Which people and what did they do that caused these problems?

5. What specifically did any current or past President do that helped bring about these problems. What specific legislation or action was taken by a President that led to these problems?

6. What did Republican Representatives or Senators do to cause these problems? What specific legislation or action did they take that led to these problems?

7. What did Democrat Representatives or Senators do to cause these problems? What specific legislation or action did they take that led to these problems?

8. What specifically did AIG, Lehman Brothers, Fannie Mae and Freddie Mac, Washington Mutual, Wachovia Bank, etc. do wrong and, what should happen to those companies? Which ones should be allowed to continue to exist and which ones should not?

9. Were any government agencies lax in their duties? What specifically did they do wrong and what should they have done to avert these problems?

10. Was it the price of gasoline or the war? Again, if you believe these helped cause the financial problems where we may spend $1 trillion to possibly restore stability to the markets, housing or whatever, please be specific in providing evidence that these caused the current problems.

11. Last week we were told that if something wasn't done by last Friday, the world, as we know it, would come to a financial end. Then it was Monday and on Monday, the market went down a bunch. On Tuesday, today, the DJIA went up nearly 500 points. Huh? What happened to the end? Could the end not actually come if there is not a "bailout?"

I am not seeking answers from everyone. I am not trolling to start an argument or a debate. I am seeking answers from knowledgable people who can explain these things to me in an understandable manner and as free from bias as possible. I understand that the last part may be asking a bunch here, but I am curious as to what actually caused this mess. If one knows of a great online source that gives a great detailed explanation, I would gladly like to review that source. Thanks.

Tags: finance, Fannie Mae, Freddie Mac, AIG, crisis (all tags)

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Listen to this: (none / 0)

Health Care: WHY do we pay MORE and GET LESS?
http://content.healthaffairs.org/cgi/con tent/full/hlthaff.28.1.w1/DC1

by architek on Tue Sep 30, 2008 at 07:27:40 PM EST

Re: Listen to this: (none / 0)

http://www.nytimes.com/2008/09/29/busine ss/media/29carr.html

>"September 29, 2008
The Media Equation
Daring to Say Loans Made No Sense
By DAVID CARR

Sometimes, if you want the real answer, you have to ask a dumb question.

Alex Blumberg, a producer at "This American Life," a public radio show that specializes in old-fashioned storytelling about local slices of Americana, has never owned a house or had a mortgage, let alone covered the financial industry. Nonetheless, he was fascinated as he watched the subprime mess unfold.

His dumb question? "Why are they lending money to people who can't afford to pay it back?"

In 2006, Mr. Blumberg began bothering his friend Adam Davidson, an experienced business reporter at National Public Radio, about subprime loans. Mr. Davidson, who had a broad knowledge of global capital markets, patiently walked him through collateralized debt obligations, yield and risk curves, and the growing amount of international capital in need of a home. But Mr. Blumberg still didn't get it. How could securities based on lending money to bad risks be good business?

"I was embarrassed for him," Mr. Davidson said. "I understood how money flowed around the world and I was talking to big-picture thinkers."

Soon, Mr. Blumberg was madly surfing the Web and torturing his wife and friends with arcane talk about loan syndication and credit-default swaps. "It was a very unhealthy obsession," he says now. "I just couldn't understand how they could expect to be paid off when everyone I knew was maxed out on their credit cards. And these were very big loans."

He decided to do the story for "This American Life," a show that has a reputation for discussing things like summer camp and inner demons.

"I told him, I don't know how you're going to do a story about mortgage securitization for `This American Life,' but good luck," Mr. Davidson said. But by December of last year, both Mr. Davidson and the broader markets were beginning to have their doubts about whether the fallout from subprime lending had actually been contained.

The more they talked, the more Mr. Davidson realized the education was going both ways. They eventually came up with a one-hour collaboration between NPR News and "This American Life" called "The Giant Pool of Money" that was broadcast last May and became a much downloaded primer on all the mayhem that followed. ( You can find it at http://thislife.org/Radio_Episode.aspx?s ched=1242 )

Health Care: WHY do we pay MORE and GET LESS?
http://content.healthaffairs.org/cgi/con tent/full/hlthaff.28.1.w1/DC1

by architek on Tue Sep 30, 2008 at 07:29:44 PM EST
[ Parent ]

Re: Listen to this: (none / 0)

I will listen to this, but I may not get an hour to actually listen to it until the weekend. I am better at reading material than listening to it, but this may work. We'll see.

Anyone else?

by LesGovt on Tue Sep 30, 2008 at 09:46:53 PM EST
[ Parent ]

Re: Listen to this: (transcript PDF) (none / 0)

There is a transcript..

http://thislife.org/extras/radio/355_tra nscript.pdf

Health Care: WHY do we pay MORE and GET LESS?
http://content.healthaffairs.org/cgi/con tent/full/hlthaff.28.1.w1/DC1

by architek on Tue Sep 30, 2008 at 11:17:05 PM EST
[ Parent ]

Re: Listen to this: (transcript PDF) (none / 0)

I have read 9 of the 15 pages that I printed which is the entire transcript. If what the program states is true, the greed is what caused this problem. The greedy were:

1. The Poor

Real Estate Sales People
Mortgage Companies
Commercial Banks
Investment Banks
Investors in the Market

Etc., etc., etc.

Again, if true, this would answer my question 4. By reading this, it appears that everyone is greedy and it doesn't even matter about your wealth or lack thereof. I will read on to see if it ever answers any of my other questions. Perhaps, the only cause of this problem is that every person in the U.S. is greedy.

by LesGovt on Wed Oct 01, 2008 at 08:04:08 PM EST
[ Parent ]

Causes of the Current Financial Problems (2.00 / 1)

Causes of the current fiscal problems

1) Our real economy is shrinking. We are no longer the manufacturer to the world. China is.

2) Our macro economics is poor. We depend on China, Saudi Arabia, South Korea etc buying tresury bills for our government to survive. Our 500 billion a year trade imbalance also undercuts our economy as money flows out.

3) We have previously depended on banking and financial magic to make money on other countries stock markets so that even if our manufacturing and import/export of goods was screwed up if our import/export of money not connected to goods was positive enough we were still mostly ok.

4) Sub prime housing was one of these financial magic moves where we were selling bad debt mostly to the rest of the world who now have more money than us because they make the things that make up that 500 billion dollar trade imbalance. We need these kinds of financial magic things to over come the real trade imbalance via a "financial services" trade imbalance in our favor.

5) To magnify the effect we have derivetives which are basically bets on how a equity will move that is independent of ownership of the equity. This is needed to deal with the sheer quantity of 500 billion a year lost in trade. You need to trade a lot of money to make 500 billion a year.

6) At some point the world and even our traders know this bubble needs to end. America needs to have a trade surplus in real goods to pay back all we have borrowed.

So you can blame sub-prime, you can blame CDO swaps, you can blame Bush (rightly so), but don't forget to blame Reagan and the first 2 years of Bush Sr. Bush Sr.'s 2nd 2 years was pretty good and Bill Clinton's 8 years were pretty good but not good enough to overpower the Reagan 8, the Bush jr 8 and the first 2 years of Bush Sr.

If Obama was the president for the last 8 years we would be in some fraction of the mess we are in simply because China doesn't NEED us like they used to, Saudi Arabia doesn't NEED us like they used to, poor 3rd world countries don't NEED us like they used to.

Obama will not equal the Clinton years unless OBama can give the amazing sacrifice that Bush Sr and Bill Clinton were willing to lose their reputations and legacy for the good of the nation, Bush in raising taxes and Clinton in not having a single spending program with his name on it in 8 years that was legacy worthy (like health care, green apollo program etc) and cutting welfare which hurt him greatly with his party and may have cost his wife her primary run 8 years later.

Sub prime housing is merely the symptom of what is wrong.

by dtaylor2 on Tue Sep 30, 2008 at 10:24:40 PM EST

Economy is shifting away from the kind of work (none / 0)

that pays unskilled people well or at all. Those good jobs won't come back. The 21st century will see a shift away from wage labor as technology gradually replaces people in all kinds of scriptable work. Productivity will rise dramatically, allowing profits to rise. Businesses wont worry about strikes, because the work will largely be done by machines.

Many offices will also be virtual.

We have to adjust, not allow the vultures to pick off people one by one.

Health Care: WHY do we pay MORE and GET LESS?
http://content.healthaffairs.org/cgi/con tent/full/hlthaff.28.1.w1/DC1

by architek on Tue Sep 30, 2008 at 11:22:42 PM EST
[ Parent ]

Green collar jobs won't be virtual (none / 0)

Rebuilding a failing infrastructure won't be virtual.

I once thought that everything would be done by/with computers, but here it is 2008 and people are still working with their hands, using their backs, sweating - installing heat and air systems, re-roofing houses and cleaning/refurbishing homes damaged in storms.

Sorry if I offend, but I have hope. I just saw a soupy movie entitled "Meet John Doe" and I still believe in the American way. Unfortunately, PART of that American way is the way of rich men and man working for rich men who see the little guy as prey - and they get fat cat wealthy off the blood and bone of the little guy. And another part of the American way is Washington DC which can do GREAT things but also horrible things that are not in the interest of our country.

We all have to keep on keeping on. Obama isn't THE answer - even he says that. He says we are ALL the answer.

I wanted Al Gore as President but he didn't want to run. Then I settled on Hillary, but she didn't win the primary - and I've come to the place that I believe America needs an inspirational leader like Obama. Bush has inspired - the rich, the vindictive, the religious zealots, the holier-than-thous, and a whole bunch of others that I don't want to be around.

by Southern Mouth on Wed Oct 01, 2008 at 12:15:22 AM EST
[ Parent ]

For years, I'd see these monstrous (none / 0)

.... big ole houses going up everywhere and my husband would ponder. Like Butch Cassidy and the Sundance Kid, we kept asking ourselves "Who are these guys?" that are buying and living in these fancy homes. 2500 to 3000 sf homes, fancy tall roof lines, granite counter tops, master bedrooms and baths that were huge. Who were the people who could afford these homes? The price tags were up there - far out of my reach and we made good money at that time, prior to retirement.

I kept saying "Something's not right here. I don't know how and I don't know when, but some people are being led to the watering hole where the predators are lying in wait and they're going to get got." Hubby would say, "It doesn't make sense. What good do foreclosed, empty houses do?"

Well, they do no good. But like a pyramid scheme, the people who loaned the loans that couldn't be paid sold those loans, "got theirs", and America (that's you and me) are left with the price tag. I don't understand it all, but I know people, I know "the American way", and I could see a screwing coming - I just couldn't figure out how.

AND I don't really blame the little people who borrowed the money. Every day I would get credit card offers to let me have all kinds of money, BUT I'm 60plus years and I'm not interested in going in over my head. BUT, BUT BUT - I DON'T HAVE young children, a young job, a young hope,and I don't see my peers in those fancy smancey houses and see their kids with swimming pools and great bedrooms and I don't wish for the same for my kids.

This selling of homes to those who could not afford them is predatory and just plain downright mean AND I'm betting the people who did this FEEL no guilt whatsoever. I'm betting they think the people who wanted more than they could afford got what they deserved. AND I'm betting they think that if the Government didn't want them to do what they did, the Government should have made it impossible to do. Their personal ethics leave a lot to be desired in my book.

by Southern Mouth on Wed Oct 01, 2008 at 12:31:56 AM EST
[ Parent ]

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