What Caused Our Economic Crisis?

RickyBobby

10-06-2008, 01:45 AM

<TianMeiguo@gmail.com> wrote in message
news:1468e52d-0fc8-48e6-82bb-c85686c44c15@l42g2000hsc.googlegroups.com...
> An insightful look into the cause of our current economic crisis.
>
> http://www.youtube.com/watch?v=NU6fuFrdCJY
>
>
> Democrats in their own words...
>
> http://www.youtube.com/watch?v=_MGT_cSi7Rs

Everybody knows what caused it. It was deregulation.

A wage earner with no real assets goes house shopping and is looking at
maybe qualifying for a $200,000 home. They get upsold to a $ 300,000 home
with maybe 2% down. So this $ 294,000 obligation that was created out of
blue sky is bundled and sliced and diced and marketed and sold as if it were
something that was actually worth $ 294,000 if the marker were called. So a
year or two later the wage earner gets laid off and loses this house that he
only had $6,000 in to begin with. So now this abandoned and boarded up
house is only worth $184,000 except nobody wants it so it is really only
worth $ 0.00. So that original $294,000 of imaginary wealth is gone (less
the distress sale of a boarded up house someday) and the ten or so entities
who took their cut from that imaginary creation of $ 294,000 are long out of
the picture any somebody else will be stuck picking up the pieces.

From about 1930 to 2000 there was a nice working relationship between a free
market economy and regulation that made sure the free market economy was
operating under commonly understood financial principles.

For decades it was understood that home ownership kept people on the
straight and narrow and kept their nose to the grindstone earning their
incoming and paying their bills so that they could enjoy the good life.
Then came the day that the powers that be decided that there would be less
poverty and more prosperity in the ghetto if banks and others were gently
encouraged to loan mortgage money to people who have never held a job of
paid a bill in their life. Once the bar was lowered everybody was loaning
money to everybody. Tens of thousands of people who went looking for nice
1,800 square foot family domiciles found themselves upsold into 3,000 square
foot dream homes with pools and outdoor kitchens and four car garages all
built into the mortgage. It was like Christmas every day of the year for
everybody for as long as it lasted. Bigger houses, bigger car or truck or
SUV, bigger credit card lines. Live large because you earned it and you
deserve it and you can always pay it back later in cheaper dollars than it
would cost now.

There is always somebody in the labor rich east or the oil rich mideast who
will buy every American obligation they can buy because Americans always pay
their bills, right?

This was a gross oversimplification but that is a broad view of how I see
it.

In a nation where the saving rate was close to zero people were encouraged
to buy big homes and big vehicles and travel a lot and dine out a lot on
various forms of easy credit.

Before you know it wage earners were carrying debt loads that were several
times their annual income. It was only a matter of time before defaults
started to happen and then it was just a snowball rolling downhill.

I have an answer to this. It goes without saying that credit is necessary
to work the modern economy. So I propose that individual and business
credit be granted after the creditor deposits 10% of the amount of the
credit line.

So if I wanted a $5,000 dollar credit card from MBNA I put up $ 500 to show
that I am at least somewhat credit worthy. It has nothing to do with my
age, gender, marital status, legal status, health status, or any other sort
of status.
They charge me 11.98% on any outstanding balance and they pay me 11.98% on
my downstroke. If I miss a payment even by one day they deduct the payment
from my deposit and raise my rated to % 22.96 while paying me %11.98 on my
remaining earnest money. I think this would be fair for everyone from me to
Apple.