In a way this whole financing fiasco reminds me of what has happened in Zimbabwe.  Their dictator, Robert Mugabe destroyed the farming industry of the country by giving all the farm land away to the poor.  With nobody working efficient farms, there is no food and great social agony is occurring for everyone. In Zimbabwe, the country went from the bread basket of Africa to not being able to feed its own people. Now, no one in Zimbabwe is living well (except Robert Mugabe).  The farming/food system in that country is a mess!  

Giving farmland to peasants may have been the result of good intentions, but only caused more misery. But giving financing away to the US poor is even more expensive!

What is happening to the world financial system is similar but much worse.  American financial institutions not only service this country, but the whole world. The sub-prime loan "poison pill" has now effectively spread throughout the global financial market.  Other weaknesses (which have been ignored for a long time) are now highlighted and continue compound the problem.  The world financial system may now be in worse shape than the farming/food mess in Zimbabwe!

Similar to what Mugabe did in Zimbabwe, instead of land, many well meaning politicians in this country have, in effect, given away practically all the financing available for most of the world.  This was pushed from the social activist side by ACORN as well as the politicians. Both bullied the financial institutions into making poor quality loans. Banks complied, by lowering risk standards and offering ARM's. The idea of home loans for the poor was not your typical welfare program (where the poor gets a measly $400 a month).  Oh no!  In this case, the politicians out did themselves!  They, in effect, have given hundreds of thousands of dollars to any poor or minority person (even illegal aliens) who wanted to buy a home! ---Often without regard to the possibility of repayment. That kind of easy money adds up real fast!  As a result, the prices of homes shot up accordingly. What started with good intentions (helping the poor own homes) has now resulted in a complete collapse of the world financial system!  

It’s really the best case against social manipulation of Capitalism -- ever!  
But the most damaging effect came when the middle class got involved. Lowering the rules of acceptable risk for loans to the poor also resulted in a swift decline in the standards for acceptable risks for ALL retail financing. The middle class quickly caught on that they could reduce their monthly payments with ARM's and other exotic financings. Then, when rates and payments went up, many of the poor just walked away, leaving the financial institutions without a flow of funds and thousands of houses they can’t sell.  The middle class got burned, too, especially those who were using the inflated values of their homes to borrow and spend more. Many middle class are also now losing their homes.

Either you're saying:  

>> Mugabe = Bush
or
>> ACORN caused a global financial crisis
or
>> Capitalism should reign unregulated
or
>>  ......  


whatever your point, I can't really be bothered to read any further

basicaly a bunch of really smart kids with excellent grades and zero life experience were given the reins of major institutional invesment decisions... ultra-bright young quants mistakenly believed they repealed common sense with their math driven "models"... same young quants now looking for new employers in non-financial sectors... such as bagging groceries and working as domestic servants or high end dog walkers...

The subprime meltdown was caused by investment brokerages who were left free to do what they wanted with Bush appointed business cronies in the SEC. They pushed out money to be loaned by any means necessary - including no money down, no proof of employment, no credit check, all you need is a pulse. Why the high demand? A form of financial engineering called securitization, which allowed many mortgage lenders to pass the rights to the mortgage payments and related credit/default risk to third-party investors via mortgage-backed securities (MBS) and collateralized debt obligations (CDO). Corporate, individual and institutional investors holding MBS or CDO now face significant losses, as the value of the underlying mortgage assets decline. How did this happen? Economist Robert Kuttner has criticized the repeal of the Glass-Steagall Act as contributing to the subprime meltdown.

1. This act had since 1933 eliminated Conflicts of interest characterize the granting of credit – lending – and the use of credit – investing – by the same entity, which led to abuses in 1933 (Great Depression remember?).
2. Depository institutions possess enormous financial power, by virtue of their control of other people’s money; its extent was limited by the act to ensure soundness and competition in the market for funds, whether loans or investments.
3. The act kept banks out of the securities business. Securities activities can be risky, leading to enormous losses. Such losses could threaten the integrity of deposits. In turn, the Government insures deposits and could be required to pay large sums if depository institutions were to collapse as the result of securities losses.
4. The act made sure deposits and liabilities did on get out of balance. Depository institutions are supposed to be managed to limit risk. Their managers thus may not be conditioned to operate prudently in more speculative securities businesses. An example is the crash of real estate investment trusts sponsored by bank holding companies (in the 1970s and 1980s).

Why was it repealed by the Republican Congress in 1999? So it could be replaced by the Gramm-Leach-Bliley Act, also known as the Gramm-Leach-Bliley Financial Services Modernization Act, which allowed banks and insurance companies to do it all, investments - grant credit - lend - and use credit; which led to abuses and the fix we're in today. Who led this charge of Deregulation? Gramm? That's right, Phil Gramm: Mr. “nation of whiners” who is still advising McCain on economic matters. Senate Democrats Voted Against it 39 to 1 Senate Republicans voted it for it 44 to 1 McCain's vote on Gramm's bill - Yea.
Sources:
http://www.govtrack.us/congress/vote.xpd?vote=s1999-105
http://dyn.politico.com/members/forums/thread.cfm?catid=1&subcatid=1&threadid=1431191&start=1%A4tPage=1
http://www.dailykos.com/story/2008/9/16/203823/008/1013/601053

This great act was followed by the "Commodity Futures Modernization Act of 2000" The Bill was slipped in and rammed through both the House and Senate without any debate. The way the latter passed was extraordinary: 262 pages of dense language slipped into an 11,000-page omnibus bill on the Friday before the Christmas recess. This act is widely known for creating the so-called "Enron Loophole," which exempts most over-the-counter energy trades and trading on electronic energy commodity markets. The "loophole" was drafted by Enron Lobbyists working with senator Phil Gramm seeking a deregulated atmosphere for their new experiment, "Enron On-line" which helped bilk millions of dollars from California utilities customers. "The act freed complex derivatives from any regulation," said Michael Greenberger, who served in the Commodities and Futures Trading commission in the late 1990s. "It set the stage for the present mess and the problem is, no one knows how many of these instruments are still out there or who holds them."

http://www.forbes.com/reuters/feeds/reuters/2008/09/22/2008-09-22T093623Z_01_LM718012_RTRIDST_0_COLUMN-USA-REAGAN.html

Several Democratic Legislators introduced legislation to close the loophole from 2000-2006 but were unsuccessful due to Republican control of the House and Senate. Who led this charge of Deregulation? Gramm? Again, Phil Gramm, about whom John McCain said this on Jan 18, 2008, “I love him dearly. On issues of economics and ... family values, there's nobody that I know that's stronger.” Gramm and his wife were big friends of Ken Lay (died just before HE WENT TO JAIL); he collected more than $97,000 in campaign contributions from ENRON. Wendy Gramm was on ENRON’s board and was paid between $915,000 and $1.8 million in salary, attendance fees, stock options and dividends for helping ENRON implode.

Next you're going to tell us how the payday loan industry is actually the government's effort to give aid to the poor, or that credit cards are actually welfare. The Orwellian re-definitions you've found are double-plus good. I'm certain talk-show hosts are shoveling this shit as fast as they can.

It wasn't like the mortgage industry was giving anybody "in effect, hundreds of thousands of dollars." Just the opposite, they were extracting money. It's more like the mortgage industry justified making housing a commodity by explaining to the government that capitalism could provide housing for the poor. It was a solution to a social problem that brought both Republicans and Democrats aboard.

But the main flaw in your fictional account is: Washington doesn't "bully" anybody these days. The people regulating housing are the same people who worked in the industry. The famous "revolving door." They either started out in the industry, went to work for the government, or they started out in the government and moved to a job in the industry, and back again. The industry's lobbyists, or ex-lobbyists turned Congressional staff, had a lot of influence over the writing of laws. So the regulators and regulated were largely the same people. Moreover, if you're saying Clinton created this problem, it's laughable. Clinton didn't bully any industry. Nooo, he was more like the most consensus oriented President of the last 40 years. Clinton has turned out to be extremely flexible as an excuse for Republicans.

Unfortunately for conservatives and repubs, sometimes things are exactly as they appear and blame is straightforward. The mortgage industry targeted poor and minority communities because 1) they wanted and needed houses, and 2) that group was undereducated and generally couldn't do math. They then took those poisoned assets and sold them as bonds, trying to make money by avoiding risk.

Only greed explains this behavior.

So, there was a problem at the very beginning of the process. It grew like a cancer because those mortgage-derived bonds might have spread out risk, but low risk, guaranteed and high yield means that institutions would overload themselves with them until the risk was high. So, those high yield mortgages were in demand, hence the push to sell commodity mortgages to the middle class.



-- Modified on 10/10/2008 9:09:28 AM

Took six months of rehab to get myself clean.  Thank you Dr. Drew.

running amok.