Capitol Hill Blue Forums Political Issues The Obama Administration 6,825.42 Nice job Mr. President

Through his actions millions of Americans have lost 50% of their retirement income.

Absolutely!

1. When interest rates are low in general it causes the economy to expand because businesses and individuals can borrow money easily which causes them to spend more freely and thus increases the growth of the economy.

2. What drives interest rates lower is the fact that there is an increase in the supply of money, meaning that there is more money to go around.

Before the Fed lowered interest rates substantially after the bursting of the NASDAQ bubble in 2000, if you wanted to get a loan for a house you had to have a relatively good credit score. Buyers with a FICO score below 620 (generally considered sub-prime) where in most cases considered too risky to lend to and therefore could not get a loan.

After the fed lowered interest rates to historical lows however there was so much money (also referred to as liquidity) available that financial institutions started offering loans to buyers with FICO score’s below 620. Because these borrowers were considered less likely to be able to pay the loan back than borrowers with higher credit scores, these sub prime borrowers were charged a higher interest rate.

I still reference two legislative acts that clearly are related to our financial woes.

1. Commodities Futures Modernization Act of 2000

2. Gramm-Bailey-Leach Act of 1999

There are two individuals who have a history of being completely correct about our financial and economic condition and they are:

1. Warren Buffett has been making it well known about the severity of our financial problems since 2003.

In more recent times:

In an interview with Marketwatch, Mr. Buffett labeled derivatives “the financial weapon of mass destruction.” He stated that the derivatives market is approximately $500 Trillion ($500,000,000,000,000). To put things in perspective, the same magazine tells us that America’s gross domestic product (GDP) is around $15 trillion. The GDP of all nations combined is around $50 Trillion. The total value of all the real estate in the world is estimated at $75 Trillion, and the total value of all the world’s stocks is about $100 Trillion. But there is a $500 Trillion market in derivatives!” Obviously derivatives are weapons of mass destruction.

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Wall Street Didn't Listen to Buffett. Derivatives grew into a massive bubble, from about $100 trillion to $516 trillion by 2007.

The new derivatives bubble was fueled by five key economic and political trends:

a. Sarbanes-Oxley increased corporate disclosures and government oversight

b. Federal Reserve's cheap money policies created the subprime-housing boom

c. War budgets burdened the U.S. Treasury and future entitlements programs

d. Trade deficits with China and others destroyed the value of the U.S. dollar

e. Oil and commodity rich nations demanding equity payments rather than debt

In short, despite Buffett's clear warnings, a massive new derivatives bubble is driving the domestic and global economies, a bubble that continues growing today parallel with the subprime-credit meltdown triggering a bear-recession.

Data on the five-fold growth of derivatives to $516 trillion in five years comes from the most recent survey by the Bank of International Settlements, the world's clearinghouse for central banks in Basel, Switzerland.


2. Nouriel Roubine, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession.

He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac.

This man was virtually 100% right...and everybody blew his warnings off.

Our government and Wall Street have had plenty of warnings!

Austin,

Excellent post. I'm glad you mentioned Roubini. He has been universally ignored by the powers that be, while being universally "right" about just everything he has said. The causes of the current financial stress are complex and multifaceted and go back decades. To lay the blame on Americans who "bit off more than they could chew" and who "didn't play by the rules" or on policies that were designed to get rid of the last vestiges of de facto racial discrimination ("red-lining") is both intellectually lazy and intellectually dishonest, and I'm being nice in not using the pejoratives I'm tempted to use.

...It is not the small amount put into such loans that caused the crash, it is greedy, lying, manipulative lenders and their investors who did it. Of course, the Fed and President Bush waved them on through the gates, but even they aren't the cause.

retirment funds were being drained well before pres. obama took office. the recession has been in effect for a while now. it is not even logical to hang this on the current administration. i just want to know where in the world have you been for the past six months?