And why are we not backing up?
After a brief exchange last night with an associate, and a subsequent conversation with a reader, I thought it wise to review how we arrived at the fiscal cliff and this global economic meltdown. The not backing up part I don’t have a good answer for…
This will be as simplistic as I can make it without sacrificing accuracy…
As always, you have to understand the difference between Capitalism and Socialism. Capitalism is the absence of force applied to markets and individuals. Socialism is force applied to markets and individuals. And of course Fascism… which is a variant of Socialism. Some are trying to call much of what happened “Crony Capitalism”, but it is plain old-fashioned Fascism through and through with nothing Capitalist about it.
So why is there a global economic melt down?
Because Bill Clinton, Barney Frank and Chris Dodd felt that everyone regardless of ability to pay should realize the dream of owning a home. Sounds like a nice idea…
So how did they decide to do this?
With Bill Clinton in the White House (Executive) and Barney Frank in the House of Representatives in combination with Chris Dodd in the Senate (Legislative) the argument was offered that the banks were “discriminating against minorities” as demonstrated by lending percentages. (It’s important to note that the metric is “lending percentages” not “ability to pay” which is how the banks determine whom to lend to historically.) So now enter the lawsuits and investigations by the Justice Department (Judicial) into lending practices.
With all three of their bases covered this motely crew used discrimination claims to order the banks (through regulation, threat of lawsuits and fines) to make loans to people who otherwise could not qualify for them, let alone afford to pay them back. In a normal, unmolested market the banks do not lend to individuals who can’t show they are able to repay the loan. But suspend reason here.
Now enter Fannie Mae and Freddie Mac… the two largest lenders in the United States. Both of them are government-owned. (The Socializing of the banking system has a long sordid history best saved for another post.) These two government banks, receiving their orders from Congress, began buying loans forced to be originated by lenders using the “NINJA” (No Income, No Job, no Assets) criteria.
The Banks (Chase, Citi, Wells Fargo, Met Life etc.) were given an offer they couldn’t refuse… if they did refuse, they were going to be sued, fined, and investigated until finally someone goes to jail and or having their Federally Issued Licences revoked. So, destroyed.
So they made the loans. Lots of them, as that is what would have to happen to “square” this new metric being applied measuring their performance. It was no longer about making rational business investments and assuming the risk associated with those decisions… it was now about being “fair“.
Of course I would argue that making rational business investments is inherently “fair“, but the above troika does not care about what people like me think. Remember, this is about votes… and feeling good about doing something… results be damned. And damning they would be.
So what about all this “greed” we hear about?
Greed came to dinner but Clinton, Dodd and Frank cooked it up and set the table.
There are plenty of Bad Actors to cast blame upon. You have Loan Officers, and Mortgage Brokers. You have Bankers and Nobel Prize winners (The Nobel Prize was given to the creators of derivatives. The banks loved the idea too as it was the only way they had to choke down the crap sandwich they were being forced to eat.) not to mention International security brokers who sold derivatives into the global investment markets. The world was eager to buy up American Debt because we ALWAYS pay our bills. (Whoops….)
The subsequent market distortion and enormous burst of the Housing Bubble created by these best of intentions shot us into this global and domestic recession. And Bill Clinton, Barney Frank and Chris Dodd should have known better. They had plenty of people around them telling them it was a very Bad idea.
The only question left in my mind is “Was it intentional?” As you learn more about these three people you might be finding yourself asking the same question. None of them are ignorant… just very wrong about many things.
I promised to keep this as simple as possible so I have left out some of the additionally nasty scenarios which arose from this debacle, many of which we are still living through.
I also left out things like party affiliation, individual histories on the mentioned players and some additional names of Bad Actors such as Raines and Mozillo etc. As always, I expect you to make an effort to research more on this if your intellectually curious. If you’re not, I can’t help you.
So raise a glass to three men who successfully destroyed more global wealth than any world war.
George Soros must be envious.
If you seriously want to understand this, I recommend The Housing Boom and Bust by Thomas Sowell, Reckless Endangerment by Gretchen Morgenson and The Forgotten Man by Amity Schlaes. All of which can be found on Amazon. That should get you started… once you begin your search you’ll find it’s all been in front you the entire time.