Systemic Failure

[I'm Gone 60]

http://www.humanevents.com/article.php?pri...es&id=31154

As the U.S. financial crisis broadens and deepens, wiping out the wealth and savings of tens of millions, destroying hopes and dreams, it is hard not to see in all of this history's verdict upon this generation.

We have been weighed in the balance and found wanting.

For how did this befall us, save through decisions that brushed aside lessons that history and experience had taught our fathers?

It all began with the corruption called sub-prime mortgages.

The motivation was not wicked. Democrats wanted to raise home ownership among African-Americans from 50 percent to the 75 percent of white folks. Rove Republicans wanted to do the same for Hispanics.

Banks were morally pressured by politicians into making home loans to folks who could not remotely qualify under standards set by decades of experience with mortgage defaults.

Made by the millions, these loans were sold in vast quantities to Fannie Mae and Freddie Mac. There they were packaged, converted into mortgage-backed securities and sold to the big banks. The banks put scores of billions of dollars worth on their books and sold the rest to foreign banks anxious to acquire Triple-A securities, backed by real estate in America's ever-booming housing market.

Computer whizzes devised exotic instruments -- derivatives, which could soar in value, making instant multimillionaires, but also plummet, based on rises and dips in the underlying value of the paper.

Came now young geniuses at AIG to insure the banks against catastrophic losses, should the U.S. housing market crash. As the risk was minuscule, premiums were tiny. Payouts, however, should it come to that, were beyond AIG's capacity.

In AIG's Financial Products division, based in Connecticut and London, brainiacs were creating other exotic instruments, such as credit default swaps to guarantee against losses and insure profits. To keep these wunderkinds at AIG, they were promised million-dollar retention bonuses.

Who kept the game going?

The Federal Reserve, by keeping interest rates low and money gushing into the economy, created the bubble that saw housing prices rise annually at 10, 15 and 20 percent.

As the economy grew, however, the Fed began to tighten, to raise interest rates. Mortgage terms became tougher. Housing prices stabilized. Homeowners with sub-prime mortgages now found they had to start paying down principal. People losing jobs began to walk away from their houses.

Belatedly, folks awoke to the reality that housing prices could go south as well as north, and all that paper spread all over the world was overvalued, and a good bit of it might be worthless.

And, so, the crash came and the panic ensued.

Who is to blame for the disaster that has befallen us?

Their name is legion.

There are the politicians who bullied banks into making loans the banks knew were bad to begin with and would never have made without threats or the promise of political favors.

There is that den of thieves at Fannie and Freddie who massaged the politicians with campaign contributions and walked away from the wreckage with tens of millions in salaries and bonuses.

There are the idiot bankers who bought up securities backed by sub-prime mortgages and were too indolent to inspect the rotten paper on their books. There are the ratings agencies, like Moody's and Standard & Poor's, who gazed at the paper and declared it to be Grade A prime.

In short, this generation of political and financial elites has proven itself unfit to govern a great nation. What we have is a system failure that is rooted in a societal failure. Behind our disaster lie the greed, stupidity and incompetence of the leadership of a generation.

Does Dr. Obama have the cure for the sickness that ails the republic?

He is going to borrow and spend trillions more to bring back the good old days, though it was the good old days that brought us to the edge of the abyss into which we have fallen. Then he is going to spend new trillions to give us benefits we do not now have, though the national debt is surging to 100 percent of the Gross National Product, and may reach there by 2011.

Is Obama willing to speak hard truths?

Is he willing to say that home ownership is for those with sound credit and solid jobs? Is he willing to say that credit, whether for auto loans, or student loans, or consumer purchases, should be restricted to those who have shown the maturity to manage debt -- and no others need apply?

"Avarice, ambition," warned John Adams, "would break the strongest cords of our Constitution as a whale goes through a net. Our Constitution is made only for a moral and religious people. It is wholly inadequate to the government of any other."

In this deepening crisis, what is being tested is not simply the resilience of capitalism, but the character of a people.

[one...two...tree 2,762]

Are the Republicans in Congress going to join the President in calling for tighter regulations on financial institutions? Because that's where the failure lies. Let us not forget who brought us the Savings and Loan Scandal back in the 80's. Same situation, only on a much larger scale.

[one...two...tree 2,762]

The savings and loan crisis of the 1980s and 1990s (commonly referred to as the S&L crisis) was the failure of 747 savings and loan associations (S&Ls) in the United States. The ultimate cost of the crisis is estimated to have totaled around $160.1 billion, about $124.6 billion of which was directly paid for by the U.S. government—that is, the U.S. taxpayer, either directly or through charges on their savings and loan accounts^[1]—which contributed to the large budget deficits of the early 1990s.

......

The chartering of federally regulated S&Ls accelerated rapidly with the Garn-St. Germain Depository Institutions Act of 1982, which was designed to make S&Ls more competitive and more solvent. S&Ls could now pay higher market rates for deposits, borrow money from the Federal Reserve, make commercial loans, and issue credit cards. They were also allowed to take an ownership position in the real estate and other projects to which they made loans and they began to rely on brokered funds to a considerable extent. This was a departure from their original mission of providing savings and mortgages.

...........

The deregulation of S&Ls (aka thrifts) gave them many of the capabilities of banks, without the same regulations as banks. Savings and loan associations could choose to be under either a state or a federal charter. Immediately after deregulation of the federally chartered thrifts, state-chartered thrifts rushed to become federally chartered, because of the advantages associated with a federal charter. In response, states such as California and Texas changed their regulations so to be similar to federal regulations.

.....

In an effort to take advantage of the real estate boom (outstanding US mortgage loans: 1976 $700 billion; 1980 $1.5 trillion)^{[citation needed]} and high interest rates of the late 1970s and early 1980s, many S&Ls lent far more money than was prudent, and to risky ventures which many S&Ls were not qualified to assess. L. William Seidman, former chairman of both the Federal Deposit Insurance Corporation (FDIC) and the Resolution Trust Corporation, stated, "The banking problems of the '80s and '90s came primarily, but not exclusively, from unsound real estate lending."

http://en.wikipedia.org/wiki/Savings_and_loan_crisis

[peejay 327]

Are the Republicans in Congress going to join the President in calling for tighter regulations on financial institutions? Because that's where the failure lies. Let us not forget who brought us the Savings and Loan Scandal back in the 80's. Same situation, only on a much larger scale.

Let us not forget the role of the Keating 5 in detering regulators that eventually contributed to the culture of the S&L debacle back then. There is a whole lot of blame to go around. Also remember that presidents sign legislation into law that is crafted in congress. Until the culture of corruption is eliminated from our political process at large, I see no improvement in our present situation now or in the future. The same sh*t will continue to happen again and again no matter which party is in power. This goes well beyond partisan political parties and goes straight to the flaws in our political processes at large. Partisan pinning everything on Republicans (or Democrats) is lame and disingenuous.

Keating 5:

Alan Cranston (D-CA)

Dennis DeConcini (D-AZ)

John Glenn (D-OH)

Donald W. Riegle (D-MI)

John McCain (R-AZ)

http://en.wikipedia.org/wiki/Keating_Five

[MsMariah 0]

Ok I'm sorry, but whatever rules were slackened weren't just for the sake of low income buyers. When my ex husband and I bought a house 8 years ago he made about 40-45k. I was staying at home with our 1 year old. We got approved for a 200k loan. The realtors jumped on board to show houses in that price range and after my husband saw them he agreed. I INSISTED that that is not our real price range, I had to be super SUPER stubborn and also refused to sign with the realtor. Then I found a nice house for sale by owner in the 80k, skipped the realtor and used just a broker. Everything worked out great and we had a nice house perfectly within our budget and ability to upkeep. But moral of the story is that when banks approve for obscenely high mortgages and people get a whif of what someone else says they can "afford" without educating themselves about the true costs of home ownership then it's easy to see how sub prime got WAY out of control.

Anyway, my ex kept the house and after our divorce he got a second mortgage... now according to him, he's barely affording the payments and definitely not paying child support. He's darn lucky that I don't need him for anything and don't want to see him go under so I don't get a court order.

Yes, unfortunately greed and lust can be cultured and even spread around the world. Not that we didn't get any warnings....

[NickD 203]

Getting involved in new home construction again with my kids, seeing the same trend in our computers and automobiles, junk. Ironically, it's really true with a mobile home, depreciates faster than the monthly payments. New home construction is not much different with faulty and cheap plastic, glued saw dust, so-called energy efficient argon filled windows that fog up and cannot be repaired, running plastic wires and garden hose type plumbing through walls that is impossible to replace without tearing half the house apart. Using all plastic on the exterior that is not protected from UV rays, gets brittle and cracks, storybook type homes that leave a lot to be desired in structural integrity, the list goes on and on.

Worse is building homes where the Indians that lived here for thousands of years had enough common sense not even to set up a teepee due to hurricanes, earthquakes, and flood plains. But yet massive subdivisions with way overpriced homes are being built there. And building homes where there isn't even an adequate supply of fresh water.

If anything, the price of homes should be depreciating, they are falling and wearing apart from the day they were built.

[peejay 327]

Getting involved in new home construction again with my kids, seeing the same trend in our computers and automobiles, junk. Ironically, it's really true with a mobile home, depreciates faster than the monthly payments. New home construction is not much different with faulty and cheap plastic, glued saw dust, so-called energy efficient argon filled windows that fog up and cannot be repaired, running plastic wires and garden hose type plumbing through walls that is impossible to replace without tearing half the house apart. Using all plastic on the exterior that is not protected from UV rays, gets brittle and cracks, storybook type homes that leave a lot to be desired in structural integrity, the list goes on and on.

Worse is building homes where the Indians that lived here for thousands of years had enough common sense not even to set up a teepee due to hurricanes, earthquakes, and flood plains. But yet massive subdivisions with way overpriced homes are being built there. And building homes where there isn't even an adequate supply of fresh water.

If anything, the price of homes should be depreciating, they are falling and wearing apart from the day they were built.

Plastic homes for a plastic economy built with plastic finances in a plastic country.

Unfortunately by the time this financial meltdown is over the $11 trillion in wealth Americans have already lost will be a drop in the bucket. The dollar is already dropping as the fed prints more to pay for this debacle.

If these grandiouse and expensive plans proposed by our leaders does not work, this present disaster will be small potatoes in comparison to what could eventually come down the pike. Everybody should be hoping and praying these plans work. If they don't...we're all screwed for a long, long time.

Edited March 22, 2009 by peejay

[Otto 83]

Are the Republicans in Congress going to join the President in calling for tighter regulations on financial institutions? Because that's where the failure lies.

I agree - let's see what happens at the G20 (next week?) - we (the US) aren't quite seeing eye-to-eye with most of the world on tighter financial regulations which could have repercussions for years to come (if we don't come to terms).

[NickD 203]

Still insist that all this money was not lost nor burnt, it's in somebody else's pocket and they have a piece of ours as well that we worked hard for. Would like to find who these bastards are and get my money back. But can't do that without getting arrested.

[I'm Gone 60]

Let us not forget the role of the Keating 5 in detering regulators that eventually contributed to the culture of the S&L debacle back then. There is a whole lot of blame to go around. Also remember that presidents sign legislation into law that is crafted in congress. Until the culture of corruption is eliminated from our political process at large, I see no improvement in our present situation now or in the future. The same sh*t will continue to happen again and again no matter which party is in power. This goes well beyond partisan political parties and goes straight to the flaws in our political processes at large. Partisan pinning everything on Republicans (or Democrats) is lame and disingenuous.

I agree it's politicians of both parties rigging things for political favors is the problem. Just like Dodd changing the rules on bonuses in the bailout bill and AIG has given him 200k plus in contributions. Not the mention his sweet home loan from Countrywide.

http://www.opensecrets.org/politicians/sum...p?cid=n00001093

Charles E. Schumer contributions

Top 5 Industries, 2003-2008

Securities & Investment $1,392,539

Lawyers/Law Firms $1,209,968

Real Estate $751,551

Misc Finance $328,548

Commercial Banks $290,500

Chris Dodd

Top 5 Industries, 2003-2008

Securities & Investment $4,242,546

Lawyers/Law Firms $1,942,553

Insurance $1,440,422

Real Estate $1,282,741

Commercial Banks $905,044

Barney Frank

Top 5 Industries, 2007-2008

Securities & Investment $236,500

Real Estate $221,351

Insurance $202,548

Lawyers/Law Firms $187,728

Commercial Banks $120,950

Mitch McConnell

Top 5 Industries, 2003-2008

Securities & Investment $1,093,374

Retired $917,855

Lawyers/Law Firms $903,058

Real Estate $725,255

Health Professionals $691,400

So no wonder they are bailing out their Wall St buddies and leaving the rest of us holding the bag.

[I'm Gone 60]

http://www.opensecrets.org/politicians/sum...&cycle=2008

Barack Obama

Top 5 Industries, 2003-2008

Retired $45,366,911

Lawyers/Law Firms $45,210,543

Education $22,865,989

Misc Business $15,601,905

Securities & Investment $15,538,514

[spookyturtle 9,466]

Let's make it easy. It's Obama's fault. There, everyone happy? He was responsible for the Great Depression, WWII, and the fall of Rome. The expression is now, "Obama fiddled while Rome burned." And he ordered the gates opened to let in the Trojan horse. And there is even new evidence that he was responsible for the Black Plague.

Edited March 23, 2009 by spookyturtle

[I'm Gone 60]

Let's make it easy. It's Obama's fault. There, everyone happy? He was responsible for the Great Depression, WWII, and the fall of Rome. The expression is now, "Obama fiddled while Rome burned." And he ordered the gates opened to let in the Trojan horse. And there is even new evidence that he was responsible for the Black Plague.

No one said that, but the truth be know he is no agent of change. He's in the pocket of the Wall St firms as much as the next politician and his policies are just throwing gas on the fire.

[spookyturtle 9,466]

Let's make it easy. It's Obama's fault. There, everyone happy? He was responsible for the Great Depression, WWII, and the fall of Rome. The expression is now, "Obama fiddled while Rome burned." And he ordered the gates opened to let in the Trojan horse. And there is even new evidence that he was responsible for the Black Plague.

No one said that, but the truth be know he is no agent of change. He's in the pocket of the Wall St firms as much as the next politician and his policies are just throwing gas on the fire.

I'm glad George was against Wall Street.

[I'm Gone 60]

Let's make it easy. It's Obama's fault. There, everyone happy? He was responsible for the Great Depression, WWII, and the fall of Rome. The expression is now, "Obama fiddled while Rome burned." And he ordered the gates opened to let in the Trojan horse. And there is even new evidence that he was responsible for the Black Plague.

No one said that, but the truth be know he is no agent of change. He's in the pocket of the Wall St firms as much as the next politician and his policies are just throwing gas on the fire.

I'm glad George was against Wall Street.

Well Bush is no longer the President and the new guy is heading off the cliff just as Bush, but he's driving faster.