imc indymedia

Los Angeles Indymedia : Activist News

white themeblack themered themetheme help
About Us Contact Us Calendar Publish RSS
Features
latest news
best of news
syndication
commentary


KILLRADIO

VozMob

ABCF LA

A-Infos Radio

Indymedia On Air

Dope-X-Resistance-LA List

LAAMN List




IMC Network:

Original Cities

www.indymedia.org africa: ambazonia canarias estrecho / madiaq kenya nigeria south africa canada: hamilton london, ontario maritimes montreal ontario ottawa quebec thunder bay vancouver victoria windsor winnipeg east asia: burma jakarta japan korea manila qc europe: abruzzo alacant andorra antwerpen armenia athens austria barcelona belarus belgium belgrade bristol brussels bulgaria calabria croatia cyprus emilia-romagna estrecho / madiaq euskal herria galiza germany grenoble hungary ireland istanbul italy la plana liege liguria lille linksunten lombardia london madrid malta marseille nantes napoli netherlands nice northern england norway oost-vlaanderen paris/Île-de-france patras piemonte poland portugal roma romania russia saint-petersburg scotland sverige switzerland thessaloniki torun toscana toulouse ukraine united kingdom valencia latin america: argentina bolivia chiapas chile chile sur cmi brasil colombia ecuador mexico peru puerto rico qollasuyu rosario santiago tijuana uruguay valparaiso venezuela venezuela oceania: adelaide aotearoa brisbane burma darwin jakarta manila melbourne perth qc sydney south asia: india mumbai united states: arizona arkansas asheville atlanta austin baltimore big muddy binghamton boston buffalo charlottesville chicago cleveland colorado columbus dc hawaii houston hudson mohawk kansas city la madison maine miami michigan milwaukee minneapolis/st. paul new hampshire new jersey new mexico new orleans north carolina north texas nyc oklahoma philadelphia pittsburgh portland richmond rochester rogue valley saint louis san diego san francisco san francisco bay area santa barbara santa cruz, ca sarasota seattle tampa bay tennessee urbana-champaign vermont western mass worcester west asia: armenia beirut israel palestine process: fbi/legal updates mailing lists process & imc docs tech volunteer projects: print radio satellite tv video regions: oceania united states topics: biotech

Surviving Cities

www.indymedia.org africa: canada: quebec east asia: japan europe: athens barcelona belgium bristol brussels cyprus germany grenoble ireland istanbul lille linksunten nantes netherlands norway portugal united kingdom latin america: argentina cmi brasil rosario oceania: aotearoa united states: austin big muddy binghamton boston chicago columbus la michigan nyc portland rochester saint louis san diego san francisco bay area santa cruz, ca tennessee urbana-champaign worcester west asia: palestine process: fbi/legal updates process & imc docs projects: radio satellite tv
printable version - js reader version - view hidden posts - tags and related articles

Bush and the neocons caused it all

by Tinker Tom Saturday, Oct. 04, 2008 at 5:48 PM

Al jazeera tells it all

The roots of the panic in financial markets around the world are deep and complex but they lie in the convergence of three factors.

Millions of people pursuing the "American dream" of home ownership, politicians and regulators who dismantled a system of financial safeguards and then ignored warnings of impending disaster, and financial markets and institutions disregarding risk in their headlong pursuit of profit.

Let's go back to the beginning - or at least to the year 2000 - when the 'Dotcom' boom went bust.

That drove down stocks and sparked a recession and then came the attacks of September 11, 2001 - a body blow to the US economy.

To hasten economic recovery, the US central bank, the Federal Reserve, headed by Alan Greenspan, used the most powerful weapon in its arsenal - it cut interest rates repeatedly.

Lower rates made it easier for banks to lend and consumers to borrow and spend.

"It did stimulate the economy," says Clyde Prestowitz, the head of the Economic Strategy Institute.

"And it stimulated housing, because effectively the cost of investment was negative, you could borrow money for virtually nothing."

Easy borrowing

Home-ownership is the bedrock of the "American dream".

US tax laws encourage home ownership by allowing people to deduct the interest they pay on their mortgages.

And government-sponsored financial institutions such as Fannie Mae and Freddie Mac contributed by underwriting mortgages and making it easier for people of modest means to put down the money for a home.

From around 2001 and 2002, with mortgage interest rates at near-record lows, millions of Americans went shopping for homes.

With demand soaring, the price of housing nearly doubled from 2000 to 2006.

But many of those buyers couldn't really afford what they were getting, Prestowitz says.

"They wanted to buy a house and it's understandable, they wanted a piece of the dream and the mortgage industry was encouraging them to buy.

"It got to the point where the brokers were offering mortgages to people who had little or no income, who somehow thought they could put these payments together."

Sensing a potential bonanza, banks and mortgage companies began peddling loans to riskier segments of the population - especially low-income first-time homebuyers.

These were called "sub-prime" mortgages.

"Many of the mortgages were adjustable-rate mortgages," Prestowitz explains.

"They were built so that in the first year your interest rate was low, but somewhere down the road, your interest rate jumped."

Ideological drive

But something else was at work as the housing bubble grew: The US government, under the sway of the free-market, anti-regulation ideology, had begun to systematically dismantle rules and regulations established after the Great Depression of the 1930s.

In 1999, the US congress and Bill Clinton, the former president, repealed laws designed to stop financial crashes - saying markets should regulate themselves.

Why?

Lawrence Mitchell, the author of The Speculation Economy: How Finance Triumphed Over Industry says it was the triumph of ideology over caution.

"Since Ronald Reagan became president in 1980, free markets have been preached in this country as being our economic salvation," Mitchell says.

"'Government regulation' we've been told, 'is bad, it's evil, and the government doesn't know what it's doing economically'."

"'It should be out of people's business'. That's nonsense, but that was the ideology that was driving it. 'Regulation is bad, free market is good'."

The next president after Clinton, George Bush, continued to de-regulate housing and financial markets and bragged about the results at the 2004 Republican convention, saying: "Another priority for a new term is to build an ownership society, because ownership brings security and dignity and independence.

"Thanks to our policies, homeownership in America is at an all-time high."

Mortgages sold

Of course, it wasn't just the politicians who allowed the reckless financial frenzy to grow. It was also the man who the financial press was hailing as a genius - Alan Greenspan

"The Fed is responsible for oversight of the banking system, but under Alan Greenspan it basically stopped doing oversight," Prestowitz says.

"That allowed for fraudulent practices and, as a result mortgages being given to people who had no assets and no income, prudent lending went out of the window."

In the new, hands-off regulatory environment, banks and mortgage companies transformed the loans they were making into commodities.

The change was the banks no longer held the mortgages and the home finance industry began to securitise, or underwrite, them.

In the past, when you would buy a house, you would get a mortgage from your bank.

The bank would hold that mortgage and you would pay it off, with interest.

Today, you get the mortgage from your bank and the bank immediately sells your mortgage to Goldman Sachs or Lehman Brothers, or Deutsche Bank or any of literally tens of thousands of mutual funds, hedge funds, pension funds, or private-equity firms.

Those pools of mortgages are then bundled together into securities, just like bonds or stocks.

Millions of securitised loans were sold to firms all over the world.

At first it was a lucrative deal with high returns and little apparent risk.

The bubble bursts

But there was a worm in Wall Street's apple: Millions of the mortgages being sold - more than 20 per cent at the peak of the frenzy - were high-risk "sub-prime" loans.

"What was happening was a lot of bad stuff was being mixed with good stuff and it was being called good," Prestowitz says.

The global financial community seemed to believe housing prices would just keep going up and up but then the bubble burst.

The Federal Reserve began raising rates to fend off inflation.

As the rates rose, people who had taken on balloon-style mortgages - thinking they could easily pay the initial rate - found their payments being increased and suddenly ... they couldn't pay.

In 2006 home prices started to drop. Houses glutted the market and stayed unsold month after month.

In formerly red-hot housing markets, like Florida and California, home prices fell 10, 15, even 20 per cent. A huge wave of loan defaults and home foreclosures began.

In 2007, mortgage lenders with lots of risky loans on their books started going bankrupt.

Then major investment banks came under pressure and began to fail. In March, Bear Stearns was the first of the majors to go under.

The problem then was not, and is not now, about houses. It's about credit - or the lack of it.

With so much bad debt out there - and no one really knows how much there is - banks around the world have become extremely risk-averse.

They've stopped lending money to individuals, businesses and even each other.

Unable to get loans, Lehman Brothers, the fourth-largest US investment bank, went belly up.

Central banks have by now pumped hundreds of billions of dollars into the global financial system, but the flow of credit, known as liquidity, has slowed to a sluggish trickle.

Bleak future

For the first time since the 1930s, a true, systemic financial crisis is under way.

That's why the US government is considering sweeping and costly measures to buy up millions of bad mortgages.

But while the plans announced late this week seem to have boosted confidence on Wall Street, no one really knows what will happen next.

"It could get a lot worse, said Mitchell, gloomily.

"I haven't read any significant empirical evidence to suggest we are anywhere near the bottom."

"Where's the bottom?" I asked him.

He replied: "The bottom could be very deep.

"I really don't want to know."

Report this post as:

LATEST COMMENTS ABOUT THIS ARTICLE
Listed below are the 10 latest comments of 1 posted about this article.
These comments are anonymously submitted by the website visitors.
TITLE AUTHOR DATE
THE BUSH 9-11 ECONOMIC STIMULUS TEAM ON THE BUSH DEPRESSION IN AMERIKA THE BUSH 9-11 ECONOMIC STIMULUS TEAM Sunday, Oct. 05, 2008 at 9:07 AM

Local News

Why Should California Choose De Leon Over Feinstein? O10 9:55PM

Change Links September 2018 posted S02 10:22PM

More Scandals Rock Southern California Nuke Plant San Onofre A30 11:09PM

Site Outage Friday A30 3:49PM

Change Links August 2018 A14 1:56AM

Setback for Developer of SC Farm Land A12 11:09PM

More problems at Shutdown San Onofre Nuke J29 10:40PM

Change Links 2018 July posted J09 8:27PM

More Pix: "Families Belong Together," Pasadena J02 7:16PM

"Families Belong Together" March, Pasadena J02 7:08PM

Short Report on the Families Belong Together Protest in Los Angeles J30 11:26PM

Summer 2018 National Immigrant Solidarity Network News Alert! J11 6:58AM

Watch the Debate: Excluded Candidates for Governor of California M31 5:20AM

Change Links June 2018 posted M28 7:41AM

The Montrose Peace Vigil at 12 Years M22 8:01PM

Unity Archive Project M21 9:42AM

Dianne Feinstein's Promotion of War, Secret Animal Abuse, Military Profiteering, Censorshi M17 10:22PM

CA Senate Bill 1303 would require an independent coroner rather than being part of police M10 9:08PM

Three years after OC snitch scandal, no charges filed against sheriffs deputies M10 8:57PM

California police agencies violate Brown Act (open meetings) M02 8:31PM

Insane Company Wants To Send Nuke Plant Waste To New Mexico A29 11:47PM

Change Links May 2018 A27 8:40AM

Worker-Owned Car Wash on Vermont Closed A27 5:37AM

More Local News...

Other/Breaking News

Stress, réaction organique à l'agression O19 6:59AM

Elder Aliyah to Israel, Like Abraham and Sarah O18 6:35PM

Politoscope plurivalent O17 6:59AM

Paraphysique du microcosme macrocosme O15 6:44AM

September 2018 Honduras coup update O15 3:31AM

The Nation Unites Against Brian Kemp, Most Racist Secretary of State in US O14 7:34AM

The Nation Unites Against Brian Kemp, Most Racist Secretary of State in US O14 7:23AM

Paraphysique de l'ubérisation O13 7:56AM

22 Ways Trump Has Increased US Deficit By 4 to 5 Trillion Dollars O12 10:34PM

Debunking Some Anti-Prop 10 Propaganda O12 6:56AM

Plus d'hôpitaux, à bas les aéros O12 6:38AM

When Banana Ruled (documentary) O11 3:00AM

Outstanding Report By RAMOLA D &Dr.Tomo Shibata O10 9:17PM

Dark Clouds Gather on Horizon for Financial System, Warns International Monetary Fund O10 1:51PM

Fbi pure evil & immorality O10 5:39AM

Reality Check: Palestinian-Israeli Coexistence is a Big Lie O09 7:40PM

Voiceless Animals: 2018 Candidates They Oppose O09 7:01PM

IMF Lowers Global Growth Projections and Raises Concerns of Financial Crisis O09 3:27PM

Canitie, l'inhumanité vieillit O09 7:13AM

L'anarchie en quelques exemples O07 6:50AM

100 Ways GOP Have Stolen Elections Since 1876 O06 12:03AM

Proximospective de l'univocité réifiée O05 6:27AM

“Kava-no!!!” O04 6:42PM

Trump & Palestine vs. Genesis, Rashi & The Land of Israel O03 6:29PM

The Criminality of the Elites O03 11:35AM

Business de l'inhumanitaire O03 7:51AM

Marriage Rape/Date Rape Highest Rapes O02 2:59PM

Women I Know Get Raped - Too Many Times To Count! O02 2:55PM

More Breaking News...
© 2000-2018 Los Angeles Independent Media Center. Unless otherwise stated by the author, all content is free for non-commercial reuse, reprint, and rebroadcast, on the net and elsewhere. Opinions are those of the contributors and are not necessarily endorsed by the Los Angeles Independent Media Center. Running sf-active v0.9.4 Disclaimer | Privacy