Do You Know the Answers to BOTH of the Following Questions?

[Mustang]

Question #1

Q. What is the current amount of the national debt?

A. While the national debt continues to rise, the current national debt is:
$15.2 Trillion

U.S. National Debt Clock : Real Time

Question #2

Q. How much US household wealth was lost in the 2008 financial meltdown?

A. $14 Trillion

There is a direct relationship between declines in wealth, and declines in consumption and business investment, which along with government spending represent the economic engine. Between June 2007 and November 2008, Americans lost an estimated average of more than a quarter of their collective net worth.[citation needed] By early November 2008, a broad U.S. stock index the S&P 500, was down 45% from its 2007 high. Housing prices had dropped 20% from their 2006 peak, with futures markets signaling a 30-35% potential drop. Total home equity in the United States, which was valued at $13 trillion at its peak in 2006, had dropped to $8.8 trillion by mid-2008 and was still falling in late 2008. Total retirement assets, Americans' second-largest household asset, dropped by 22%, from $10.3 trillion in 2006 to $8 trillion in mid-2008. During the same period, savings and investment assets (apart from retirement savings) lost $1.2 trillion and pension assets lost $1.3 trillion. Taken together, these losses total a staggering $8.3 trillion.[164] Since peaking in the second quarter of 2007, household wealth is down $14 trillion.[165]

Late-2000s financial crisis - Wikipedia, the free encyclopedia

So, the gov't engaged in a massive bailout of the financial industry AFTER it tanked the economy, and consumers took it in the shorts.

Consequently, I contend that if you want to be angry with gov't. you're anger is misplaced if you're anger is directed at "deficit spending."

You should be angry at the gov't deregulation of the banks (allowing investment banks and commercial banks to merge) which was pushed by BOTH political parties, as well as the gov't allowing derivatives to be traded in an unregulated fashion. Again, that was supported by both political parties.

 

[Chris]

Nice post...although it was Republican Senator Phil Gramm that snuck a deregulation amendment into a spending bill on the day before Christmas recess that deregulated the financial industry.

 

[francoHFW]

"You should be angry at the gov't deregulation of the banks (allowing investment banks and commercial banks to merge) which was pushed by BOTH political parties, as well as the gov't allowing derivatives to be traded in an unregulated fashion. Again, that was supported by both political parties."

BS. The Pubs led all the way...

 

[g5000]

Nice post...although it was Republican Senator Phil Gramm that snuck a deregulation amendment into a spending bill on the day before Christmas recess that deregulated the financial industry.

This is how the passing of the Commodities Futures Modernization Act of 2000 is frequently portrayed; as something Phil Gramm snuck by the House and Senate just before Christmas.

This is disingenuous in the extreme. With few exceptions, everyone in the House and Senate were in love with the CFMA and voted for it in full knowledge of what it was.

The CFMA had been voted on several times that year, passing the House and Senate votes each and every time. However, there were differences between the House and Senate versions which had to be reconciled, and so there were repeated versions voted on as various negotiations occurred. This is the normal legislative process.

When the final version was complete, it was tacked on an appropriations bill for expediency since time was now short. But this was not done as anything approaching sneaky. Everyone knew what it was and it received an overwhelming Aye vote from both houses.

It passed in the House 377-4, and in the Senate by an equally large margin. This was a bi-partisan Act all the way.

Why do I know so much about this? Because I frequently argue this piece of legislation was one of the singular great causes of the recent crash and have actually read it. I particulary like to point out Section 117:

This Act shall supersede and preempt the application of any State or local law that prohibits or regulates gaming or the operation of bucket shops

Whenever a Republican whines about "states rights" when they don't like something, I just think about how willfully they surrendered up states rights in the CFMA.

This section, more than any other, is an open admission that derivatives are not just gambling, but an out and out scam. A bucket shop. And by passing this bill, Congress was telling Wall Street, "Gentlemen, you are now free to rip off the common man investor without fear of prosecution."

 

[Douger]

Kwestion #3. If you saw a train coming why did you not jump off the tracks ?

 

[BillyV]

Question #1

Q. What is the current amount of the national debt?

A. While the national debt continues to rise, the current national debt is:
$15.2 Trillion

U.S. National Debt Clock : Real Time

Question #2

Q. How much US household wealth was lost in the 2008 financial meltdown?

A. $14 Trillion

There is a direct relationship between declines in wealth, and declines in consumption and business investment, which along with government spending represent the economic engine. Between June 2007 and November 2008, Americans lost an estimated average of more than a quarter of their collective net worth.[citation needed] By early November 2008, a broad U.S. stock index the S&P 500, was down 45% from its 2007 high. Housing prices had dropped 20% from their 2006 peak, with futures markets signaling a 30-35% potential drop. Total home equity in the United States, which was valued at $13 trillion at its peak in 2006, had dropped to $8.8 trillion by mid-2008 and was still falling in late 2008. Total retirement assets, Americans' second-largest household asset, dropped by 22%, from $10.3 trillion in 2006 to $8 trillion in mid-2008. During the same period, savings and investment assets (apart from retirement savings) lost $1.2 trillion and pension assets lost $1.3 trillion. Taken together, these losses total a staggering $8.3 trillion.[164] Since peaking in the second quarter of 2007, household wealth is down $14 trillion.[165]

Late-2000s financial crisis - Wikipedia, the free encyclopedia

So, the gov't engaged in a massive bailout of the financial industry AFTER it tanked the economy, and consumers took it in the shorts.

Consequently, I contend that if you want to be angry with gov't. you're anger is misplaced if you're anger is directed at "deficit spending."

You should be angry at the gov't deregulation of the banks (allowing investment banks and commercial banks to merge) which was pushed by BOTH political parties, as well as the gov't allowing derivatives to be traded in an unregulated fashion. Again, that was supported by both political parties.

These numbers were absolutely true - at the end of the first quarter of 2009 (as the footnoted item at Wikipedia indicates). The Dow stood at what, 6,000 then? I'm sure there was wealth lost, but you might want to update it a bit. And in fairness, a bubble by definition is caused by something that is overvalued; comparing household real estate wealth at the top of a fairy tale "bubble" to where it landed is only a good approach if you're trying to imply the very scariest numbers (to make your point?).

 

[CrusaderFrank]

Banks are deregulated? Really?

Does that mean Fannie and Freddie weren't handing out de facto AAA rating to No Income No Asset Loans?

 

[hortysir]

#4) How much is our current GDP (total worth)?

$15.1 trillion, or $100 billion LESS than our debt.


And there's discussion of another debt-ceiling increase?!!!!

Fucking idiots.

 

[g5000]

These numbers were absolutely true - at the end of the first quarter of 2009 (as the footnoted item at Wikipedia indicates). The Dow stood at what, 6,000 then? I'm sure there was wealth lost, but you might want to update it a bit. And in fairness, a bubble by definition is caused by something that is overvalued; comparing household real estate wealth at the top of a fairy tale "bubble" to where it landed is only a good approach if you're trying to imply the very scariest numbers (to make your point?).

The problem is that Americans leveraged themselves against that fairy tale number. They bought a house at inflated values, and then to make matters worse, took out HELOCs against the fairy tale equity they had. And the more income you had, the greater debts you were allowed to take on.

And those debts were further leveraged with derivatives. Derivatives are disaster force multipliers. If the problem was just too many people took out loans they couldn't afford, the global crisis would not have been anywhere near as great as it is.

Those debts are very real. And we won't fully recover until substantial deleveraging of public and private debts occurs.

 

[BillyV]

These numbers were absolutely true - at the end of the first quarter of 2009 (as the footnoted item at Wikipedia indicates). The Dow stood at what, 6,000 then? I'm sure there was wealth lost, but you might want to update it a bit. And in fairness, a bubble by definition is caused by something that is overvalued; comparing household real estate wealth at the top of a fairy tale "bubble" to where it landed is only a good approach if you're trying to imply the very scariest numbers (to make your point?).

The problem is that Americans leveraged themselves against that fairy tale number. They bought a house at inflated values, and then to make matters worse, took out HELOCs against the fairy tale equity they had. And the more income you had, the greater debts you were allowed to take on.

And those debts were further leveraged with derivatives. Derivatives are disaster force multipliers. If the problem was just too many people took out loans they couldn't afford, the global crisis would not have been anywhere near as great as it is.

Those debts are very real. And we won't fully recover until substantial deleveraging of public and private debts occurs.

All of that may be true, but it doesn't change the fact that we are today not that far from the 2007 peak; at that time it was $64 trillion, and at the end of the third quarter of 2011, it stood at $57.5 trillion after a horrific quarter for stocks. I couldn't find a number for the final quarter of 2011, but I'm guessing with the stock market recovering most of its losses from the third quarter, it's probably around $60 trillion. Now $4 trillion is a significant loss; wouldn't that have made enough of an impact, rather than using the March 2009 number to create a $14 trillion number that is ancient history?

 

[Mustang]

"You should be angry at the gov't deregulation of the banks (allowing investment banks and commercial banks to merge) which was pushed by BOTH political parties, as well as the gov't allowing derivatives to be traded in an unregulated fashion. Again, that was supported by both political parties."

BS. The Pubs led all the way...

Well, the deregulation mantra began in earnest during the Reagan years and was roundly championed Fed Chairmen Alan Greenspan. To be sure, the deregulation fever seemed to be contagious.

But let's not forget that the Gramm-Leach-Bliley Act was passed in 1999 when Clinton was president.

The Gramm–Leach–Bliley Act (GLB), also known as the Financial Services Modernization Act of 1999, (Pub.L. 106-102, 113 Stat. 1338, enacted November 12, 1999) is an act of the 106th United States Congress (1999–2001). It repealed part of the Glass–Steagall Act of 1933, removing barriers in the market among banking companies, securities companies and insurance companies that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company. With the passage of the Gramm–Leach–Bliley Act, commercial banks, investment banks, securities firms, and insurance companies were allowed to consolidate. The legislation was signed into law by President Bill Clinton.


A year before the law was passed, Citicorp, a commercial bank holding company, merged with the insurance company Travelers Group in 1998 to form the conglomerate Citigroup, a corporation combining banking, securities and insurance services under a house of brands that included Citibank, Smith Barney, Primerica, and Travelers. Because this merger was a violation of the Glass–Steagall Act and the Bank Holding Company Act of 1956, the Federal Reserve gave Citigroup a temporary waiver in September 1998.[1] Less than a year later, GLB was passed to legalize these types of mergers on a permanent basis. The law also repealed Glass–Steagall's conflict of interest prohibitions "against simultaneous service by any officer, director, or employee of a securities firm as an officer, director, or employee of any member bank."[2]

Gramm

The same is true of the Commodity Futures Modernization Act of 2000.

The Commodity Futures Modernization Act of 2000 (CFMA) is United States federal legislation that officially ensured the deregulation of financial products known as over-the-counter derivatives. It was signed into law on December 21, 2000 by President Bill Clinton. It clarified the law so that most over-the-counter (OTC) derivatives transactions between “sophisticated parties” would not be regulated as “futures” under the Commodity Exchange Act of 1936 (CEA) or as “securities” under the federal securities laws. Instead, the major dealers of those products (banks and securities firms) would continue to have their dealings in OTC derivatives supervised by their federal regulators under general “safety and soundness” standards. The Commodity Futures Trading Commission's (CFTC) desire to have “Functional regulation” of the market was also rejected. Instead, the CFTC would continue to do “entity-based supervision of OTC derivatives dealers.” [1] These derivatives, especially the credit default swap, would be at the heart of the financial crisis of 2008 and the subsequent Great Recession.

Commodity Futures Modernization Act of 2000 - Wikipedia, the free encyclopedia

As for me, I loathe the partisans of both sides who point their fingers at the opposition and say, "They are to blame." while feigning any responsibility for representatives in their own party.

I equally hate it when partisans point their fingers at something that had no real effect on the financial meltdown (like the CRA) while also saying that banks were somehow forced to make bad loans. That's nonsense, as well. Banks have underwriting standards which customers are required to meet. If banks choose not to follow their own internal guidelines, how is that their customers' fault?

Now, the banks WOULD have followed their own internal guidelines IF they would have retained the risk of those mortgages in their portfolios. But they didn't. They sold them on the secondary market as mortgage backed securities in the form of derivatives that traveled all over the world. It would be like you making a loan of $1,000 at 5% simple interest that you had little faith would really be paid back. Then you had someone give that loan a shining rating, and then you sold the loan to someone else for $1,010.

 

[Mustang]

Banks are deregulated? Really?

Does that mean Fannie and Freddie weren't handing out de facto AAA rating to No Income No Asset Loans?

Fannie and Freddie are not banks. The did not originate loans. To my knowledge, they didn't engage in any rating services. In fact, their standards were higher and more strict than those in the private sector.

 

[TakeAStepBack]

Yes, of course. it is the fault of deregulation of OTC derivatives and the repeal of glass-Steagull.

it couldn't possibly had anything to do with a large credit expansion by the central bank and artificially low interest rates. Not at all. If the federal government had only done more to keep the evil capitalists from doing business......

banks were not forced to make malinvestments, that you are right about. But when the credit appears and the interest rates are being suppressed at 1%, that signals lenders that the market is ripe for lending. They were not forced. They played right along with what the federal reserve offered up.

If you want to blame anyone for the boom and subsequent bust of the housing/mortgage market, blame the federal reserve. These boom/bust cycles are easy to predict when you understand the business cycle theory.

 

[Dr.Drock]

Kudos to Mustang for trying to have a bipartisan talk on the issue, hopefully the hyperpartisans that have already been on this thread trying to turn it into a partisan slap-fight (like they do everything) don't prevail.

 

[hortysir]

Banks are deregulated? Really?

Does that mean Fannie and Freddie weren't handing out de facto AAA rating to No Income No Asset Loans?

Fannie and Freddie are not banks. The did not originate loans. To my knowledge, they didn't engage in any rating services. In fact, their standards were higher and more strict than those in the private sector.

 

[WillowTree]

Banks are deregulated? Really?

Does that mean Fannie and Freddie weren't handing out de facto AAA rating to No Income No Asset Loans?

Fannie and Freddie are not banks. The did not originate loans. To my knowledge, they didn't engage in any rating services. In fact, their standards were higher and more strict than those in the private sector.

To your knowledge?









it's more likely To Your Kool Aid.

 

[Conservative]

Nice post...although it was Republican Senator Phil Gramm that snuck a deregulation amendment into a spending bill on the day before Christmas recess that deregulated the financial industry.

This is how the passing of the Commodities Futures Modernization Act of 2000 is frequently portrayed; as something Phil Gramm snuck by the House and Senate just before Christmas.

This is disingenuous in the extreme. With few exceptions, everyone in the House and Senate were in love with the CFMA and voted for it in full knowledge of what it was.

The CFMA had been voted on several times that year, passing the House and Senate votes each and every time. However, there were differences between the House and Senate versions which had to be reconciled, and so there were repeated versions voted on as various negotiations occurred. This is the normal legislative process.

When the final version was complete, it was tacked on an appropriations bill for expediency since time was now short. But this was not done as anything approaching sneaky. Everyone knew what it was and it received an overwhelming Aye vote from both houses.

It passed in the House 377-4, and in the Senate by an equally large margin. This was a bi-partisan Act all the way.

Why do I know so much about this? Because I frequently argue this piece of legislation was one of the singular great causes of the recent crash and have actually read it. I particulary like to point out Section 117:

This Act shall supersede and preempt the application of any State or local law that prohibits or regulates gaming or the operation of bucket shops

Whenever a Republican whines about "states rights" when they don't like something, I just think about how willfully they surrendered up states rights in the CFMA.

This section, more than any other, is an open admission that derivatives are not just gambling, but an out and out scam. A bucket shop. And by passing this bill, Congress was telling Wall Street, "Gentlemen, you are now free to rip off the common man investor without fear of prosecution."

How DARE you throw facts on the libtards fantasies! For shame, sir!

 

[g5000]

Yes, of course. it is the fault of deregulation of OTC derivatives and the repeal of glass-Steagull.

it couldn't possibly had anything to do with a large credit expansion by the central bank and artificially low interest rates. Not at all. If the federal government had only done more to keep the evil capitalists from doing business......

banks were not forced to make malinvestments, that you are right about. But when the credit appears and the interest rates are being suppressed at 1%, that signals lenders that the market is ripe for lending. They were not forced. They played right along with what the federal reserve offered up.

If you want to blame anyone for the boom and subsequent bust of the housing/mortgage market, blame the federal reserve. These boom/bust cycles are easy to predict when you understand the business cycle theory.

The crisis was an all-hands effort. I do not blame any one. I blame every one.

The reason the Fed lowered the interest rates was because of the 2001 recession. Just like they have lowered them to zero due to this crisis.

That alone was not some signal for investors to specifically jump into the real estate market. Lower interest rates encourage borrowing, but they don't point to a specific market. It is very important to understand that. Especially when the next crisis rolls around.

The reason everyone poured into real estate is because that was the only market sector that was performing well during the 2001 recession.

But here is the part people don't get, despite a gigantic clue staring us all right in the face: the derivatives market does not care what the underlying assets are in their structured finance instruments.

A CDO can be built out of ANYTHING. Like commercial loans. Or home loans.

Or...SOVEREIGN DEBT!

Hello?

So when people have orgiastic hate sessions over the GSEs and the CRA and all that stupid shit, they are missing the forest for the trees.

We are in the middle of yet another global credit crisis, caused by the exact same instruments and players. Only it isn't real estate this time. So those who are hung up on the GSEs and the CRA are completely fucking blind to the actual problem.

 

[TakeAStepBack]

Last I saw regarding OTC derivatives, the market was somewhere around 644 trillion. It's a huge hazard, but it doesn't get to take the cake here.

 

[TakeAStepBack]

The crisis was an all-hands effort. I do not blame any one. I blame every one.

We can agree there.

The reason the Fed lowered the interest rates was because of the 2001 recession. Just like they have lowered them to zero due to this crisis.

this is partially true. But when you couple suppression of the rates with a credit expansion, look out. We have been in and out of recessions since we took on fractional reserve lending and monetary expansion. We've been avoiding a true market correction for a long, long time. This is just another example of trying to lessen the fall and exacerbating the problem in the process.

I'm with you in regard to using financial instruments in this case. But they were used to mitigate what many already knew; the mortgage market was toxic.