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kirkydu (94.46)

Conservative Analysis of Economic Crisis (updated redux)

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October 13, 2008 – Comments (2) | RELATED TICKERS: SKF , GS , MS

My favorite analysis of this crisis as found at www.RealWisconsinNews.com 

As a way to provide fair and balanced coverage, the Real Wisconsin News is providing the conservative analysis of the economic crisis as discussed on conservative talk radio by Rush Limbaugh, Mark Belling and Sean Hannity, as well as, on Fox News.  First we list a factual chronology of how the crisis developed.

 

1977 President Carter signs the Community Development Act which stated that financial institutions are required by law to demonstrate that their deposit facilities serve the convenience and needs of the communities in which they are chartered to do business.

1977 to 1999 subprime mortgages grow at about the rate of inflation to about $160b of subprime loans with a default rate of about 2% as the CDA was offset by strong anti-predatory lending laws and state enforcement.

In 1999 Phil Gramm (R-Texas) champions the Gramm-Leach-Bliley Act which largely deregulated the financial industry by ending Depression Era laws and allowing Fannie Mae and Freddie Mac to take on riskier loans.

In 2002 the Executive branch of government begins federal pre-emption policy telling state Attorney Generals to not enforce state laws on predatory lending and instead enforce less stringent federal laws.

In 2002 at the urging of Republican Congress and White House, Federal Reserve Chairman Alan Greenspan loosens credit and floods market with dollars.

In June 2002, President Bush issued America's Homeownership Challenge to the real estate and mortgage finance industries to encourage them to join the effort to close the gap that exists between the homeownership rates of minorities and non-minorities. The President also announced the goal of increasing the number of minority homeowners by at least 5.5 million families before the end of the decade.

In 2003 the biggest five investment banks ask the SEC to lift the 12:1 leverage limit on investment banks.  This limit implies that losses do not occur unless at least 8.33% (1/12) of loans made default.   

In 2004 federal pre-emption regarding predatory lending becomes rule, via directive of the Office of the Comptroller of Currency, a division of Treasury (Bush appointees).

In 2004 the SEC grants the biggest five investment banks- Goldman Sachs, Merrill Lynch, Morgan Stanley, Lehman Brothers and Bear Stearns- the ability to leverage their balance sheets at 40:1, which implies that losses occur when 2.5% of loans default (1/40).

In 2005 dollar begins to tank due to huge money supply and soaring U.S. debts.

From 2002 to 2006, ratings agencies rate securities loaded with subprime debt as AAA allowing products to be sold into all manner of investment funds including pensions, university endowments, bank portfolios, etc…

By 2007 subprime loans grew to about $700b (wow).

In 2007 energy prices (and other commodities such as food) soar, making paying mortgages and other expenses more difficult for middle Americans.

In 2007 biggest five investment banks pay out record bonuses.

From 2001 to 2007 Wall Street firms pay out record bonuses of about $700b (hmmm).

In 2008 Presidential Candidate John McCain hires Phil Gramm (current lobbyist and former Senator who incidentally failed three grades) as one of his core economic advisors.

In 2008 foreclosures soar approaching 9% and show no sign of abating until late 2009.

In 2008 Bear Stearns, Lehman Brothers, Merrill Lynch, Goldman Sachs and Morgan Stanley cease to exist as before as all had to recapitalize, go bust, re-charter or be bought for less than 10% of their recent value.  

In 2008 bank failures soar and experts anticipate number will rise substantially.

In 2008 credit so seized up that banks won't lend to each other for longer than a day, creating a cash shortage and forcing many businesses to cut expenses decreasing employment levels to their lowest percentage of eligible workforce since the Reagan administration.

In 2008 Letters of Credit from banks to business become scarce slowing business to business commerce.  If this trend continues, the feared “Great Depression II” scenario becomes much more likely.In

2008 the Paulson Plan, as it is dubbed after former Goldman Sachs CEO and current U.S. Treasury Secretary, is submitted and eventually passed by Congress for $700b (wait a second).

In 2008 bailouts of financial institutions by the Federal Government will exceed $1.6 trillion, causing inflation in core goods.  All the while the economy is noticeably slowing, household income is down, unemployment continues to ramp up and trillions has been lost on investments.

Conservative analysis as heard on conservative talk radio and Fox News:

It's all Bill Clinton's fault, remember he got a pizza with a chubby chick.  So vote for McCain and that spunky-folksy-semi-good-looking Palin.

2 Comments – Post Your Own

#1) On October 13, 2008 at 10:50 PM, socialconscious wrote:

Stop blaming the community reinvestment act nobody forced Wall Street to create complex products out of loans. Read this article from the Boston Globe and also my  Simple explanation  in parable form

http://www.boston.com/bostonglobe/editorial_opinion/editorials/articles/2008/10/11/subprime_scapegoats/ 

 the whole mess simplified and in my opinion

http://caps.fool.com/Blogs/ViewBlog.aspx?t=01001154058673654380

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#2) On October 14, 2008 at 4:57 PM, kirkydu (94.46) wrote:

uMM, reread the whole thing, not just the first line.

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