An Anonymous blogger has left a comment in the remarks section that I thought needed more exposure. AIM (An Inquiring Mind) is his byline. His thoughts adds some organization to what we have been discussing. Here is his post:We've been on shaky ground and developing all sorts of systemic diseases for over a century due to operating with a central banking system controlled by The Fed, following Lord Keynes theories; income tax, going off the gold standard, totally utilizing a fiat currency, allowing politicians, lobbyists and the military industrial complex to dismantle our economy. Yet, as far as causality goes for this recent episode, here is my understanding and take on it:
It started with the Carter administration and the Community Reinvestment Act ("everybody should have a home and we'll lend you the money to buy it"). Clinton and Bush expanded it in their administrations.
Then we had the tech or dot com crash, a recession and the 9/11 terrorist attack. So, Greenspan lowered interest rates for a very long term. He created very cheap money. Lenders started coming up with all sorts of mortgage structures to facilitate home sales (ARMs, option ARMs, interest only loans, stated income only loans, etc.) They dropped all protective guidelines and standards because they were able to transfer the risk... they packaged and sold them to Wall St.
Wall St. with their new flock of financial engineers securitized these mortgages (as well as credit card, auto and student debt) in the form of CDOs, MBS's, SIVs, etc. and sold them off to every far corner of the world. They also transferred the risk to pensions, mutual funds, money market, hedge funds, etc. The credit agencies gave them falsely high ratings. Congress passed or rescinded laws in order to increase leverage, allow banks to become investment banks, create derivatives. The SEC allowed some to leverage at 40 to 1.
Then the bubble floated into a pin and popped. Beginning the financial collapse and cascade of trouble that we are now enjoying. Continuous and erroneous policies have been implemented as the solution (TARP, TALF, TLGP, TSLF, SLF, PDCF, HAM, ETC. ETC. ETC. ETC.) and they are being continued in the Obama administration. The fallout is historic: foreclosures, bankruptcies, commercial RE, debt destruction, unemployment, etc. etc.
There is a worldwide attempt to deleverage, restructure, and recapitalize. The International New World Economy boys see their chance to move things in their direction now, and will attempt to do so (under the "capitalism doesn't work" guise).
Our current administration has no focus or certainty. They go from one emergency or fire to the next. This is traumatizing the markets. We have a tsunami of trouble: zombie banks, zombie homeowners, key drivers of the economy are crashed, energy and food problems in the near future, etc. etc. And our government is basically running in the wrong direction with every solution they implement. They have no idea what other complications or collateral damage they are causing in our near and distant economic future.
The guys that caused this or allowed it to happen (Bernanke, Geithner, Summers) are now in charge of fixing it?! Many more explosions are yet to come. Due to this, there is really no way to predict where things are going and what will happen.
We've been forced into a situation of instability and inability to predict. We have to live week to week, month to month and can't rationally plan beyond these short time frames. The government is PUBLIC ENEMY #2. We are PUBLIC ENEMY #1 for allowing our government to grow into what it is and our politicians and corporate leaders to run astray.
More basic to this all is human nature. Once the government, wittingly or unwittingly, removed a significant amount of restraints the people went hog wild. Greed, something for nothing mentality, the party mentality, debt mentality, etc. all flourished and blossomed within the Capital building, the White House, Wall St., the halls of corporate America, the banks, the lenders, the shadow banking system, Main St. and in our own homes.
Hell, we are all to blame. Now we need rationality more than ever. Where is that going to come from?