America's Financial Crisis

[Armenian]

Re: America's Financial Crisis

The problem with creating a "new system" is the same problem with the other/older systems - mankind. However lofty the new system may look on the drawing table once its put into circulation amongst man it becomes warped and corrupted. The perfect example of what I'm saying is Communism and organized religion. In my humble opinion, the most efficient/effective political system is either a Constitutional Monarchy or National Socialism or some fusion of these both systems. The Church/Temple/Mosque also needs to play a significant role in any given nation-state. Nevertheless, there will never be true peace as long as man walks the earth.

The problem with creating a "new system" is the same problem with the other/older systems - mankind. However lofty the new system may look on the drawing table once its put into circulation amongst man it becomes warped and corrupted. The perfect example of what I'm saying is Communism and organized religion. In my humble opinion, the most efficient/effective political system is either a Constitutional Monarchy or National Socialism or some fusion of these both systems. The Church/Temple/Mosque also needs to play a significant role in any given nation-state. Nevertheless, there will never be true peace as long as man walks the earth. The following comments of mine were inspired by the political unrest in Armenia early this year:

Democracy or Constitutional Monarchy?

Recent events in Yerevan have actually proven that Armenia is more "democratic" and expresses more "political freedoms" than any western nation today. Can anyone here envision an equivalent of a treasonous criminal like Armenia's Levon Ter-Petrosian in American politics bringing millions of people into Washington DC and holding unsanctioned demonstrations against the state with a political platform that would be considered suicidal for the US, and then inciting violence when security forces attempt to disperse them?

Can anyone here imagine, let's say, Chinese or Russian owned news outlets taking over a large portion of America's news media and disseminating anti-state and/or pro-East propaganda? Can anyone here imagine foreign funded NOGs stirring public discontent in the US? Can anyone here imagine any of the above scenarios occurring in the US? No. No one can realistically imagine such scenarios because we all know that responsible authorities within this nation would 'never' allow such a situation to get to that dangerous level. Such types of foreign inspired agendas in the US would be eliminated even before they are implemented. No nation-state should be forced to excepting foreign organizations that get involved in domestic affairs regardless of their stated intentions. Yet to be considered "democratic" and qualify for funding (official bribes) this is exactly what the West expects from nations that they have vested interests in. Today there is a vast multibillion dollar network of western funded organizations that constantly seek to stir public unrest in strategically important nations that are not allied with the West. This is why politicians in developing nations like Russia, Serbia, Armenia and China simply have to disregard the sentiments of the people and the complaints of the foreign interests and do what they have to do to protect their respective states.

Recent events in Yerevan have also proven that Armenians in general cannot be entrusted with political decision making. As we recently witnessed, the practice of democracy in a nation like Armenia can prove to be fatal. This brings up the almost sacred concept of "free and fair elections":

The 'idea' that the masses should vote politicians into power, hence intimately partake in political decision making, is a 20th century western phenomenon. However, even in the West, this practice does not exist in reality. It's an illusion. But we must realize here that the illusion of the people partaking in the political system can only exist in wealthy, powerful and stable nations. In the US, for example, we essentially have 'two' government sanctioned political parties. Let me remind the reader that this is only 'one' more than a government sanctioned dictatorship. Politically, the Democrats and the Republicans in America are two factions of a single party. The two factions in question differ only in minor details, namely in the realms of domestic/social issues. Nonetheless, if anyone comes along that can seriously challenge the political/financial status quo, the establishment, in the US, they would be effectively eliminated in one way or another. It's no secret that America's most serious political policies are made independent of the people by the US State Department, various special interests (Zionists, oil lobby, defense industry, mega-corporations, etc) and of course, the intelligence services.

Yet, every four years the people are allowed to 'think' that they are participating in the nation's political process. Obama's recent election win in America is a clear example of how the public is constantly fooled into thinking that they live in a true democracy. Barak Obama was chosen by this nation's elite to takeover the reigns from the failed Neocons and continue the agenda of the American empire under new management. President elect Obama is the new face on the old agenda.

As I said above, one of the fundamental differences between the West and the rest of the world is - standard of living/its bountiful wealth. Due to the West's centuries long political exploits - colonization, slavery, foreign wars, plunder, exploitation, etc., the West is immensely wealthy today. The entire world today is trying desperately to literally live up the "Western Standards." And let's realize that it's much easier to control well-fed, complacent idiots than it is to control hungry, desperate and angry idiots. As a result of its wealth, western political/financial elite can provide the essentials for their masses and allow them to think that they are participating in the political system. And that is why unlike in the rest of the world, the West can afford to put on a 'political show' every few years for the people.

Democracy, as preached by the West, does not work for developing or vulnerable nations because it envisions giving the ignorant masses of any given nation the right to make important political decisions. As a matter of fact, such a concept is dangerous. We painfully observed this in Armenia recently. Politically speaking, the general population in any given nation is worthless. Thus, how can we trust them to make the right political decisions, especially in nations that have serious geopolitical and socioeconomic problems? The point is, from the great Hellenistic thinkers to the founding fathers of the US, voting politicians into power was never meant to be for the masses. As I said above, the notion that the people must elect high ranking politicians into power is essentially a twentieth century western phenomenon, and this phenomenon is used by the well established elite in the West as a tool of intervention.

What's interesting here is that we require a license and/or some training to do just about anything of importance in civilized nations. Why is it that the most important of all obligations a nation's citizen has, namely electing its leadership, is meant to be entrusted upon the whims and wishes of the masses? What in the life of the average citizen, regardless of age, would qualify him or her to make crucial political decisions? In my opinion, the democratic system is inherently a flawed system and for certain nation's its practice can be suicidal.

Although I have great admiration and respect for National Socialism in general, I personally would rather see a 'constitutional monarchy' be implemented in Armenia. Most of the greatest nations on earth are, or have been until recently, constitutional monarchies. Some examples are: Japan, Sweden, Holland, Belgium, Britain, Spain, Andorra, Denmark, Norway, Liechtenstein, Luxembourg, Thailand, Monaco, Morocco and Jordan.

There are several surviving remnants of Armenia's ancient nobility living in Europe and Russia. However, I don't think picking an individual from one of these families would be the wisest route to go. I personally would like to see Armenia's national constitution give our Christian Patriarch, the Katoghikos, a duel role: Արքա համենայն հայոց և հոգեվոր հայրապետ - king of all Armenians and spiritual patriarch. In such a scenario, Etchimadzin would be transformed into Armenia's royal throne, as it was in ancient times when the city was known as Vagharshapat. The Cilician Patriarch can then act as the Katoghikos of all Armenians. It is note worthy here to point out that Saint Gregory's line is actually preserved within the Cilician Patriarchate and not in Etchmiadzin.

Throughout history we have had great patriarchs. At various times in our history our nation's patriarchs have more-or-less acted as kings. Why not just officially bestow upon them the title of monarch and give them some political powers? Some of our current patriarchs and senior bishops (with the exception of Turkey's Mutafian of course) would make excellent monarchs. As a matter of fact, in demeanor and character, Katoghikos Garegin II is more of a king than a spiritual leader anyway. The patriarchal throne of the Cilician See is no less capable when it comes to organizational and administrative abilities and resources. There are many political advantages to a constitutional monarchy, fundamental ones being continuity and stability of the political system and national unity.

How would the king be appointed? I do not envision a hereditary kingdom. Such a system would have inherent weaknesses and can potentially cause problems. In my opinion, the king should be appointed for life just like the Katoghikos is appointed for life by the nation's senior bishops who are in essence the nation's elders. The appointing of the king by representatives of the ruling establishment takes the crucially important task of electing a nation's leader away from the sentiments of the masses. And this method is superior to the hereditary method in that every time a king needs to be appointed the nation's elders debate and vote for the most capable man, or woman, available for the throne.

What about the people? Will they have a voice in government? As in all constitutional monarchies, the people do have an important role to play, they can elect their local leaders and thereby indirectly participate in the election of the nation's prime minister.

Within this system a nation will enjoy political consistency that comes with a life term monarch and the fresh dynamism of a prime minister that is elected every several years. In addition to all this, a Christian monarch representing the nation will be able to enhance the people's national and cultural identity and positively impact various domestic/societal issues most free societies suffer from.

If we cannot have a constitutional monarchy, then Armenia simply needs to be a one party dictatorship for the foreseeable future or adopt a form of National Socialism. And if that cannot happen either, then let's simple give the house keys to Moscow. Simply put, we Armenians cannot risk playing with the notion of democracy, especially in a dangerous and volatile environment like the Caucasus. Such an experiment could prove fatal for the Armenian Republic.

Armenian

[jgk3]

Re: America's Financial Crisis

What are your thoughts on absolutism Armenian? Do you consider the triarchal system of warrior nobility, clergy and peasantry as obsolete, inefficient, unfair?

[Anonymouse]

Re: America's Financial Crisis

There's No Pain-Free Cure for Recession

Belt-tightening is required by all, including government.

By PETER SCHIFF

As recession fears cause the nation to embrace greater state control of the economy and unimaginable federal deficits, one searches in vain for debate worthy of the moment. Where there should be an historic clash of ideas, there is only blind resignation and an amorphous queasiness that we are simply sweeping the slouching beast under the rug.

With faith in the free markets now taking a back seat to fear and expediency, nearly the entire political spectrum agrees that the federal government must spend whatever amount is necessary to stabilize the housing market, bail out financial firms, liquefy the credit markets, create jobs and make the recession as shallow and brief as possible. The few who maintain free-market views have been largely marginalized.

Taking the theories of economist John Maynard Keynes as gospel, our most highly respected contemporary economists imagine a complex world in which economics at the personal, corporate and municipal levels are governed by laws far different from those in effect at the national level.

Individuals, companies or cities with heavy debt and shrinking revenues instinctively know that they must reduce spending, tighten their belts, pay down debt and live within their means. But it is axiomatic in Keynesianism that national governments can create and sustain economic activity by injecting printed money into the financial system. In their view, absent the stimuli of the New Deal and World War II, the Depression would never have ended.

On a gut level, we have a hard time with this concept. There is a vague sense of smoke and mirrors, of something being magically created out of nothing. But economics, we are told, is complicated.

It would be irresponsible in the extreme for an individual to forestall a personal recession by taking out newer, bigger loans when the old loans can't be repaid. However, this is precisely what we are planning on a national level.

I believe these ideas hold sway largely because they promise happy, pain-free solutions. They are the economic equivalent of miracle weight-loss programs that require no dieting or exercise. The theories permit economists to claim mystic wisdom, governments to pretend that they have the power to dispel hardship with the whir of a printing press, and voters to believe that they can have recovery without sacrifice.

As a follower of the Austrian School of economics I believe that market forces apply equally to people and nations. The problems we face collectively are no different from those we face individually. Belt tightening is required by all, including government.

Governments cannot create but merely redirect. When the government spends, the money has to come from somewhere. If the government doesn't have a surplus, then it must come from taxes. If taxes don't go up, then it must come from increased borrowing. If lenders won't lend, then it must come from the printing press, which is where all these bailouts are headed. But each additional dollar printed diminishes the value those already in circulation. Something cannot be effortlessly created from nothing.

Similarly, any jobs or other economic activity created by public-sector expansion merely comes at the expense of jobs lost in the private sector. And if the government chooses to save inefficient jobs in select private industries, more efficient jobs will be lost in others. As more factors of production come under government control, the more inefficient our entire economy becomes. Inefficiency lowers productivity, stifles competitiveness and lowers living standards.

If we look at government market interventions through this pragmatic lens, what can we expect from the coming avalanche of federal activism?

By borrowing more than it can ever pay back, the government will guarantee higher inflation for years to come, thereby diminishing the value of all that Americans have saved and acquired. For now the inflationary tide is being held back by the countervailing pressures of bursting asset bubbles in real estate and stocks, forced liquidations in commodities, and troubled retailers slashing prices to unload excess inventory. But when the dust settles, trillions of new dollars will remain, chasing a diminished supply of goods. We will be left with 1970s-style stagflation, only with a much sharper contraction and significantly higher inflation.

The good news is that economics is not all that complicated. The bad news is that our economy is broken and there is nothing the government can do to fix it. However, the free market does have a cure: it's called a recession, and it's not fun, easy or quick. But if we put our faith in the power of government to make the pain go away, we will live with the consequences for generations.

Mr. Schiff is president of Euro Pacific Capital and author of "The Little Book of Bull Moves in Bear Markets" (Wiley, 2008).

http://online.wsj.com/article/SB123033898448336541.html

[Armenian]

Re: America's Financial Crisis

What are your thoughts on absolutism Armenian? Do you consider the triarchal system of warrior nobility, clergy and peasantry as obsolete, inefficient, unfair?

I'm not sure if I understand your question. The "triarchial" system you mentioned still exists, and in some respects its more powerful than even.

Warrior Nobility/Aristocracy = Political/financial elite

Clergy = Democracy/Christianity/Islam/Judaism/Communism/Globalism...

Peasantry = Tax payers/low wage labor

In final analysis, it doesn't matter what you or I think about this. As long as man walks the earth you will have the elite (warrior class) ruling over the masses (tax payers/peasantry) using various spiritual/sociological tools (religion/democracy/globalism) as a means of effective control.

[jgk3]

Re: America's Financial Crisis

good point. I guess some things never change, just their surface representations. I guess the modern bureaucracy serves to enshroud this reality.

[Anonymouse]

Re: America's Financial Crisis

Recession Opens U.S.-China Rift Paulson Talks Bridged

Kevin Hamlin and Mark Drajem Kevin Hamlin And Mark Drajem – Mon Dec 29, 12:41 am ET

Dec. 29 (Bloomberg) -- The global recession is re-exposing fissures in U.S.-China relations that Treasury Secretary Henry Paulson spent more than two years smoothing over.

Heightened tensions between China and the U.S. may worsen a contraction in world trade that already threatens to deepen and prolong the economic downturn. The friction comes as President- elect Barack Obama readies a two-year stimulus package worth as much as $850 billion that will require the U.S. to borrow more than ever from China, the largest buyer of Treasury securities.

“The American economic slump is running into the Chinese economic slump,” says Derek Scissors, a research fellow at the Washington-based Heritage Foundation. “It's creating the conditions for a face-off between Beijing and the U.S. Congress, possibly leading to destabilization of the world's most important bilateral economic relationship.”

Paulson, 62, who visited China 70 times during his career on Wall Street, made improving ties a priority when he arrived at the Treasury in 2006. He advocated diplomacy instead of confrontation, establishing a twice-yearly “strategic economic dialogue” with officials in Beijing, aimed at cooling tensions and deterring Congress from taking up trade sanctions.

The approach produced some results, including a pledge to share data on food safety and agreement to allow foreign mutual funds to invest in China's stock market. The value of China's currency, the yuan, rose 21 percent versus the dollar from 2005 levels to redress what U.S. officials saw as an unfair price advantage for Chinese products.

Shelved Sanctions

Paulson refrained from labeling China a currency manipulator and hailed an end to tax rebates on Chinese exports as a sign of improving trade relations. Congressional leaders, though dissatisfied with the pace of progress, shelved sanctions legislation.

Paulson “achieved some success, but it was much more difficult to get the Chinese to restructure their economy,” says Myron Brilliant, vice president for Asia at the U.S. Chamber of Commerce in Washington. Now, Brilliant says, the economic crisis has prompted China to turn back to “export-oriented policies that could lead to an increase in the trade imbalance” and new tensions with the U.S.

China's exports declined in November for the first time in seven years, and economic growth may slow by more than half to as little as 5 percent in 2009, according to Royal Bank of Scotland Plc. That has prompted China's leaders to increase tax rebates on thousands of exported products; meanwhile, the yuan's steady rise against the dollar stalled in July, and the currency has barely budged since. It was trading at 6.8462 a dollar at 1:33 p.m. in Shanghai today, from 6.8414 on Dec. 26.

A Harder Line

In the U.S., business and labor groups, along with lawmakers, are pushing the new Obama administration to take a harder line with China than President George W. Bush did.

Senate Finance Committee Chairman Max Baucus, a Democrat from Montana, plans legislation that would raise tariffs on dumped imports from China and other nations. And newly elected Democratic congressmen such as Larry Kissell of North Carolina and Dan Maffei of New York have pledged actions to stop jobs from being shipped to China.

Lawyers representing companies such as Nucor Corp., the second-largest U.S. steelmaker, NewPage Corp., a maker of coated paper, and smaller textile and steel pipe makers say they are considering new trade complaints against China. During the presidential campaign, Obama promised groups including the National Council of Textile Organizations and the Alliance for American Manufacturing that he would take a tougher stance on China's currency policies.

Pushing Back

Officials in Beijing will push back, says James McGregor, chairman of Beijing-based research firm JL McGregor & Co. and author of the book “One Billion Customers,” about doing business in China. Chinese leaders “will do whatever they need to protect their interests and to say to the U.S., 'Do not mess with us on this one,'” he says.

Paulson, before leaving for talks in Beijing this month, told business representatives his biggest concern was that China was changing course and reversing moves it had made during the past year to cut aid to exporters and stimulate domestic consumption.

China's five-year plan through 2010 seeks to rebalance growth away from exports -- so far, without significant result. Household consumption slumped to slightly more than 35 percent of China's gross domestic product last year from 45 percent in 1993. By contrast, consumer spending represents more than two-thirds of the U.S. economy.

Low Consumption

“What separates China from the rest of the world is its incredibly low level of consumption relative to GDP,” says Brad Setser, a fellow at the Council on Foreign Relations in Washington. “What can China do that would most directly help the world economy during a period of very severe weakness? Get its consumption back up to 40 percent of GDP.”

Policies in both countries are shaped by the need to cope with steep declines in employment. More than 10 million migrant workers lost their jobs in China during the first 11 months of this year, Caijing Magazine reported Dec. 17, citing a Labor Ministry official.

The total will likely grow in 2009. The World Bank forecasts that global trade, which grew 6.2 percent in 2008, will shrink by 2.1 percent next year, the first such contraction since 1982.

The collapse in overseas demand is exposing China's years of overinvestment in industries such as automobiles and telecommunications.

Sitting on a Stockpile

China's steel industry, the world's largest, is sitting on a stockpile of 63 million metric tons, equivalent to about 13 percent of annual production, and Baosteel Group General Manager He Wenbo said in November that his company was facing the “most difficult” period since it was founded 30 years ago.

The government is considering measures including buying unsold inventory and raising export rebates to help steelmakers weather the slowdown, Minister of Industry and Information Li Yizhong said Dec. 12.

In the U.S., factory payrolls have shrunk by 4 million during the eight years of the Bush administration, and total job losses this year may top 2 million.

“China-bashing will only intensify in a softer economic climate,” says Stephen Roach, chairman of Morgan Stanley's Asia division in Hong Kong. “Bipartisan congressional support for anti-China trade legislation has been gathering in intensity.”

Obama's Pledges

Obama made specific pledges on the campaign trail to take a tougher approach to China than the Bush administration did. He has said the failure by Bush and Paulson to label China a currency manipulator was “unacceptable,” and he endorsed legislation to let U.S. companies seek import duties to compensate for the advantage an undervalued currency gives their Chinese competitors.

Obama also pledged to reverse course from Bush and consider petitions seeking higher tariffs on specific Chinese products.

American businesses, labor unions and lawmakers are already gearing up to force Obama's hand. Steelmakers, paper producers and textile companies are preparing trade complaints that could lead to increased tariffs. Unions and lawmakers plan to push measures to force China to raise the value of its currency.

McGregor says Obama's China policy will require a balancing act “fundamentally different” from what his predecessors faced: Obama's Treasury will need to fund a budget deficit heading for $1 trillion this year and “you don't scream at your banker.” China's holdings of U.S. Treasury securities, at $653 billion, are the world's largest.

That means an increase in trade tension “is very easy for China to handle,” says Guan Anping, a managing partner of Beijing-based law firm Anjin & Partners and a legal adviser to former Vice Premier Wu Yi until 1993. “China can react by reducing its purchases of U.S. government bonds.”

Even so, the Obama administration may not need much prodding to take a harder line on the currency issue, says William Reinsch, president of the National Foreign Trade Council and a former Clinton administration trade official.

“There will be consequences,” he says. “But they will do it anyway, if only to distinguish themselves from Bush.”

http://news.yahoo.com/s/bloomberg/20081229/pl_bloomberg/ai3pbnjy7ty

[Azad]

Re: America's Financial Crisis

Predictions ... #10 is the worse scenario for the US. Could trigger gradually other countries to fallow.

"This year has been marked by astonishing and market-changing events including a $100 fall in the price of oil, the drop to zero of U.S. interest rates and the collapse of Wall Street giants such as Lehman Brothers.

Next year could bring more, equally unbelievable, happenings such as another 400 points being wiped off the S&P 500 and a slump in Chinese growth to zero, according to a report from Saxo Bank titled "10 Outrageous Claims 2009."

1. Iranian Revolution

If oil prices continue to decline, which Saxo Bank believes they will, the Iranian society will be badly affected due to the country's reliance on its number one commodity. The government may not be able to provide the basic necessities its citizens need, which would lead to widespread social unrest, according to Saxo Bank.

2. Crude Oil to $25

The ongoing economic crisis will further dent oil demand throughout next year, sending the price ever closer to $25 a barrel, Saxo Bank said. OPEC production cuts will be hampered by disagreement and fail to stem the slide, it added.

3. S&P 500 to 500

The S&P 500 will fall to 500 points in 2009 as slowing corporate earnings will drag on the U.S. index, according to Saxo Bank. Earnings will slow because of a continued consumer recession, lead by the credit shortage. An increase in corporate funding costs, falls in house prices and a slowdown in investing programs will also add to the weakness, the report said.

4. Italy Could Drop the Euro

Italy could make good on threats to leave the European Exchange Rate Mechanism (ERM) and may drop out in 2009, Saxo Bank said, a decision which would mean the country effectively gives up the euro. The EU is likely to crack down on excessive government budget deficits, which could prompt Italy to leave the currency regulation, it said.

5. Australian Dollar to Slump vs Yen

The Australian dollar will sink to 40 Japanese yen as next year's continued slump in commodities hurts the Australian economy, Saxo Bank said. The whole commodity complex will be left dead in the water for the next ten years, the report said.

6. Dollar to Outstrip the Euro

The euro will fall to 0.95 cents versus the dollar in the New Year, before shifting direction and rising to 1.30 cents, according to Saxo Bank. The euro-zone will face a tough year in 2009 as the banking sector will suffer because of its exposure to Eastern Europe, a region that will increasingly falter next year, the report said.

7. Chinese GDP Growth to 0%

Export-led China will be hit by the double blow of a slowing U.S. economy and the souring of commodity-based investments, according to Saxo Bank. Japan will not actually sink into recession, despite gross-domestic-product growth all but disappearing, the report said.

8. Eastern European Forex Pegs to Fail

Several of the Eastern European currencies currently pegged or semi-pegged to the euro will come under increasing pressure to decouple next year, the report said. The emerging economies are vulnerable to more credit-market disruptions, it added.

9. Commodities Prices to Plunge

Commodities are facing widespread weakness next year with the Reuters/Jefferies CRB Index to drop 30 percent, according to Saxo Bank. The consensus belief that demand has been outstripping supply for years might not even be true and more stockpiles could be revealed, the report said.

10. Yen to Become Currency Peg

Asian countries could shun dollar pegs in favor of the Chinese yen next year, according to Saxo Bank. China's economic, political and cultural influence is growing and shifts in market re-evaluations will favor the country, the report added."

http://finance.yahoo.com/banking-budgeting/article/106331/No-Growth-in-China-and-Other-Outrageous-Prophecies

[Anonymouse]

Re: America's Financial Crisis

The Crisis in 10 Points

Daily Article by Robert Stewart | Posted on 12/31/2008 12:00:00 AM

The 2007–2008 financial crisis had its genesis in the United States housing markets, but it rapidly spread to other economies, first to the United Kingdom, but then almost everywhere else, including such unlikely spots as Iceland whose banking system collapsed.[1] Because events in the United States triggered the crisis, this essay will concentrate on the US causes although they had their many counterparts elsewhere.

There are at least three long-standing background influences that contributed to the financial debacle that dominated the US economy in 2008:

1. For almost 100 years, the US government has not felt constrained to match its expenditure with its revenue. This policy was given intellectual justification by the writings of John Maynard Keynes who argued in the 1930s that, during periods of slow economic growth, active and purposeful government policies would allow the economy to spend its way out of recession.[2] It was simply a matter of time before citizens aped the financial habits of their governments by living beyond their means.
   
2. The Federal Reserve System (the Fed — created in 1913) has accommodated government's policy of spending to excess by inflating the money supply and keeping interest rates artificially low. Today's dollar will buy what in 1913 would cost less than a nickel. This easy-money policy has not only led to inflation but has resulted in investments taking place that would not be justified had the money supply been constrained, and had interest rates more clearly reflected economic reality.
   
3. Since the 1960s, politicians parroting the suspect theories of Keynes have fed the public's naïve belief that government can provide ever-increasing living standards by means of its monetary and fiscal policies. Pulling a fiscal lever here and pushing a monetary button there meant that constraints on spending were old fashioned, and living standards would forever improve. The limitations imposed by the laws of economics had been repealed if you voted for politicians who promised to provide you with something for nothing. Fiscal prudence was simply a capitalist lie.
   
   It is against this long term, more philosophic backdrop, that the following, more immediate issues, assumed greater importance.
   
   
4. Households collectively made little attempt to save for the future. The United States, in particular, borrowed from China, Japan, and Middle Eastern countries to finance its spending addictions. Financial responsibility was considered an old-fashioned, or even an irrelevant, virtue, and people were led to believe that government could, by waving its magic wand, provide improved housing without the pain of saving or foregoing immediate consumption.
5. The acquisition of a house was viewed by many buyers not so much as having somewhere to live but as a painless way to make money. House prices, they naively believed, would always continue to increase in value while the relative burden of mortgages would continue to fall. Not only that, but as house values increased, a house could be used as collateral for a further loan. The financial equivalent of turning sea water into gold had been created. So long as house prices increased, borrowers were in financial heaven. When house prices fell, the earth opened up under the feet of lenders.
6. # Government-sponsored entities like Fannie Mae and Freddie Mac subsidized mortgages for people who, under more-prudent rules of borrowing, would never have qualified for a loan from a conservative banking institution. Congressman Barney Frank in 2003 stated in a moment of candor, "I want to roll the dice a little bit more in this situation toward subsidized housing."[3] Well he certainly did, at the same time accepting with gratitude campaign contributions from Fannie and Freddie.
7. The egalitarian policies of government through such legislation as the Community Reinvestment Act of 1977 "persuaded" lenders, Mafioso style, to lend to low-income borrowers, against their better judgment. Government lawyers made it clear that the consequences of failing to meet politically imposed targets and quotas could be dire.
8. It was a matter of time before a substantial minority of borrowers could not or would not service their mortgages. Partly because astute people predicted this, well-known names in the financial world began to package, or sponsor, mortgage and other debts such as credit-card balances into what were called structured-investment vehicles (SIV), dubbed "financial weapons of mass destruction" by Warren Buffett. So complicated were the terms contained in such instruments that many legal minds and the credit-rating agencies were baffled as to exactly what they meant and where the ultimate risk lay. Banks and others could benefit by lending to people who could not afford to pay interest, far less capital, provided they were able to sell the SIVs to gullible investors. Money managers naively bought such investments for pension funds, money market funds, and (even more surprisingly) for their firms' own accounts. This was the primrose path to unlimited housing ownership, with no painful cash deposit, and no adverse consequences to the first lenders.
9. So long as (a) the value of housing increased, (b) borrowers paid on time, and (c) confidence remained in the credibility of SIVs, everything was hunky-dory. Unfortunately, all three cratered about the same time; house values stagnated or fell as supply exceeded demand; when values stuttered, so did borrowers repayments, and confidence plunged. Borrowers, having promised to pay and having offered security for their promises, were failing to pay because their security had declined in value. They repudiated their debts, and the burden fell on hapless financial institutions. Populist politicians rarely blamed the borrowers, because there are so many of them and they vote; instead they blamed greedy capitalists, speculators, short sellers, anyone except the debtors, and the imprudent economic policies of the US government.
10. As events began to unravel in mid-2008, well-established firms like Lehman Brothers, went to the wall. Others like Bear Stearns and Merrill Lynch were sold at knockdown prices. Yet others, like insurance giant AIG, were effectively nationalized.[4] Meanwhile, the stock-market value of banks and other financial institutions took a nosedive. For example, Citibank stock price fell by 79% between October 2008 and October 2009. The broader stock-market indices like the Dow Jones also plummeted by around 40%. The US government had no systematic policy, and rules were made up as more and more bad news emerged, especially about jobs. Citibank had a labor force of 375,000 in 2007; in November 2008, it was announced that 53,000 jobs would go by the first quarter of 2009. Senior government officials were like shipwrecked sailors (and were spending money like drunken sailors) paddling like mad but with little idea of where they were going, or why. The only consistent rule was that something had to be done, and the US government must be the action party.[5]
    
    It is difficult not to recall the words of Herbert Spencer: "The ultimate result of shielding man from the effects of folly is to people the world with fools."

The financial crisis of 2007–2008 was a Ponzi scheme writ large. A Ponzi scheme, or chain letter, initially succeeds but eventually collapses, just as imprudent loans may at first succeed in their objectives but eventually the laws of economics come into play and expose the futility of the whole exercise. A pyramid scheme is always unsustainable for the simple reason that it is based on faulty principles and built on flawed foundations. Until too late, no one in authority (regulators, risk managers, senior bank executives, credit-rating agencies, investment analysts) asked the key question, namely, how on earth was it possible in the long term to make profits by lending money to people whose chances of paying it back were practically nil?[6] The issue was simply swept under the carpet because loans to deadbeats provided a better short-term return than did lower-risk debt instruments.

In summary, the essence of the subprime crisis is that money was lent (often through the agency of questionable mortgage brokers) at very low interest rates (courtesy of the Fed) to hundreds of thousands of people (all they needed was a credit score and a pulse) who could not afford to pay it back; and it was backed by collateral (a house) that was not properly valued.[7] Such assets, accurately described as "liar loans," were then packaged into opaque securities, known as structured-investment vehicles (sponsored but not guaranteed by a respected and well-known name), which very few people understood. They were sold on to pension funds, banks, and others whose gullible investment managers also did not understand them and failed to carry out the rigorous analysis that their clients had a right to expect.[8]

Government encouraged all of this by supporting affordable housing (which was politically correct) and accusing banks of redlining (failing to lend to poor and black people in the same proportion as they lent to the rich and white). When the borrower, already maxed out on his credit cards, predictably failed to make payments, the scale of the problems eventually became apparent to somnolent regulators and financial institutions. Confidence and trust evaporated, because no one knew which institutions held suspect securities, how much the losses were, and who was ultimately safe. A financial system built on debt and excessive leverage was a financial system built on sand.

The errors and fallacies that weave and surround this awful catalog of errors could have largely been avoided by paying attention to a single sentence written by Henry Hazlitt over 60 years ago:

The art of economics consists in looking not merely at the immediate but at the long effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

http://mises.org/story/3263

[jgk3]

Re: America's Financial Crisis

very nice article

[Armenian]

Re: America's Financial Crisis

"The Lord said - The people will welcome socialism in order to relieve the pain."

These are the words uttered by Pat Robertson, one of Satan's most popular minions serving in the US, during his 2009 new year message. One of the major icons of America's inbred, brain-dead bible-belt morons, demented Pat represents many-many millions of dangerous idiots in this country that associate themselves with the Christian Right. This deeply demented, virulently anti-Arab, psychotically Russophobic and rabidly pro-Zionist zealot has been claiming for a long time that he 'converses' with God on a regular basis and that his words are 'prophetic' as a result. If anyone, demented Pat converses with Satan. However, my good intuition tells me that demented pat converses with top government officials so that he can in turn prepare the millions of sheeple for upcoming political/economic events through his "prophetic" sermons. Two years ago Associated Press reported that during his 2007 new year sermon Pat Robertson said there would be a major terrorist attack on the US in 2007 that would result in mass deaths:

“I’m not necessarily saying it’s going to be nuclear,” he said during his news-and-talk television show “The 700 Club” on the Christian Broadcasting Network. The Lord didn’t say nuclear. But I do believe it will be something like that.”

Was he attempting to prepare the sheeple for a false flag operation in the US like the one carried out on September 11, 2001 for the purpose of commencing an attack on Iran which was being seriously planned at the time? Was his "prophesy" annulled when the Defense Department put off their attack plans? Nevertheless, demented Pat has a few "prophesies" regarding Russia as well. Watching this asswipe in action I don't know whether I should tremble in fear or pass out laughing. However, I urge you to watch the video link below, it's very surreal.

Pat Robertson

Pat Robertson's Thoughts on 2009 - CBN.com: http://www.youtube.com/watch?v=w5VrJmgzItM