What started the downturn

[Ben Willaert]

I am starting this thread to talk about what led to the economic crisis we are now in. Understanding that can help us prevent it from happening again.

Here was my theory from another thread:

Sure there is blame for greed, not sure if it all belongs to the rich though. I wonder how much being able to buy and sell stocks on the internet started the instability. Instead of the pro’s, anyone can do it on their own now. The average American was doing just fine paying their credit card minimums while enjoying their new house. Then gas prices skyrocketed because of stock speculation. We lost our disposable income plus some. We stopped consuming other products to make up for the high gas prices. Businesses lost the sales of those other products and had to cut back. Manufacturing got cut back from supplying the businesses. Soon the layoffs start because of the cut backs. Now people can’t pay their mortgages and it is exposed the mortgage brokers got the banks to agree to a lot of risky loans. At the same time, the auto industry also gambled on us. They let us lease vehicles with a certain amount of depreciation calculated in. High gas prices sent the demand for the very expensive gas hogs into the ground. Lease vehicles are coming back in with a resale value nothing close to the amount the auto company still needs out of them. With high labor costs from their unions, they don’t have much wiggle room and are in serious trouble real quick. And to top it all off the stock market goes haywire because there are a bunch of amateurs pulling out on every whim. As stock goes down companies have to lay off more because they don’t have capital and their products aren’t selling.

Or at least that is the way I witnessed it. I think it is worth all our time to examine what happened and what each of us could have done differently. Saying the rich did it and punishing them with higher taxes doesn’t prevent anything I just mentioned from happening again. This whole thing is too catastrophic to be perpetrated by a few evil CEO’s. That is the problem with placing blame; we miss a whole bunch more of the story. That is why I try to never say “they did this” or “they did that”. It is always “us” or “we”. And Don’t even get me started on “they say” when it comes to the weather! What ever “they say” is never what we get!

Dan Conner:

This depression was not caused but anything than the mortgage loan business. There have been $ trillions that have gone bad. That caused the squeeze everywhere else. While consumers haven't exactly been the virtue of manoey managers, it was the mortgage mrket that turned things updide down. Even Bush saw that.

Me:
You don’t think the high gas prices pinched consumers? I know I couldn’t buy the things I used to because my money was going into my gas tank. Without people consuming, businesses can’t sell products and have to cut back resulting in layoffs. The high gas prices had more to do with speculation on the stock market then any evil CEO’s or the mortgage market. Saudi Arabia and OPEC just sat back and enjoyed the show. Why should they sell oil cheaper then it is being bought and sold for on the stock market; is what they said to Bush.

The oil speculation was fueled by the belief that Americans could never cut back on the amount of oil we consume. The risky mortgages were giving us the homes we demanded. The auto leases were letting us drive expensive vehicles at a reduced rate. So I guess the question is: Do the evil rich people control what we consume, or do they provide us what we want to consume?

The way I see it, the evil rich people took a chance on us. They figured that if we are allowed to own more things we would become more responsible in paying for them. We did for awhile, but then the high gas prices and the slowdown came pinching our pockets even more, causing us to default. The evil rich people got burned gambling on us. They wanted us to win and in turn they win too. But again, that is just my theory.

[Dan Conner]

I am starting this thread to talk about what led to the economic crisis we are now in. Understanding that can help us prevent it from happening again.

Here was my theory from another thread:

Sure there is blame for greed, not sure if it all belongs to the rich though. I wonder how much being able to buy and sell stocks on the internet started the instability. Instead of the pro’s, anyone can do it on their own now. The average American was doing just fine paying their credit card minimums while enjoying their new house. Then gas prices skyrocketed because of stock speculation. We lost our disposable income plus some. We stopped consuming other products to make up for the high gas prices. Businesses lost the sales of those other products and had to cut back. Manufacturing got cut back from supplying the businesses. Soon the layoffs start because of the cut backs. Now people can’t pay their mortgages and it is exposed the mortgage brokers got the banks to agree to a lot of risky loans. At the same time, the auto industry also gambled on us. They let us lease vehicles with a certain amount of depreciation calculated in. High gas prices sent the demand for the very expensive gas hogs into the ground. Lease vehicles are coming back in with a resale value nothing close to the amount the auto company still needs out of them. With high labor costs from their unions, they don’t have much wiggle room and are in serious trouble real quick. And to top it all off the stock market goes haywire because there are a bunch of amateurs pulling out on every whim. As stock goes down companies have to lay off more because they don’t have capital and their products aren’t selling.

Or at least that is the way I witnessed it. I think it is worth all our time to examine what happened and what each of us could have done differently. Saying the rich did it and punishing them with higher taxes doesn’t prevent anything I just mentioned from happening again. This whole thing is too catastrophic to be perpetrated by a few evil CEO’s. That is the problem with placing blame; we miss a whole bunch more of the story. That is why I try to never say “they did this” or “they did that”. It is always “us” or “we”. And Don’t even get me started on “they say” when it comes to the weather! What ever “they say” is never what we get!

Dan Conner:

This depression was not caused but anything than the mortgage loan business. There have been $ trillions that have gone bad. That caused the squeeze everywhere else. While consumers haven't exactly been the virtue of manoey managers, it was the mortgage mrket that turned things updide down. Even Bush saw that.

Me:
You don’t think the high gas prices pinched consumers? I know I couldn’t buy the things I used to because my money was going into my gas tank. Without people consuming, businesses can’t sell products and have to cut back resulting in layoffs. The high gas prices had more to do with speculation on the stock market then any evil CEO’s or the mortgage market. Saudi Arabia and OPEC just sat back and enjoyed the show. Why should they sell oil cheaper then it is being bought and sold for on the stock market; is what they said to Bush.

The oil speculation was fueled by the belief that Americans could never cut back on the amount of oil we consume. The risky mortgages were giving us the homes we demanded. The auto leases were letting us drive expensive vehicles at a reduced rate. So I guess the question is: Do the evil rich people control what we consume, or do they provide us what we want to consume?

The way I see it, the evil rich people took a chance on us. They figured that if we are allowed to own more things we would become more responsible in paying for them. We did for awhile, but then the high gas prices and the slowdown came pinching our pockets even more, causing us to default. The evil rich people got burned gambling on us. They wanted us to win and in turn they win too. But again, that is just my theory.

Nothing can be dismissed without some affect on the downturn, but the price of oil had alsmost nothing to do with it. If it did, then we would be prospering now. The price of oil is the lowest it's been in years.

I don't really know if you are aware of the magnitude of the financial crisis. It was created by home finance brokers soliciting morgages to customers that could not afford to pay, unless interest rates stayed low and housing continued it's crazy escalation in prices. All sorts of people were buying houses on speculation figuring they would go nothing but up. This was particlarly bad in CA and FL, and the east coast. Then, all of a sudden the demand for homes plateaued out along with values. The market was saturated. All the variable interest rates came due to be reupped and the flipping owners could not sell. Then started the foreclosure process.

Meanwhile, all sorts of banks were buying and selling these traunches of loans back and forth among them, like they were stock. They were speculating on the increasing value of these traunches. However, the banks knew better. They knew there were many bad loans in these traunches, so they started insuring them. This gave them a false sense of security, feeling they were covered no matter what. They didn't figure there was so much of that going on and that the mix and matched traunches were so leveraged with insurance, that it all caved in when mortgages started going bad. These insured mortgages traunches were called credit swap defaults (CSD's).

There have been many estimates of the value of all the CSD's, from a low of 40 trillion dollars up to a quadrillion dollars. Bill Bradley said there was more money in outstanding CSD's than all of the gross national products of all the countries in the world. It was gargantuan, enormous, staggering, or whatever you call it. Anyway, the insurance companies (AIG) went broke because they carried alot of the insurance and so did all the fiancial brokers and bankers that were heavy into CSD's. Of course, in the good times AIG made a fortune on all the premiums these investment houses paid them, but they didn't figure they would have to make good on the mess. It was so huge that credit lending in banks stopped. There was no money left in the banks to loan out. They had enormous losses on their books virtually eliminating any assets they might have. They actually have a negative value. That's why shares in CitiBank are worth less than a dollar now. Bank of America was also decimated. That's No1 & 2.

It was largely the high flying executives in New York that created these CSD's and made fortunes trading them, when they were worth somethng. They encouraged risky, and many times worthless loans, so they could create more CSD's to trade. They would sell and then buy more. They figured what the heck, they're insured, right. In their frenzy to make more more more they fogot that they virtually overloaded the entire economy of the US with worthless mortgages and insurance coverage that couldn't cover the losses. So here we are. Banks and insurance companies went bust, along with all the investment houses and banks that decided to heavily trade on the junk CSD's. What makes it so bad, is that CSD's were a dreamed up concoction of a Wall Street investor that would never have happened if the banks and investment houses had been properly regulated and monitored. It wouldn't have happened before banking deregulation of the 1980's. Alan Greenspan was a proponent of deregulation too, but he now gravely realizes his error, and has said so in testimony in front of the House of Representatives.

[Ben Willaert]

The only reason I bring up the price of gasoline was that it took a lot of disposable money out of the hands of consumers. Yes, oil is back down but now American consumers are wary. We are saving more then ever in fear of what is happening. Our economy, built on material consumption, is taking quite the down turn from our fugal ways. Jobs have to be cut because products aren’t being consumed. Businesses can’t keep producing products if no one will buy them.
http://www.usatoday.com/money/perfi/basics/2008-11-16-thrift-saving-frugal_N.htm

The risky loans are being defaulted on because those people couldn’t afford both high gas prices and the mortgages that were over their heads. If they did make it, they lost their job in the downsizing and defaulted then. I also remember the “house flipping” craze was in full swing. Young entrepreneurs were buying as many houses as they could and making dramatic changes to sell them for much more. Eventually the market dried up when things went south. That left a lot of people with homes they couldn’t pay for because they were financing the mortgages on the homes they sold. As a result of the many foreclosures for different reasons, the CSD’s were then able to add to the problem.

It is pointed out how the “high flying executives” encouraged these loans in order to get rich, but what about the government? Affordable housing was the focus of the Democratic Party. Here is a Youtube video from Fox pointing out Barney Frank and Charles Schumer both opposing regulating Fannie May and Freddie Mac out of fear affordable housing would be jeopardized. And what about Bill Clinton and ACORN doing all they could to make it easier to buy houses with little or no money down. Bush went right along with these policies and ideas as well.
http://www.youtube.com/watch?v=cMnSp4qEXNM&NR=1
http://www.businessweek.com/the_thread/hotproperty/archives/2008/02/clintons_drive.html

[Dan Conner]

The only reason I bring up the price of gasoline was that it took a lot of disposable money out of the hands of consumers. Yes, oil is back down but now American consumers are wary. We are saving more then ever in fear of what is happening. Our economy, built on material consumption, is taking quite the down turn from our fugal ways. Jobs have to be cut because products aren’t being consumed. Businesses can’t keep producing products if no one will buy them.
http://www.usatoday.com/money/perfi/basics/2008-11-16-thrift-saving-frugal_N.htm

The risky loans are being defaulted on because those people couldn’t afford both high gas prices and the mortgages that were over their heads. If they did make it, they lost their job in the downsizing and defaulted then. I also remember the “house flipping” craze was in full swing. Young entrepreneurs were buying as many houses as they could and making dramatic changes to sell them for much more. Eventually the market dried up when things went south. That left a lot of people with homes they couldn’t pay for because they were financing the mortgages on the homes they sold. As a result of the many foreclosures for different reasons, the CSD’s were then able to add to the problem.

It is pointed out how the “high flying executives” encouraged these loans in order to get rich, but what about the government? Affordable housing was the focus of the Democratic Party. Here is a Youtube video from Fox pointing out Barney Frank and Charles Schumer both opposing regulating Fannie May and Freddie Mac out of fear affordable housing would be jeopardized. And what about Bill Clinton and ACORN doing all they could to make it easier to buy houses with little or no money down. Bush went right along with these policies and ideas as well.
http://www.youtube.com/watch?v=cMnSp4qEXNM&NR=1
http://www.businessweek.com/the_thread/hotproperty/archives/2008/02/clintons_drive.html

Yes, buying gas did take some money out of the economy, which, in turn, reduced consumption. However, it wasn't of a scale that causes monetary collapse, especially for the realtively short period that it existed. By far, the prime reason for the collapse was when our banking system collapsed. When all these CSD's went bad, all their value, which was on the bank books as assets, turned immediately into liabilities. Then, instead of banks having large amounts of assets to loan out, they only had liabilities. So much of them, that there was NO money to loan. Businesses, big and small, rely on continuing loans to finance new capital AND operations. Without money to borrow, they had so cease operations and capital improvements. GM is a good example.

Businesses that rely heavily on large loans, like home builders and auto companies were devastated. No loans, no car/home purchases. No home/car purshases, no employees to do that work. No employees to do that work, more unemployment, and so on. I think you know the rest. People lost life savings in the stock market's plunge to the bottom. Plans to retire delayed.

I think it also important to recognize that our economy supports and subsidizes rich beyond what is wise. Currently the top 1% of people control 80% of the wealth, and the disparity was getting worse day-by-day. That's bizarre. Take just one measily company, Merrill Lynch. In the year they failed, and were bought by Bank of Amierica (B of A), after the Treasury of course gave B of A $20 billion to make the purchase. The outgoing Merrill Lynch board gave their executives $3.6 billion in bonuses just ahead of the merger and before the time they normally give them. Remember, Merrill Lynch lost many many billions of dollars that year because of foolish investments. Think of this as the raping of a company before it dies.

While Merrill Lynch is but one investment house on Wall street, just imagine the thousands of them around the country, all getting ridiculous bonuses. No doubt it had to cost hundreds of billions of dollars, all for a tiny tiny fraction of 1% of the workers. That means there was a far smaller piece of the economic pie for you and everyone else. And believe me that is about everyone. Executive compensation, corporate or banks, has drained an incredible amount of our country's riches, at everyone else's expense. Excusing the pay as retention pay is a joke. These people failed miserable and shouldn't be retained. The other point is, if we are to judge the public as being too consumer driven and not saving enough, then we have to judge these super rich people who consume far too much of our economy. It is their income that has deprived millions of health coverage and humane living conditions. They have also adversely affected abject poverty in other nations. These pigs have eaten so much at the trough, there wasn't enough left for millions of other "starving" pigs. It's gluttony, selfishness, greed, and whatever bad term you might want to use descibe it.

[Ben Willaert]

Right, so it was kinda like a game of hot potato with these risky loans. But then what led to the risky loans in the first place? It was Bill Clinton that made it possible for more people to get approved for mortgages. The intentions seemed good to provide affordable housing for more Americans. Groups like ACORN lobbied congress to no end to keep the loans coming. George W. saw it as an opportunity to expand business and did nothing to stop it while a democratic congress pushed it all through. Without those actions there wouldn’t be any risky mortgages to play hot potato with.

The same people that paved the road for this part of the disaster with CSD’s are still in power. Their intentions were good and noble, but it backfired big time. Now the government wants to make more good and noble policies to help out the poor and middle class like it did with affordable housing. I am wary of those consequences. So is the stock market. Talk of noble change like government health care, are actually doing more harm to the stock market. Investors used to be able and invest in private health care providers during economic downturns because they always stay stable, but now they are not.
http://www.businessweek.com/investor/content/mar2009/pi2009034_253747.htm

Going after the rich is just making them the fallguys for situations that many more had a hand in. On another thread Liz Ratcliff had stated she trusts the government over businesses leaders. While I agree their intentions may be better, the limited scope of their knowledge can have dire consequences. Business leaders are everywhere and in direct competition to provide what is usually best for the consumers. Their knowledge is unlimited. Were CSD’s invented to make huge profits off of, or were they made to manage the risky loans?

[Liz Ratcliff]

Right, so it was kinda like a game of hot potato with these risky loans. But then what led to the risky loans in the first place? It was Bill Clinton that made it possible for more people to get approved for mortgages. The intentions seemed good to provide affordable housing for more Americans. Groups like ACORN lobbied congress to no end to keep the loans coming. George W. saw it as an opportunity to expand business and did nothing to stop it while a democratic congress pushed it all through. Without those actions there wouldn’t be any risky mortgages to play hot potato with.

The same people that paved the road for this part of the disaster with CSD’s are still in power. Their intentions were good and noble, but it backfired big time. Now the government wants to make more good and noble policies to help out the poor and middle class like it did with affordable housing. I am wary of those consequences. So is the stock market. Talk of noble change like government health care, are actually doing more harm to the stock market. Investors used to be able and invest in private health care providers during economic downturns because they always stay stable, but now they are not.
http://www.businessweek.com/investor/content/mar2009/pi2009034_253747.htm

Going after the rich is just making them the fallguys for situations that many more had a hand in. On another thread Liz Ratcliff had stated she trusts the government over businesses leaders. While I agree their intentions may be better, the limited scope of their knowledge can have dire consequences. Business leaders are everywhere and in direct competition to provide what is usually best for the consumers. Their knowledge is unlimited. Were CSD’s invented to make huge profits off of, or were they made to manage the risky loans?

Ben, just to clarify, what I said was in terms of healthcare, I would trust government run universal health care (as in France's) more than I trust private insurance companies. Not sure that the statement you quoted me as saying would be a blanket statement I would make for everything... But for the record, I do consider myself liberal rather than conservative, and I do believe in certain socialist programs - such as healthcare, social security, medicare, the police, the fire department, federal roadways, etc...

And I don't believe ALL rich people are to blame for our current mess. It just so happens that all of the decision makers (regardless of party affiliation) were very wealthy and in most cases significantly boosted their wealth based on the policies that were made, thereby ruining our economy and enlarging the wealth gap in this country (i.e. hoarding the wealth). The foxes guarding the henhouse are responsible for this debacle. They saw an opportunity for a LOT of easy money and they took it regardless of what it did to other people. The problem with unchecked capitalism is that is creates the hoarding mentality and monopolies. It squeezes the little guy into a place of powerlessness. And I believe it puts profit before people. For some examples, see Enron, Exxon Valdez, and the deregulation of the power industry in California for starters...

[Dan Conner]

Right, so it was kinda like a game of hot potato with these risky loans. But then what led to the risky loans in the first place? It was Bill Clinton that made it possible for more people to get approved for mortgages. The intentions seemed good to provide affordable housing for more Americans. Groups like ACORN lobbied congress to no end to keep the loans coming. George W. saw it as an opportunity to expand business and did nothing to stop it while a democratic congress pushed it all through. Without those actions there wouldn’t be any risky mortgages to play hot potato with.

The same people that paved the road for this part of the disaster with CSD’s are still in power. Their intentions were good and noble, but it backfired big time. Now the government wants to make more good and noble policies to help out the poor and middle class like it did with affordable housing. I am wary of those consequences. So is the stock market. Talk of noble change like government health care, are actually doing more harm to the stock market. Investors used to be able and invest in private health care providers during economic downturns because they always stay stable, but now they are not.
http://www.businessweek.com/investor/content/mar2009/pi2009034_253747.htm

Going after the rich is just making them the fallguys for situations that many more had a hand in. On another thread Liz Ratcliff had stated she trusts the government over businesses leaders. While I agree their intentions may be better, the limited scope of their knowledge can have dire consequences. Business leaders are everywhere and in direct competition to provide what is usually best for the consumers. Their knowledge is unlimited. Were CSD’s invented to make huge profits off of, or were they made to manage the risky loans?

The risky loans were a financial institution fabrication of a Wall Street investment banker as a way of making money trading mortgage traunches, as if they were stocks. It was facilitated by repeal of the Glass-Steagall Act of 1933. That repeal happened in 1999. Its repeal was proposed by Phil Gramm (R) in the Senate and Jim Leach (R) in the House of Representatives. At that time, Republicans controlled both houses with majorities. President Clinton signed the bill.

Repeal of Glass-Steagall totally deregulated the banking industry and allowed banks to get into investment securities, along with their traditional banking. Alan Greenspan strongly favored it because he said it would allow the banking system to flourish. However, the invention of the CSD's allowed the entire system to enter a virtually endless and highly risky system. In fact, it was doomed from the beginning because it became too popular. Unimaginable sums of money were invested and leveraged in this market. And for a while eveything flourished. Money lending was easy, borrowing was easy and caution was thrown to the wind.

The trouble was, people like Alan Greenspan thought that bankers and investors had enough responsibility and restraint that the system would never get to the point it did. However, unabated greed and corruption took over. So, here we are again.

President Clinton accelerated the problems when he encouraged mortgage lending to lower income and minority peoples. President Bush accelerated it even further by encouraging his "ownership society." President Bush was proud of the increase in home ownership that happened in his administration. ACORN had virtually no input or affect on CSD's and the accelerated loans given to people. They did assist lower income people, but not because they profited from the process or initiated it. They were simply a non-profit charity.

I think you are listening to too much of Limbaugh about ACORN. ACORN is simply a non-profit meant to help low income people. Repeal of Glass-Seagall and the super acceleration of sub-prime mortgages were the influence of George W. Bush and the Republicans. They passed the laws that enabled it and accelerated it the most under Bush. Again, you listen too much to Limbaugh.

I suggest you actually research these issues, by looking into wikipedia, Glass-Seagall, the subprime market, etc. Don't watch Limbaugh or Hannity BS. Look at a nonbiased and historically accurate source.

You are dead wrong about business having our best interests at heart. They are only in business to make money. Many do not care how and most will do whatever is required to protect their business. However, they don't give a damn about us, except as potential consumers. As far as the government not having the expertise? This totally false. All of our government officials dealing with this depression were the top leaders of business and finance in the private sector. That was the same with Bush. They have renowned economists, business executives and banking leaders. I think you need to research Obama administration officials and see where these people are from and what positions they had in the business world. The same for Bush. That's part of the big lie. Limbaugh and his "ditto heads" point to the incompetence of government officials, but they come from the "captains of industry." If they are fialures in government, they must have been failures in business.

CSD's were invented to make money, period. However, they thought they were managing the risk with the insurance...BS. You say that business leader knowledge is unlimited? Nothing is further from the truth. They were the major contributors to our problem - not with their smarts, but with their greed and stupidity. I suggest you talk with an MSU professor of economics, because your opinions seem twisted. You sound like you have "bought into" a conservative propaganda, but not the truth. Try talking to a neutral or unbiased source. I agree with Liz more than you. If you don't want to do the above, then at least reserch the internet about the crisis, how it started, who was at fault, etc.

[Ben Willaert]

I do not listen to Limbaugh or Hannity and can not even tell you a radio stations they are on. My media input consists of The Super Star Mike Morris, The Common Man Dan Cole and Dan Barreiro (personal favorite) all of KFAN. I do not watch the evening news or any news for that matter; I feel they focus too much on sensationalism. My views are shaped by logic and research on the internet. My most visited websites are USA Today, Star Tribune, The Free Press, Fark, Wikipedia, the old Free Press forum, Mankato Chat and Mankato Forum. Like I said before, you love putting me in a Republican box, but really I’m not. Try reading and understanding what I write without twisting it with your stereotypes. I know many people do not understand where I come from. I recently did the political compass and came up neo-liberal libertarian, which no one is. Apparently Milton Friedman is about the only person that shares my views. I must admit I don’t know anything about him, but I plan on looking into him more.

I based my post on the web sites I cited. I am not really interested in which political party did what. My point is that the government paved the road for this crisis. If it was the Glass-Seagall repeal, there is your answer. It starts with the government, not business. Business is infinite in knowledge because there are so many people in business; all of their ideas are in competition with each other for survival. The government only has the elected officials which lack the hands on expertise in many of the fields they are influencing. Mistakes and inefficiencies by businesses in a free market eradicate those businesses that perform poorly. Mistakes and inefficiencies in government have dire consequences on all of us.

What happens when the Republican Party comes back in power? Won’t they be able to be so much more destructive in the big government that is being created? Or is this it, the Democratic Party is here to stay and will never loose their power?

[Free Press Editor Joe Spear]

What caused all this? A broker I spoke with more than 10 years ago, told me: The demand for homes will drop dramatically in the years ahead because of demographics. More people will retire, sell their homes downsize to condos or assisted living and fewer young people will be there to buy those homes. Economics 101 tells you prices will go down.
2. Politicians saw this trend but were and are under great pressure to do something from housing, real estate, construction and manufacturing industries tied to home ownership in the United States. They came up with ways for more of this smaller number of buyers to qualify for homes.
3.Add oil price shock, loss of confidence in banks, and inability of government to understand credit swaps should be regulated like securities, and you have the perfect storm to erode confidence of consumers, who drive 75 percent of our economy.

Another good piece by guy who was tech stock guru for merrill. Here's his take on how "Wall Street blew it"

http://is.gd/coQB

[Dan Conner]

What caused all this? A broker I spoke with more than 10 years ago, told me: The demand for homes will drop dramatically in the years ahead because of demographics. More people will retire, sell their homes downsize to condos or assisted living and fewer young people will be there to buy those homes. Economics 101 tells you prices will go down.
2. Politicians saw this trend but were and are under great pressure to do something from housing, real estate, construction and manufacturing industries tied to home ownership in the United States. They came up with ways for more of this smaller number of buyers to qualify for homes.
3.Add oil price shock, loss of confidence in banks, and inability of government to understand credit swaps should be regulated like securities, and you have the perfect storm to erode confidence of consumers, who drive 75 percent of our economy.

Another good piece by guy who was tech stock guru for merrill. Here's his take on how "Wall Street blew it"

http://is.gd/coQB

I don't quite agree with this. There are some truths to this, but home ownership GREATLY increased during Bush's Presidency. There were a lot more people that owned homes. Plus there were a lot more people who wanted to own homes, but couldn't afford it. Remember Bush greatly touted the increasing number of people who owned homes during his Presidency. The problem wasn't that the demand for home slackened because of fewer consumers, it was because the price escalated to the point that supply increased faster than demand. Home builders sprang up all over the place. Major builders became mega builders (Toll Brothers). Profits were fantastic, but then it hit the wall when prices hit the point consumers couldn't afford them any longer and the potential for making money by "flipping" houses diminished.

While I haven't researched this particular area, I believe the first group of people in the housing market that started to go bust first were the people who owned multiple homes as investments. When the value didn't increase, they lost their equity and gave the homes back to the bank. This caused prices to fall. Then all hell broke loose. However, I don't believe demographics had anything to do with the collapse. There was additional demand out there, but just not at the price on the market.

My son rented in the San Francisco area (Menlo Park). Even though he earned about $350,000/yrhe couldn't buy because the prices of homes in the are was more than he could afford. Houses started at $1,000,000, and were almost uninhabitable at that price. A nice home would cost $1,750,000 or more. The average price of a home in the neighboring city of Atherton averaged almost $4,000,000. My son was a potential good house buyer, but was excluded from the market. There were many like him. If you wanted good public schools for your children, you had to pay that price for a home or send your kids to private schools. That's why California was so hard hit in this mortgage slide.

[Ellen Mrja]

Joe: Thanks for that link to the Atlantic article. It was a great explanation of what has gone wrong.

[Dan Conner]

I do not listen to Limbaugh or Hannity and can not even tell you a radio stations they are on. My media input consists of The Super Star Mike Morris, The Common Man Dan Cole and Dan Barreiro (personal favorite) all of KFAN. I do not watch the evening news or any news for that matter; I feel they focus too much on sensationalism. My views are shaped by logic and research on the internet. My most visited websites are USA Today, Star Tribune, The Free Press, Fark, Wikipedia, the old Free Press forum, Mankato Chat and Mankato Forum. Like I said before, you love putting me in a Republican box, but really I’m not. Try reading and understanding what I write without twisting it with your stereotypes. I know many people do not understand where I come from. I recently did the political compass and came up neo-liberal libertarian, which no one is. Apparently Milton Friedman is about the only person that shares my views. I must admit I don’t know anything about him, but I plan on looking into him more.

I based my post on the web sites I cited. I am not really interested in which political party did what. My point is that the government paved the road for this crisis. If it was the Glass-Seagall repeal, there is your answer. It starts with the government, not business. Business is infinite in knowledge because there are so many people in business; all of their ideas are in competition with each other for survival. The government only has the elected officials which lack the hands on expertise in many of the fields they are influencing. Mistakes and inefficiencies by businesses in a free market eradicate those businesses that perform poorly. Mistakes and inefficiencies in government have dire consequences on all of us.

What happens when the Republican Party comes back in power? Won’t they be able to be so much more destructive in the big government that is being created? Or is this it, the Democratic Party is here to stay and will never loose their power?

You are really missing the point. Repeal of Glass Seagall didn't start anything. IT ONLY ALLOWED BANKING INSTITUTIONS TO IMPLEMENT DREAMED UP FINANCIAL SCHEME TO MAKE MONEY, LIKE THE CSD's. However, it was the businesses (banks) that created the problem. The repeal of Glass Seagall only facilitated it. Think of the repeal of Glass Seagall as removing the speed limit. It didn't speed, but it allowed it. The businesses were the crooked ones who used the opening the repeal gave to overspeeded the mortgage markets. They got greedy.

[Ben Willaert]

I don’t know about this whole CDS thing. It appears to be the insurance taken out on the risky mortgages. I don’t see where the greed comes in; we all have insurance on anything we consider risky. Why shouldn’t the banks? I can see where they are more likely to give out the risky mortgages because they think they are covered though. Without the CDS the banks would have been tighter with their mortgages. The government would not have liked that.

Then you have the government made Fannie May and Freddie Mac that are supposed to buy these risky mortgages from the banks. That is why the government made them. There was absolutely an agenda by the government to encourage these mortgages. There was also a demand from the public. We wanted houses beyond our means. To say all of this is just the fault of greedy businessmen is naive.

[Dan Conner]

I don’t know about this whole CDS thing. It appears to be the insurance taken out on the risky mortgages. I don’t see where the greed comes in; we all have insurance on anything we consider risky. Why shouldn’t the banks? I can see where they are more likely to give out the risky mortgages because they think they are covered though. Without the CDS the banks would have been tighter with their mortgages. The government would not have liked that.

Then you have the government made Fannie May and Freddie Mac that are supposed to buy these risky mortgages from the banks. That is why the government made them. There was absolutely an agenda by the government to encourage these mortgages. There was also a demand from the public. We wanted houses beyond our means. To say all of this is just the fault of greedy businessmen is naive.

I did help explain CSD's before, but I'll do it again. They are traunches of mortgages, bundled in a large group and sold as a commodity, much like a share of stock. These bundled mortgages had good loans and bad loans. The people buying and selling these traunches knew, a long time ago, that there were too many bad mortgages in the bundles, so they thought they would feel more at ease trading them if they insured the traunch. So, at a point in time all these CSD's were insured. Thn, these traders felt at total ease trading them (buying and selling). The insurers (like AIG) were making a fortune off the insurance premiums for these CSD's, so they were happy. Unfortunately, they stupidly forgot they might have to pay on insurance claims if these traunches went bad. And guess what, that is what happened. People have estimated that financial houses leveraged these CSD's as much as 30-40 times their value. That is where the astronomical figure of up to a $ quadrillion is used.

CSD was a made up term and process that started after Glass Steagall was repealed in 1999. Before that, Glass Steagall would not have permitted this financial instrument, particularly in banks. The greed came in when the frenzy of trading these relatively worthless CSD's reached a ridiculous climax. Then the roof fell in. It was as if people were trading shares of green cheeze from the moon. Eventually, it dawned on someone, these CSD's were worth relatively nothing. It was like they were buying pet rocks!! Fannie Mae and Freddie Mac also were trading in these CSD's. The fact that they had so much public money also aided in them buying a bulk of them.

The government, Freddie Mac and Fannie Mae never made these CSD's. They were a financial concoction constructed by a Wall Street broker as a method to make a fortune. And they did....for a while. The government never made these. It was private industry that did. The government shared responsiblity for the failure because it never regulated or controlled the use of these CSD's.

The CSD's had NOTHING to do with people wanting to buy homes they couldn't afford. It was only that banks and finance house wanted to make so much more money on CSD's they wanted to loan money to chimpanze's, if they could. They hoodwinked mony people into buying homes on stupid mortgage scams. You know, the old adage about, "When it seems to be too good to be true, it probably is." Well, that's what happened with the consumer.

[Ben Willaert]

Ok, but it was Fannie May and Freddie Mac that went down first. They were the ones created by the government to buy risky mortgages. They supplied the banks with money by taking the risky mortgages off the banks hands.

[Dan Conner]

Ok, but it was Fannie May and Freddie Mac that went down first. They were the ones created by the government to buy risky mortgages. They supplied the banks with money by taking the risky mortgages off the banks hands.

Great Ben. You won. They went down first...by about 20 nanoseconds. Big win there. Of course, you forgot about Bear Stearns which was the first to go down, then Lehman Brothers. In case you haven't noticed, Freddie Mac and Fannie Mae are still there, along with many other propped up banks.

Again, you are wrong. The government never created Fannie Mae of Freddie Mac to buy risky mortgage loans. They have bought mortgages for eons, but they were never intended to buy risky ones. They got caught up i the CSD frenzy like so many others. By the way, both Freddie Mac and Fannie Mae are private mortgage banks given government subsidies and with very limited government oversight. Other than that, they are private. If they had been government they wouldn't be in the fix. There would have been more oversight.

[Bob Jentges]

"Government Caused the Meltdown" article is something to think about.

http://www.campaignforliberty.com/article.php?view=726

[Bob Jentges]

New York Times article: "Greenspan Strongly Defends Fed's Role in Meltdown". He seems to blame Congress.

http://www.nytimes.com/2010/04/business/08panel.html

[Bob Jentges]

I linked former FED head Greenspan's opinion in my previous post. Here is a WaPo article on current FED head Bernanke's thoughts.

http://washingtonpost.com/wp-dyn/content/article/2010/04/07/AR2010040703116.html

Apparrently Bernanke thinks we are still in the "downturn" (who dosen't) and he suggests the way out is: 1) higher taxes 2) changes in entitlement programs 3) less spending. How enlightning!

Seniors earning less than $50,000 need not worry about paying higher income taxes because if President Obama keeps his campain promise they will not pay any income tax at all.

Almost half of Americans do not need to worry about paying more income tax because a report out yesterday suggested they do not pay any net income taxes now.

The middle class should not need to worry because Candidate Obama promised they would not see their taxes (of any kind) increased "one dime".

But even if there is no increase in income taxes on anyone but the "wealthy" ($200,000 income or more) which I think is very unlikely, increasing taxes on the "wealthy" alone will not be sufficient to bring down the deficit/debt because there are not enough "wealthy". That would seem to leave something like a Carbon Tax and/or Value Added Tax, etc., that would effect all of us i.e. seniors, middle class, and wealthy.

Most do not want to see changes in entitlement programs already in effect, but prefer no additional entitlement programs. So the way I see it that leaves the logical solution as less spending, which many have been promoting for some time.

[Bob Jentges]

The link below is to ABC News Jake Tappers' recent interview with Bill Clinton where Clinton said Rubin and Summers gave him "wrong" information on deravitives and he was "wrong" to take it!

http://blog.abcnews.com/politicalpunch/2010/04/clinton-rubin-and-summers-gave-me-wrong-advice-on-deravitives-and-i-was-wrong-to-take-it.html

[Bob Jentges]

Great article by Tom Sowell PhD. Not directly related to what "caused the downturn", but discusses what prolonged the problems back in the 1930's, comparing that with the present, and I think demonstrates keep it simple facts trump tortured analysis/opinions almost every time.

http://www.realclearpolitics.com/articles/2010/06/18_a_mind-changing_page_106003.html

[Bob Jentges]

Some say the housing bubble had much to do with (started) the "downturn", and I agree. Here is a recent Reuters article quoting Barney Frank saying "...abolish Fannie and Freddie...". I agree, but as usual it's a day late and a dollar short.

http://reuters.com/article/idUSTRE67H1FA201018?type=politicsNews&feedType=RSS&feedName=politicsNews&rpc=22&sp=true