America's Financial Crisis

[Armanen]

Re: America's Financial Crisis

Do you really think the "founding fathers" were less corrupt than the people running the show today? Other than what we learn about them in school or on the History Channel how much do we really know about the founding fathers or about the Revolutionary War. The revolutionary war was not a war of ideology versus oppression, it was essentially a war organized by wealthy landowners in America to end foreign taxation. On a side note, had it not been for the French Fleet at Yorktown or foreign officers like Marquis de Lafayette, Kosciusko, Pulaski and Baron Von Steuben training the American army against the British, the colonies would have never been able to achieve their independence. In my opinion, the aforementioned men, as well as the nation of France, are the real founding fathers of America. Baron Von Steuben in particular was the sole person responsible for turning the ragtag militias of the colonies into a professional fighting force. How many Americans know about him, compared to a mediocre military man and a defeatist figure like "George Washington"? Of all the things we may think we don't know much about, the American Revolutionary War is something we actually know very little about. Relatively speaking, very little is written in America about the European men mentioned above:

Here is a little piece on Baron Friedrich Wilhelm von Steuben, notice that his story appears under the condescending title - "Friends of the American Revolution":



Source: http://21stcenturycicero.wordpress.c...m-von-steuben/

I realize all this and my point was in reference to the political and social outlook of the majority of the Founders. Most were classical liberals and elitists who would be disgusted by the current social and political structure of america.

[Armenian]

Re: America's Financial Crisis

Retirement Savings Lose $2 Trillion in 15 Months

The stock market's prolonged tumble has wiped out about $2 trillion in Americans' retirement savings in the past 15 months, a blow that could force workers to stay on the job longer than planned, rein in spending and possibly further stall an economy reliant on consumer dollars, Congress's top budget analyst said yesterday. For many Americans, pensions and 401(k) plans are their only form of savings. The dwindling of these assets -- about a 20 percent decline overall -- is another setback just as many people are grappling with higher gas and food prices, more credit card debt, declining home values and less access to loans. "Unlike Wall Street executives, American families don't have a golden parachute to fall back on," said Rep. George Miller (D-Calif.), chairman of the House Committee on Education and Labor. "It's clear that Americans' retirement security may be one of the greatest casualties of this financial crisis."

Even traditional pension plans, which are formally known as defined-benefit plans and are widely considered more stable, have been hit hard by the stock market's volatility, losing 15 percent of their assets over the past year, Peter R. Orszag, director of the Congressional Budget Office, told the House panel. Despite the losses, companies will still be obligated to pay out the same pensions promised to employees but will have to recoup the extra costs in other ways, Orszag said. "When pension assets decline in 401(k) plans, the burden is on the workers," he said. "When pension plan assets decline in defined-benefit plans, the burden is on the firm to make up the difference. The firm will have to pass those costs on to their workers, to their shareholders or to consumers." Defined-benefit plans are company-sponsored programs that provide retirement payouts based on an employee's salary and tenure. The company shoulders the bulk of the investment decisions and risk. Defined-contribution plans, such as 401(k)s, turn those tasks over to the worker and are subject to the whims of the stock market.

Increasingly, employers have switched workers into defined-contribution plans. The federal government has also pushed 401(k) plans heavily, approving a law late last year that makes it easier for employers to automatically enroll their employees in them and other similar retirement plans. Defined-contribution plans tend to be more heavily weighted in stocks, either through individual holdings or mutual funds. As a result, said Orszag, "the value of assets in defined-contribution plans may have declined by slightly more than that of assets in defined-benefit plans." Through September, the percentage loss for the year in average account balances among 401(k) participants was between 7.2 and 11.2 percent, according to the Employee Benefit Research Institute's analysis of more than 2 million plans. Employees between the ages of 56 and 65 who had the fewest years on the job were the least affected, while those 36 to 45 years old with the longest tenures suffered the steepest declines, said Jack L. VanDerhei, research director for the D.C.-based institute. Younger workers tend to have more stocks in their portfolios while older employees move toward safer investments such as bonds, VanDerhei said.

The findings exacerbate a complaint among many workers and academics about 401(k) and similar plans that are heavily tied to the stock market. Are they really the best retirement vehicles for workers? "The loss of retirement security is a reversal of fortune and the result of very specific flawed governmental policies that have been biased toward 401(k) plans, rather than the result of technological change or the logical consequences of global economic trends," Teresa Ghilarducci, a professor of Economic Policy Analysis at the New School for Social Research, testified before the committee. Other academics and analysts say 401(k) plans allow employees to take control of their retirements. Jerry Bramlett, president of consulting firm BenefitStreet, said 401(k) participants should resist the urge to pull money out of stocks because that would lock in their losses. "Markets do go up and down, and 401(k) participants must try to remember to think long-term," he said.

Many investors have been buying low-yield Treasury bills in recent months because they are considered less volatile. Bramlett cautioned against that because it would leave them vulnerable to inflation. That said, 401(k) participants should evaluate their portfolios to make sure their money is spread among stock and fixed-income investments. They should also make sure they do not have too much of their own company's stock. Public pensions also have suffered. The assets held by state and local governments' pension plans declined by more than $300 billion between the second quarter of 2007 and the second quarter of 2008, according to the Federal Reserve. About 60 percent of public pension funds are invested in stocks, 30 percent in domestic fixed-income securities, 5 percent in real estate, and the remaining 5 percent in other products. Miller called the findings "very cataclysmic for middle-class families." Several analysts who testified at the hearing said the most vulnerable workers are those nearing retirement, who have large balances in their retirement plans that are now shrinking.

Tighter household budgets are also crimping workers' retirement savings. According to a survey released yesterday by AARP, 20 percent of baby boomers stopped contributing to their retirement plans in the past year because they have had trouble making ends meet. Already, more and more workers are delaying retirement, a trend that analysts and economists expect to accelerate because of the distressed economy. The people age 55 and older who work full time grew from about 22 percent in 1990 to nearly 30 percent in 2007, according to the Bureau of Labor Statistics. By 2016, the bureau predicts, the number of workers age 65 and over will soar by more than 80 percent, and they will make up 6.1 percent of the labor force. In 2006, they accounted for 3.6 percent of active workers.

Source: http://www.washingtonpost.com/wp-dyn...l?hpid=topnews

[Armenian]

Re: America's Financial Crisis

Rethinking the legacy of an almost worshiped man that virtually ran the United States for almost twenty years and in my opinion, ran it to the ground. Unlike the financial hardships being experienced by developing nations as a result of the financial crisis in the United States, the problems that the United States currently faces are longterm core/fundamental problems that will not be fixed under the current financial and political system. Due to the corrupt gluttonous financial elite in this country and the petty politicians (US presidents) that subserviently cater to them, the United States has been rotting from the head down. It will be sometime, however, before this financial mess hits "Joe-Six-Pack" in the face like a sledge hammer...

Armenian

************************

Taking Hard New Look at a Greenspan Legacy

“Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.”
— Alan Greenspan in 2004

George Soros, the prominent financier, avoids using the financial contracts known as derivatives “because we don’t really understand how they work.” Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential “hydrogen bombs.” And Warren E. Buffett presciently observed five years ago that derivatives were “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.” One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives — exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. For more than a decade, the former Federal Reserve Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. “What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so,” Mr. Greenspan told the Senate Banking Committee in 2003. “We think it would be a mistake” to more deeply regulate the contracts, he added.

Today, with the world caught in an economic tempest that Mr. Greenspan recently described as “the type of wrenching financial crisis that comes along only once in a century,” his faith in derivatives remains unshaken. The problem is not that the contracts failed, he says. Rather, the people using them got greedy. A lack of integrity spawned the crisis, he argued in a speech a week ago at Georgetown University, intimating that those peddling derivatives were not as reliable as “the pharmacist who fills the prescription ordered by our physician.” But others hold a starkly different view of how global markets unwound, and the role that Mr. Greenspan played in setting up this unrest. “Clearly, derivatives are a centerpiece of the crisis, and he was the leading proponent of the deregulation of derivatives,” said Frank Partnoy, a law professor at the University of San Diego and an expert on financial regulation. The derivatives market is $531 trillion, up from $106 trillion in 2002 and a relative pittance just two decades ago. Theoretically intended to limit risk and ward off financial problems, the contracts instead have stoked uncertainty and actually spread risk amid doubts about how companies value them.

If Mr. Greenspan had acted differently during his tenure as Federal Reserve chairman from 1987 to 2006, many economists say, the current crisis might have been averted or muted. Over the years, Mr. Greenspan helped enable an ambitious American experiment in letting market forces run free. Now, the nation is confronting the consequences. Derivatives were created to soften — or in the argot of Wall Street, “hedge” — investment losses. For example, some of the contracts protect debt holders against losses on mortgage securities. (Their name comes from the fact that their value “derives” from underlying assets like stocks, bonds and commodities.) Many individuals own a common derivative: the insurance contract on their homes. On a grander scale, such contracts allow financial services firms and corporations to take more complex risks that they might otherwise avoid — for example, issuing more mortgages or corporate debt. And the contracts can be traded, further limiting risk but also increasing the number of parties exposed if problems occur. Throughout the 1990s, some argued that derivatives had become so vast, intertwined and inscrutable that they required federal oversight to protect the financial system. In meetings with federal officials, celebrated appearances on Capitol Hill and heavily attended speeches, Mr. Greenspan banked on the good will of Wall Street to self-regulate as he fended off restrictions.

Ever since housing began to collapse, Mr. Greenspan’s record has been up for revision. Economists from across the ideological spectrum have criticized his decision to let the nation’s real estate market continue to boom with cheap credit, courtesy of low interest rates, rather than snuffing out price increases with higher rates. Others have criticized Mr. Greenspan for not disciplining institutions that lent indiscriminately. But whatever history ends up saying about those decisions, Mr. Greenspan’s legacy may ultimately rest on a more deeply embedded and much less scrutinized phenomenon: the spectacular boom and calamitous bust in derivatives trading.

Faith in the System

Some analysts say it is unfair to blame Mr. Greenspan because the crisis is so sprawling. “The notion that Greenspan could have generated a totally different outcome is naïve,” said Robert E. Hall, an economist at the conservative Hoover Institution, a research group at Stanford. Mr. Greenspan declined requests for an interview. His spokeswoman referred questions about his record to his memoir, “The Age of Turbulence,” in which he outlines his beliefs. “It seems superfluous to constrain trading in some of the newer derivatives and other innovative financial contracts of the past decade,” Mr. Greenspan writes. “The worst have failed; investors no longer fund them and are not likely to in the future.” In his Georgetown speech, he entertained no talk of regulation, describing the financial turmoil as the failure of Wall Street to behave honorably. “In a market system based on trust, reputation has a significant economic value,” Mr. Greenspan told the audience. “I am therefore distressed at how far we have let concerns for reputation slip in recent years.”

As the long-serving chairman of the Fed, the nation’s most powerful economic policy maker, Mr. Greenspan preached the transcendent, wealth-creating powers of the market. A professed libertarian, he counted among his formative influences the novelist Ayn Rand, who portrayed collective power as an evil force set against the enlightened self-interest of individuals. In turn, he showed a resolute faith that those participating in financial markets would act responsibly. An examination of more than two decades of Mr. Greenspan’s record on financial regulation and derivatives in particular reveals the degree to which he tethered the health of the nation’s economy to that faith. As the nascent derivatives market took hold in the early 1990s, and in subsequent years, critics denounced an absence of rules forcing institutions to disclose their positions and set aside funds as a reserve against bad bets. Time and again, Mr. Greenspan — a revered figure affectionately nicknamed the Oracle — proclaimed that risks could be handled by the markets themselves. “Proposals to bring even minimalist regulation were basically rebuffed by Greenspan and various people in the Treasury,” recalled Alan S. Blinder, a former Federal Reserve board member and an economist at Princeton University. “I think of him as consistently cheerleading on derivatives.”

Arthur Levitt Jr., a former chairman of the Securities and Exchange Commission, says Mr. Greenspan opposes regulating derivatives because of a fundamental disdain for government. Mr. Levitt said that Mr. Greenspan’s authority and grasp of global finance consistently persuaded less financially sophisticated lawmakers to follow his lead. “I always felt that the titans of our legislature didn’t want to reveal their own inability to understand some of the concepts that Mr. Greenspan was setting forth,” Mr. Levitt said. “I don’t recall anyone ever saying, ‘What do you mean by that, Alan?’ ” Still, over a long stretch of time, some did pose questions. In 1992, Edward J. Markey, a Democrat from Massachusetts who led the House subcommittee on telecommunications and finance, asked what was then the General Accounting Office to study derivatives risks. Two years later, the office released its report, identifying “significant gaps and weaknesses” in the regulatory oversight of derivatives.

“The sudden failure or abrupt withdrawal from trading of any of these large U.S. dealers could cause liquidity problems in the markets and could also pose risks to others, including federally insured banks and the financial system as a whole,” Charles A. Bowsher, head of the accounting office, said when he testified before Mr. Markey’s committee in 1994. “In some cases intervention has and could result in a financial bailout paid for or guaranteed by taxpayers.”

In his testimony at the time, Mr. Greenspan was reassuring. “Risks in financial markets, including derivatives markets, are being regulated by private parties,” he said. “There is nothing involved in federal regulation per se which makes it superior to market regulation.” Mr. Greenspan warned that derivatives could amplify crises because they tied together the fortunes of many seemingly independent institutions. “The very efficiency that is involved here means that if a crisis were to occur, that that crisis is transmitted at a far faster pace and with some greater virulence,” he said. But he called that possibility “extremely remote,” adding that “risk is part of life.” Later that year, Mr. Markey introduced a bill requiring greater derivatives regulation. It never passed.

Resistance to Warnings

In 1997, the Commodity Futures Trading Commission, a federal agency that regulates options and futures trading, began exploring derivatives regulation. The commission, then led by a lawyer named Brooksley E. Born, invited comments about how best to oversee certain derivatives. Ms. Born was concerned that unfettered, opaque trading could “threaten our regulated markets or, indeed, our economy without any federal agency knowing about it,” she said in Congressional testimony. She called for greater disclosure of trades and reserves to cushion against losses. Ms. Born’s views incited fierce opposition from Mr. Greenspan and Robert E. Rubin, the Treasury secretary then. Treasury lawyers concluded that merely discussing new rules threatened the derivatives market. Mr. Greenspan warned that too many rules would damage Wall Street, prompting traders to take their business overseas.

“Greenspan told Brooksley that she essentially didn’t know what she was doing and she’d cause a financial crisis,” said Michael Greenberger, who was a senior director at the commission. “Brooksley was this woman who was not playing tennis with these guys and not having lunch with these guys. There was a little bit of the feeling that this woman was not of Wall Street.”

Ms. Born declined to comment. Mr. Rubin, now a senior executive at the banking giant Citigroup, says that he favored regulating derivatives — particularly increasing potential loss reserves — but that he saw no way of doing so while he was running the Treasury. “All of the forces in the system were arrayed against it,” he said. “The industry certainly didn’t want any increase in these requirements. There was no potential for mobilizing public opinion.” Mr. Greenberger asserts that the political climate would have been different had Mr. Rubin called for regulation. In early 1998, Mr. Rubin’s deputy, Lawrence H. Summers, called Ms. Born and chastised her for taking steps he said would lead to a financial crisis, according to Mr. Greenberger. Mr. Summers said he could not recall the conversation but agreed with Mr. Greenspan and Mr. Rubin that Ms. Born’s proposal was “highly problematic.” On April 21, 1998, senior federal financial regulators convened in a wood-paneled conference room at the Treasury to discuss Ms. Born’s proposal. Mr. Rubin and Mr. Greenspan implored her to reconsider, according to both Mr. Greenberger and Mr. Levitt.

Ms. Born pushed ahead. On June 5, 1998, Mr. Greenspan, Mr. Rubin and Mr. Levitt called on Congress to prevent Ms. Born from acting until more senior regulators developed their own recommendations. Mr. Levitt says he now regrets that decision. Mr. Greenspan and Mr. Rubin were “joined at the hip on this,” he said. “They were certainly very fiercely opposed to this and persuaded me that this would cause chaos.” Ms. Born soon gained a potent example. In the fall of 1998, the hedge fund Long Term Capital Management nearly collapsed, dragged down by disastrous bets on, among other things, derivatives. More than a dozen banks pooled $3.6 billion for a private rescue to prevent the fund from slipping into bankruptcy and endangering other firms. Despite that event, Congress froze the Commodity Futures Trading Commission’s regulatory authority for six months. The following year, Ms. Born departed. In November 1999, senior regulators — including Mr. Greenspan and Mr. Rubin — recommended that Congress permanently strip the C.F.T.C. of regulatory authority over derivatives.

[...]

Source: http://www.nytimes.com/2008/10/09/bu...2ac5ac&ei=5087

[gmd]

Re: America's Financial Crisis

Rethinking the legacy of an almost worshiped man that virtually ran the United States for almost twenty years and in my opinion, ran it to the ground. Unlike the financial hardships being experienced by developing nations as a result of the financial crisis in the United States, the problems that the United States currently faces are longterm core/fundamental problems that will not be fixed under the current financial and political system. Due to the corrupt gluttonous financial elite in this country and the petty politicians (US presidents) that subserviently cater to them, the United States has been rotting from the head down. It will be sometime, however, before this financial mess hits "Joe-Six-Pack" in the face like a sledge hammer...

Armenian

************************

Taking Hard New Look at a Greenspan Legacy

“Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.”
— Alan Greenspan in 2004

George Soros, the prominent financier, avoids using the financial contracts known as derivatives “because we don’t really understand how they work.” Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential “hydrogen bombs.” And Warren E. Buffett presciently observed five years ago that derivatives were “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.” One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives — exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. For more than a decade, the former Federal Reserve Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. “What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so,” Mr. Greenspan told the Senate Banking Committee in 2003. “We think it would be a mistake” to more deeply regulate the contracts, he added.

Today, with the world caught in an economic tempest that Mr. Greenspan recently described as “the type of wrenching financial crisis that comes along only once in a century,” his faith in derivatives remains unshaken. The problem is not that the contracts failed, he says. Rather, the people using them got greedy. A lack of integrity spawned the crisis, he argued in a speech a week ago at Georgetown University, intimating that those peddling derivatives were not as reliable as “the pharmacist who fills the prescription ordered by our physician.” But others hold a starkly different view of how global markets unwound, and the role that Mr. Greenspan played in setting up this unrest. “Clearly, derivatives are a centerpiece of the crisis, and he was the leading proponent of the deregulation of derivatives,” said Frank Partnoy, a law professor at the University of San Diego and an expert on financial regulation. The derivatives market is $531 trillion, up from $106 trillion in 2002 and a relative pittance just two decades ago. Theoretically intended to limit risk and ward off financial problems, the contracts instead have stoked uncertainty and actually spread risk amid doubts about how companies value them.

If Mr. Greenspan had acted differently during his tenure as Federal Reserve chairman from 1987 to 2006, many economists say, the current crisis might have been averted or muted. Over the years, Mr. Greenspan helped enable an ambitious American experiment in letting market forces run free. Now, the nation is confronting the consequences. Derivatives were created to soften — or in the argot of Wall Street, “hedge” — investment losses. For example, some of the contracts protect debt holders against losses on mortgage securities. (Their name comes from the fact that their value “derives” from underlying assets like stocks, bonds and commodities.) Many individuals own a common derivative: the insurance contract on their homes. On a grander scale, such contracts allow financial services firms and corporations to take more complex risks that they might otherwise avoid — for example, issuing more mortgages or corporate debt. And the contracts can be traded, further limiting risk but also increasing the number of parties exposed if problems occur. Throughout the 1990s, some argued that derivatives had become so vast, intertwined and inscrutable that they required federal oversight to protect the financial system. In meetings with federal officials, celebrated appearances on Capitol Hill and heavily attended speeches, Mr. Greenspan banked on the good will of Wall Street to self-regulate as he fended off restrictions.

Ever since housing began to collapse, Mr. Greenspan’s record has been up for revision. Economists from across the ideological spectrum have criticized his decision to let the nation’s real estate market continue to boom with cheap credit, courtesy of low interest rates, rather than snuffing out price increases with higher rates. Others have criticized Mr. Greenspan for not disciplining institutions that lent indiscriminately. But whatever history ends up saying about those decisions, Mr. Greenspan’s legacy may ultimately rest on a more deeply embedded and much less scrutinized phenomenon: the spectacular boom and calamitous bust in derivatives trading.

Faith in the System

Some analysts say it is unfair to blame Mr. Greenspan because the crisis is so sprawling. “The notion that Greenspan could have generated a totally different outcome is naïve,” said Robert E. Hall, an economist at the conservative Hoover Institution, a research group at Stanford. Mr. Greenspan declined requests for an interview. His spokeswoman referred questions about his record to his memoir, “The Age of Turbulence,” in which he outlines his beliefs. “It seems superfluous to constrain trading in some of the newer derivatives and other innovative financial contracts of the past decade,” Mr. Greenspan writes. “The worst have failed; investors no longer fund them and are not likely to in the future.” In his Georgetown speech, he entertained no talk of regulation, describing the financial turmoil as the failure of Wall Street to behave honorably. “In a market system based on trust, reputation has a significant economic value,” Mr. Greenspan told the audience. “I am therefore distressed at how far we have let concerns for reputation slip in recent years.”

As the long-serving chairman of the Fed, the nation’s most powerful economic policy maker, Mr. Greenspan preached the transcendent, wealth-creating powers of the market. A professed libertarian, he counted among his formative influences the novelist Ayn Rand, who portrayed collective power as an evil force set against the enlightened self-interest of individuals. In turn, he showed a resolute faith that those participating in financial markets would act responsibly. An examination of more than two decades of Mr. Greenspan’s record on financial regulation and derivatives in particular reveals the degree to which he tethered the health of the nation’s economy to that faith. As the nascent derivatives market took hold in the early 1990s, and in subsequent years, critics denounced an absence of rules forcing institutions to disclose their positions and set aside funds as a reserve against bad bets. Time and again, Mr. Greenspan — a revered figure affectionately nicknamed the Oracle — proclaimed that risks could be handled by the markets themselves. “Proposals to bring even minimalist regulation were basically rebuffed by Greenspan and various people in the Treasury,” recalled Alan S. Blinder, a former Federal Reserve board member and an economist at Princeton University. “I think of him as consistently cheerleading on derivatives.”

Arthur Levitt Jr., a former chairman of the Securities and Exchange Commission, says Mr. Greenspan opposes regulating derivatives because of a fundamental disdain for government. Mr. Levitt said that Mr. Greenspan’s authority and grasp of global finance consistently persuaded less financially sophisticated lawmakers to follow his lead. “I always felt that the titans of our legislature didn’t want to reveal their own inability to understand some of the concepts that Mr. Greenspan was setting forth,” Mr. Levitt said. “I don’t recall anyone ever saying, ‘What do you mean by that, Alan?’ ” Still, over a long stretch of time, some did pose questions. In 1992, Edward J. Markey, a Democrat from Massachusetts who led the House subcommittee on telecommunications and finance, asked what was then the General Accounting Office to study derivatives risks. Two years later, the office released its report, identifying “significant gaps and weaknesses” in the regulatory oversight of derivatives.

“The sudden failure or abrupt withdrawal from trading of any of these large U.S. dealers could cause liquidity problems in the markets and could also pose risks to others, including federally insured banks and the financial system as a whole,” Charles A. Bowsher, head of the accounting office, said when he testified before Mr. Markey’s committee in 1994. “In some cases intervention has and could result in a financial bailout paid for or guaranteed by taxpayers.”

In his testimony at the time, Mr. Greenspan was reassuring. “Risks in financial markets, including derivatives markets, are being regulated by private parties,” he said. “There is nothing involved in federal regulation per se which makes it superior to market regulation.” Mr. Greenspan warned that derivatives could amplify crises because they tied together the fortunes of many seemingly independent institutions. “The very efficiency that is involved here means that if a crisis were to occur, that that crisis is transmitted at a far faster pace and with some greater virulence,” he said. But he called that possibility “extremely remote,” adding that “risk is part of life.” Later that year, Mr. Markey introduced a bill requiring greater derivatives regulation. It never passed.

Resistance to Warnings

In 1997, the Commodity Futures Trading Commission, a federal agency that regulates options and futures trading, began exploring derivatives regulation. The commission, then led by a lawyer named Brooksley E. Born, invited comments about how best to oversee certain derivatives. Ms. Born was concerned that unfettered, opaque trading could “threaten our regulated markets or, indeed, our economy without any federal agency knowing about it,” she said in Congressional testimony. She called for greater disclosure of trades and reserves to cushion against losses. Ms. Born’s views incited fierce opposition from Mr. Greenspan and Robert E. Rubin, the Treasury secretary then. Treasury lawyers concluded that merely discussing new rules threatened the derivatives market. Mr. Greenspan warned that too many rules would damage Wall Street, prompting traders to take their business overseas.

“Greenspan told Brooksley that she essentially didn’t know what she was doing and she’d cause a financial crisis,” said Michael Greenberger, who was a senior director at the commission. “Brooksley was this woman who was not playing tennis with these guys and not having lunch with these guys. There was a little bit of the feeling that this woman was not of Wall Street.”

Ms. Born declined to comment. Mr. Rubin, now a senior executive at the banking giant Citigroup, says that he favored regulating derivatives — particularly increasing potential loss reserves — but that he saw no way of doing so while he was running the Treasury. “All of the forces in the system were arrayed against it,” he said. “The industry certainly didn’t want any increase in these requirements. There was no potential for mobilizing public opinion.” Mr. Greenberger asserts that the political climate would have been different had Mr. Rubin called for regulation. In early 1998, Mr. Rubin’s deputy, Lawrence H. Summers, called Ms. Born and chastised her for taking steps he said would lead to a financial crisis, according to Mr. Greenberger. Mr. Summers said he could not recall the conversation but agreed with Mr. Greenspan and Mr. Rubin that Ms. Born’s proposal was “highly problematic.” On April 21, 1998, senior federal financial regulators convened in a wood-paneled conference room at the Treasury to discuss Ms. Born’s proposal. Mr. Rubin and Mr. Greenspan implored her to reconsider, according to both Mr. Greenberger and Mr. Levitt.

Ms. Born pushed ahead. On June 5, 1998, Mr. Greenspan, Mr. Rubin and Mr. Levitt called on Congress to prevent Ms. Born from acting until more senior regulators developed their own recommendations. Mr. Levitt says he now regrets that decision. Mr. Greenspan and Mr. Rubin were “joined at the hip on this,” he said. “They were certainly very fiercely opposed to this and persuaded me that this would cause chaos.” Ms. Born soon gained a potent example. In the fall of 1998, the hedge fund Long Term Capital Management nearly collapsed, dragged down by disastrous bets on, among other things, derivatives. More than a dozen banks pooled $3.6 billion for a private rescue to prevent the fund from slipping into bankruptcy and endangering other firms. Despite that event, Congress froze the Commodity Futures Trading Commission’s regulatory authority for six months. The following year, Ms. Born departed. In November 1999, senior regulators — including Mr. Greenspan and Mr. Rubin — recommended that Congress permanently strip the C.F.T.C. of regulatory authority over derivatives.

[...]

Source: http://www.nytimes.com/2008/10/09/bu...2ac5ac&ei=5087

So, what is your assesment of things to come? More importantly what do you think should be done?

I ask these things because my own assesment is that a US economic collapse has obvious dire consequences for the rest of the world and an eventual recovery, depending on the political/economic reforms inacted, may benefit the US more then other regions of the world.

[yerazhishda]

Re: America's Financial Crisis

Dow is currently at 8988. Great.

[Armenian]

Re: America's Financial Crisis

So, what is your assesment of things to come? More importantly what do you think should be done? I ask these things because my own assesment is that a US economic collapse has obvious dire consequences for the rest of the world and an eventual recovery, depending on the political/economic reforms inacted, may benefit the US more then other regions of the world.

Had I known the answers to your questions I would be siting next to the president of the United States and not in my home conversing with you. I can only give you my layman's assessment of the overall situation, naturally based on what I see and what I read - and my keen sense

Americans have been living comfortably not because the US is a great industrial power, not because the US controls vast amounts of natural resources, nor is it because the US has a great work force, Americans have been living comfortably because of the hundreds of billions of dollars being pumped into the US economy by foreign entities like China, Saudi Arabia, Russia, Japan and western Europe, and the trillions of dollars, virtually created out of thin air, being poured into the US economy by the Federal Reserve. This situation has been more-or-less keeping the nation afloat. However, this situation also has drastic side effects like inflation, a financial bubble and worst of all, a false sense of security. The US dollar has become in reality a worthless piece of paper. The US dollar's perceived worth/strenght is simply tied to the geopolitical status quo of the world, in which the US has been the supreme power for many years. With all this free money being pumped into the US economy during the past several decades the US has in essence become primarily a service oriented economy and the world's primere consumer of commodities. As a result of this, the US become the economic center of gravity around which most nations on earth revolved. What's more, the American military and/or American culture has successfully invaded virtually all nations on earth, thereby further making the rest of the world desperately dependent on the US.

Therefore, you are right in that the US is an economic gargantuan who's fall may pull many other nations down with it. Closer a nation is to the US center of gravity the more vulnerable it may be if and when the US suffers a total economic collaspe. As a result, we have major foreign powers looking to make sure this does not happen. Can it be done? The US is like a junkie that is being administered a steady dose of narcotics to help it stay calm and not hurt anyone. It's like a potentially destructive giant on dialysis and under constant watch. How long will this situation last? Your guess to these questions are as good as mine. Nevertheless, the more you seriously look into the problems the US is facing today the more you will realize that not much can be done to retard its inevitable decline, other than selling the nation to the highest bidder - which may actually be happening as we speak. The US is facing longterm and profound problems. Don't be surprised if talk about the North American Union gains momentum as a result of the current economic crisis. The North American Union, combining Mexico and Canada to the US may be one way to remedy America's longterm problems.

Regarding the lasting effect on other nation: In my opinion, nations like India, Russia, China, Japan, Germany will be able to recover due to their powerful industry as in the case of China; innovative and technically capable work force as in the case of Japan and Germany; and the control and distribution of natural resources as in the case of Russia. While the whole US economy falters the only serious problem the aforementioned nations will have is in their stock markets and perhaps their exports, most of which is consumed by the US and western Europe. The world economy will suffer greatly, some may hurt more than the US, but others are poised today to takeover control of whatever the US leaves behind.

Further perspective: At the turn of the 20th century the world faced a multipolar political reality where major nations like France, United States, Austria, Germany, Japan, Russian Empire, British Empire, Ottoman Empire often competed against one another - without a single entity being all powerful. This geopolitical diversity was somewhat abated with the results of the First World War. Some years later, Germany's and Japan's defeat created in essence a bipolar world at the end of the Second World War. Consequently, during the Cold War, we had the Soviet Union on one side and the Western world (led by the US) on the other. Since the sudden collapse of the Soviet Union, its been a unipolar world, a world where the US has been the undisputed military, economic, political and cultural superpower. The US is proving today that being on the top may indeed be a lonely and risky place. The political entity known as the US is so large, so powerful, so intertwined with the global economy that nations worldwide are afraid of its fall. But how long can the US survive on top being administered by lesser nations below?

Historical note: The British Empire faced a similar situation the US is in today at the turn of the last century. The Empire was overextended, its population overly complacent and its economy seriously lagged behind in various sectors. What did the British do? They essentially handed over their vast empire to the United States (along with its inherent flaws) and they drastically downsized. This is essentially why there still is a nation called Britain today. Had they been stubborn, arrogant and shortsighted they would have simply disappeared into the pages of history as a result of the two world wars.

So, in my opinion, what should be done? The financial/political elite in this country should give up the empire, tighten its belt and drastically downsize. Will they do so? Knowing Washington well, I would not hold my breath.

Anyway, I'm no expert, I suggest you read many of the good essays/articles found in this thread and derive your own conclusion.

[Anonymouse]

Re: America's Financial Crisis

The American Empire is officially on the decline. Look to the rise of the East to try to bear the brunt of this century's woes.

America is a prime example of what happens when you become infested with greed, corruption, enervation of youth and a culture of entitlement, excess and empire. It is a self-absorbed nation that has completely distanced itself from the supposed ideals it was founded on.

The funniest thing in all this is these dumb voters who will be voting for the two candidates who are essentially the different sides of the same coin. Republicans borrow and spend, and Democrats tax and spend. Both favor endless spending on worthless programs and entitlements and the continuation of the unjust and unethical wars in Iraq and Afghanistan, and the continued presence of American military bases around the world. These cost billions and trillions of dollars that America does not have. America is bankrupt. How are these stupid candidates going to pay for all their programs they intend? These dumb voters never even think about these things, or how they were able to pass the bail out had it not been for the fact that they had to raise the cap on the national debt limit.

Oh well, unfortunately, history is cyclical.

[Sip]

Re: America's Financial Crisis

Americans have been living comfortably during the past several decades not because the US is a great industrial power, nor is it because the US controls vast amounts of natural resources, nor is it because the US has a great work force.

Perhaps that is true. But at least the US still has those 3 things to fall back on once the "money bubble" evaporates. It is still one the top exporters in the world (if not the top) so if the rest of the world starts doing "better" than before, that will only help the US

[gmd]

Re: America's Financial Crisis

Thanks Armenian, I was interested in your take on my question. I do have my own opinion on this matter. I moved out to the country over 4 yrs ago. I drive 80 miles to work but my family is relatively safe. I grew up in this country and my view is that the silent majority does not understand nor accept the system that exists because it is not only flawed but obviously full of deception. Enough people have gone along for the ride in the last couple of decades because they fooled themselves into thinking that the cheap crap they were buying was a status of wealth, instead of realizing that the debt was a form of slavery. I think there will be a type of die off. I thought we had more time but it may be coming sooner then later. Most people will be unaware due to denial and this will prevent them from adjusting to the new dynamic in a way that will allow them to survive and eventuly prosper. Don't take what I say as the rantings of a survivalist nut. There is still a grain of truth in it. (that is for anyone reading this post not just you).

[yerazhishda]

Re: America's Financial Crisis

Close at 8,579 (-679) points today. I agree with gmd, the decline of the American Empire may come sooner rather than later.