Let's cut the bull shit and get down to the truth. The beginning..

[PredFan]

Let's see if this group can actually do this. I want us to get to the root of problems and weed out the truth. Not the truth according to the left or the right, but the truth.

I am conservative but not an idealogue. If we can get to the truth here, I can accept it.

First issue on the table:

What caused the recession?

 

[slackjawed]

I can honestly say I don't know.


I suspect there were a lot of different things that factor into it.


But honestly, I, as a real person, do not know.


hows that for unbiased truth predfan?

 

[g5000]

Let's see if this group can actually do this. I want us to get to the root of problems and weed out the truth. Not the truth according to the left or the right, but the truth.

I am conservative but not an idealogue. If we can get to the truth here, I can accept it.

First issue on the table:

What caused the recession?

Short answer: A global derivatives speculative bubble.

 

[PredFan]

I'll offer my view first:

It was a combination of greed (banks, investors, consumers), and political posturing.

It all stemmed from the housing market. The fault lies in many areas, the CRA, deregulation, a sense from the common man that there was no limit, and politics.

Not any one person or any one political party is to blame, except that there is plenty of balme to be assigned if we just have to assign blame.

I am no economist, I am no housing specialist, nor am I a political science major. These opinions that I have laid out are borrowed from another smarter person who also said it more eloquently. I am starting this thread to hear something lie that again. To get to the bottom of the issue.

I welcome input from all sides.

 

[PredFan]

I can honestly say I don't know.


I suspect there were a lot of different things that factor into it.


But honestly, I, as a real person, do not know.


hows that for unbiased truth predfan?

It's honest. I didn't know until I heard from someone else. I hope that in this thread we can get the answers.

 

[Black_Label]

The REAL truth, is what we had under Clinton created the most booming economy we have ever seen. Everyone pays their fair share, we support those that are the real job creators, small business, and support those that make american great, the middle class.

From Clinton's strong progressive view the economy skyrocketed, we had the biggest surplus in US history, employers were nearly begging people to work for them, 10$ an hour to start signs in McDonald's windows,...it was great times.

From there W came into office and decided to throw Clinton's game plan to have the nation debt free into the trash and decided to go back to the proven failed GOP "trickle down" economics. Once enacted things began to plunge.

Now that W slashed revenues, he decided to go on a spending spree by enacting medicare part D, and going to war with afganistan, and the big one, the false war in Iraq.

To insert the cliffs notes, Bush also allowed the big banks to run wild with predatory loans, destroyed the housing market, enacted TARP giving trillions to bail them out, and so the frat boy party is over, leaving the nation in shambles because of the republican way of doing things.

Simply put, the economic crisis was caused from the GOP slashing revenues, while at the same time spending like lunatics.

 

[PredFan]

Let's see if this group can actually do this. I want us to get to the root of problems and weed out the truth. Not the truth according to the left or the right, but the truth.

I am conservative but not an idealogue. If we can get to the truth here, I can accept it.

First issue on the table:

What caused the recession?

Short answer: A global derivatives speculative bubble.

Which is french to me, lol.

I have a feeling that yoi are pretty accurate in your answer. Perhaps someone could elaborate.

 

[PredFan]

The REAL truth, is what we had under Clinton created the most booming economy we have ever seen. Everyone pays their fair share, we support those that are the real job creators, small business, and support those that make american great, the middle class.

From Clinton's strong progressive view the economy skyrocketed, we had the biggest surplus in US history, employers were nearly begging people to work for them, 10$ an hour to start signs in McDonald's windows,...it was great times.

From there W came into office and decided to throw Clinton's game plan to have the nation debt free into the trash and decided to go back to the proven failed GOP "trickle down" economics. Once enacted things began to plunge.

Now that W slashed revenues, he decided to go on a spending spree by enacting medicare part D, and going to war with afganistan, and the big one, the false war in Iraq.

To insert the cliffs notes, Bush allowed the big banks to run wild with predatory loans, destroyed the housing market, enacted TARP giving trillions to bail them out, and so the frat boy party is over, leaving the nation in shambles because of the republican way of doing things.
Spend like maniacs, but don't have a way to pay for it.

I don't agree that this caused the recession. For one thing, Clinton enjoyed then benefit of luck. He was potus during the Dot Com boom which had absolutely nothing to do with him or his policies. I am pretty sure that it was the housing situation that caused this mess. I am sure because people smarter than me have stated such. I won't totally discount your theory, but I'll have to hear more than that to convince me, and your avie kind of detracts from your credibility.

 

[Pheonixops]

Let's see if this group can actually do this. I want us to get to the root of problems and weed out the truth. Not the truth according to the left or the right, but the truth.

I am conservative but not an idealogue. If we can get to the truth here, I can accept it.

First issue on the table:

What caused the recession?

In my opinion, it's simply part of the economic cycle. I could be wrong but it seems to happen after a good run or "boom" of the economic cycle. Use the Housing Market as an example, there was a big "boom" or "bubble", a recession, depression, and now a slow recovery. Afew years from now the cycle will start all over again.

 

[dilloduck]

credit.
If people (or governments) could not borrow money there would be no problem.

 

[Black_Label]

The REAL truth, is what we had under Clinton created the most booming economy we have ever seen. Everyone pays their fair share, we support those that are the real job creators, small business, and support those that make american great, the middle class.

From Clinton's strong progressive view the economy skyrocketed, we had the biggest surplus in US history, employers were nearly begging people to work for them, 10$ an hour to start signs in McDonald's windows,...it was great times.

From there W came into office and decided to throw Clinton's game plan to have the nation debt free into the trash and decided to go back to the proven failed GOP "trickle down" economics. Once enacted things began to plunge.

Now that W slashed revenues, he decided to go on a spending spree by enacting medicare part D, and going to war with afganistan, and the big one, the false war in Iraq.

To insert the cliffs notes, Bush allowed the big banks to run wild with predatory loans, destroyed the housing market, enacted TARP giving trillions to bail them out, and so the frat boy party is over, leaving the nation in shambles because of the republican way of doing things.
Spend like maniacs, but don't have a way to pay for it.

I don't agree that this caused the recession. For one thing, Clinton enjoyed then benefit of luck. He was potus during the Dot Com boom which had absolutely nothing to do with him or his policies. I am pretty sure that it was the housing situation that caused this mess. I am sure because people smarter than me have stated such. I won't totally discount your theory, but I'll have to hear more than that to convince me, and your avie kind of detracts from your credibility.

It's the typical response when you bring up how successful the Clinton administration was for the right wingers to instantly say "Ooo ooo! That was only because of the dot com boom!" Though the thing is without Clinton, who knows if the technological advances such as the internet ever would have come to light, or be anywhere near what they are today.

The internet was essentially just cracking out of it's shell under Clinton and got under full steam under Bush. If it was that successful, it should have launched Bush and even to this day to the most thriving economy that we have ever seen, though like I stated before, other circumstances created the opposite.

The internet keeps growing and now you could say is in it's adolescence. The dot com was never a boom, it's something here to stay.

 

[Sallow]

Let's see if this group can actually do this. I want us to get to the root of problems and weed out the truth. Not the truth according to the left or the right, but the truth.

I am conservative but not an idealogue. If we can get to the truth here, I can accept it.

First issue on the table:

What caused the recession?

Short answer: A global derivatives speculative bubble.

That's a major part of it.

There were root causes that go along with that..like doing away with many regulations on financial markets and repealing Glass-Steagall.

 

[Sallow]

credit.
If people (or governments) could not borrow money there would be no problem.

Yes..and we'd all go back to herding sheep and growing our own crops.

 

[g5000]

First issue on the table:

What caused the recession?

Long answer:

Wall Street found a way to transfer risk from one place to another, and sell it. In what I call the Old Testament days, when a bank made a loan, the risk of the borrower defaulting was on the bank's books.

In the New Testament days, the bank could sell the loan in the secondary market and remove that risk from its books.

There is nothing wrong with that. A secondary market actually provides liquidity for more loans to be made. This greases the skids for the American Dream.

But in the 80s there began a period of massive financial innovation. While we were all marveling at the technological revolution happening in Silicon Valley, a securitization and structured product revolution was happening in the world's financial markets. And these markets grew and grew. In the US, the financial services industry exploded and became 20 percent of GDP.

I joke sometimes that if it were legal, Wall Street would securitize the revenue streams of hookers and sell those securities. But it's true. They really would if they could.

A security allows you to take the future revenue of an asset and sell it today.

All those principal and interest payments of a 30-year loan can thus be sold, even though they have not yet been received.

So a $200,000 loan will net about $400,000 in principal and interest payments over the life of that 30 year loan. You will double your money.

Well, a bank does not want to wait 30 years to get its principal and interest back. So it sells that monthly revenue stream to the secondary market. The secondary market packages that mortgage with billions of dollars of other mortgages and then sells those off to investors.

All fine and dandy. Worked great for many decades.

But what changed?

Derivatives changed. Radically.

For a fairly good in-depth explanation of the derivatives market, read [ame=http://www.amazon.com/Traders-Guns-Money-unknowns-derivatives/dp/0273704745]Traders, Guns, and Money[/ame]. Written in 2005, the author light-heartedly explains what is about to explode. He laughs to keep from going crazy.

With derivatives, you no longer bought actual loans. You bought revenue streams. And the more risk you bought, the more revenue you received. But the drier the stream got, the quicker you stopped receiving money if you had bought the higher risk.

Because of the explosion of securitization and mark to market accounting, the world's paper wealth had astronomically exploded. By 2000, there was $70 trillion of investor money floating around.

Just in time for these newfangled derivatives. Investors went hog-wild over these products. Nutso crazy for them. Could not get enough of them.

Wall Street outdid itself marketing these things. The did such a bang-up advertising job, that demand for them went into the stratosphere.

Well, when demand is high, and good risks are low, what do you do?

Easy peasy. You go out and find other risks. Risks that aren't so good. And you sell those.

And when there are still tens of trillions of dollars on the table, well, you'd be an idiot to leave it there, wouldn't you? So you go out and find even riskier stuff to sell.

The Wall Street firms then began buying up brokerages to keep their supply chains of these raw materials secure. There was a lot of competition for the raw material (loans) and they needed to keep their pipelines flowing.

Home loans were not the only raw material. So were corporate bonds and sovereign bonds. A bond is a loan to a corporation or a government. Like Xerox or Greece, or Spain, or Italy, or McDonald's.

All the risk of these loans was packaged up and sold.

And the risks got greater and greater and greater, and somewhere along the way someone lost track of how much risk was floating around out there.

Hey, as long as the rubes are buying, what do we care?

Then, somewhere in late 2005, AIG's Financial Products division discovered all the derivatives they were insuring were chock full of risk. Bursting with risk.

So AIG FP told Wall Street they were no longer going to insure that risk. It was too great.

It was also too late for AIG, but they did not know that yet. The ticking time bomb had not yet gone off.

It takes three years for a subprime bomb to explode. That's when an ARM resets and the negative amortization kicks the monthly premium through the roof of your house. And that is when you stop paying. Default.

But anyway, when Wall Street was given the bad news by AIG, did they decide to stop buying and selling toxic waste?

Oh, hell no! And this is when they became bald-facedly criminal. They could plead ignorance prior to this point, but after this point it was flat-out, undeniable fraud.

They actually accelerated the buying and selling of toxic waste.

And just for the record, it was at this time that the GSEs began slowing down their participation in the sub-prime market. They were less than 50 percent market share by the end of 2005.

Lehman Brothers, Bear Stearns, Goldman Sachs, JP Morgan, Morgan Stanley. And many, many, many other banks around the world. They were the secondary market.

There was a property bubble in Iceland. Iceland's bubble popped so hard they are now back to the Dark Ages. They have all gone back to fishing.

There was a property bubble in Ireland. On a relative scale, Ireland's property bubble makes ours look tame! And when their banks collapsed, all of them, the Irish bank took on all their debts. And that means Ireland is going to default some day. It is as inevitable as the sun rising tomorrow.

There was a property bubble in Spain. Spain's banks have been nationalized.

England had a property bubble. Many of their banks have sank beneath the main.

Italy's banks, finito. Germany's banks, kaput.

In my town, our population doubled in four years. New neighborhoods sprang up like weeds. And at no time did I hear anyone say, gee, look at all these negroes moving in and borrowing money to buy these ridiculously inflating houses.

That's because there are no negroes in my town. Not a one.

But, boy, you would think they were everywhere to hear the people bitching about the CRA!

When one builder went under and his houses all over the state were auctioned, I went to a bank to get pre-approved for a loan so I could go to that auction. The loan officer literally slid the loan app with one hand, and a HELOC app with the other hand, across the desk to me.

And this was AFTER everyone knew the gig was up!

I slid the HELOC back and said, "I did not get an over 800 credit rating that way."

I went to the auction and the house I was interested in was bid over its last listing price within 30 seconds. And this was AFTER everyone knew the gig was up.

That sale fell through. The house remained unsold for three more years.

It eventually sold for ten grand less than I offered immediately after the auction bid fell through.

So it wasn't the negroes, folks. That is just a bogeyman those who want you to believe the banks are doing God's work want you to see.


A middle class income earner nets a bigger profit. That's who the target was. Middle class people with bigger incomes can take out bigger loans, which means bigger interest payments. Which means bigger houses with bigger equity, which means bigger HELOCs.

Look around. When you see a foreclosed home, do you say, "Gee that guy looks just like me. I had NO IDEA he was a negro!"


Now, I said the banks figured out how to transfer risk from themselves and move it. They figured out how to sell it.

Guess who bought it?

















You did.



Your 401-k manager was given box seats to a baseball game and all the hookers and blow he could handle so he would buy large swathes of tranches from the banks.

Sorry he lost your retirement money when the bubble blew!


Your public employee pension fund manager was given Super Bowl tickets and all the hookers and blow he could handle so he would buy large swathes of tranches from the banks.

Sorry, folks, we lost our asses when the derivatives bubble popped. We can't keep all the promises we made to you. We are going to have to raise taxes and increase your contributions.



Your insurance company investment officer was given all the hookers and blow he could handle. Insurance companies don't make money off your premium payments. There's only about a five percent margin there after outlays, so they take that and invest it.

Sorry, folks. We lost our asses when the bubble popped and now we are going to have to raise your premiums!



Your college endowment fund manager was given all the hookers and blow he could handle. Remeber Larry Summers? Clintons' TreaSec. He was one of the masterminds behind the construction of the derivatives bubble. After he left the government, he went on to run the Harvard Endowment Fund whereupon he lost them $2 bilion when the bubble popped. Just like every other college fund around the country.

Sorry, folks. We lost our asses when the bubble popped and now we are going to have to raise tuition and cut back on scholarships!



And the beat goes on, because now the sovereigns are defaulting.

It wasn't the negroes. The actual causes have been right in front of your face all this time.

 

[g5000]

Let's see if this group can actually do this. I want us to get to the root of problems and weed out the truth. Not the truth according to the left or the right, but the truth.

I am conservative but not an idealogue. If we can get to the truth here, I can accept it.

First issue on the table:

What caused the recession?

Short answer: A global derivatives speculative bubble.

That's a major part of it.

There were root causes that go along with that..like doing away with many regulations on financial markets and repealing Glass-Steagall.

Indeed.

Not just doing away with regulations. Some derivatives were never regulated to begin with. Like CDS.

 

[dilloduck]

credit.
If people (or governments) could not borrow money there would be no problem.

Yes..and we'd all go back to herding sheep and growing our own crops.

I know-----personal responsibility got too hard so people gave up.

 

[Sallow]

The REAL truth, is what we had under Clinton created the most booming economy we have ever seen. Everyone pays their fair share, we support those that are the real job creators, small business, and support those that make american great, the middle class.

From Clinton's strong progressive view the economy skyrocketed, we had the biggest surplus in US history, employers were nearly begging people to work for them, 10$ an hour to start signs in McDonald's windows,...it was great times.

From there W came into office and decided to throw Clinton's game plan to have the nation debt free into the trash and decided to go back to the proven failed GOP "trickle down" economics. Once enacted things began to plunge.

Now that W slashed revenues, he decided to go on a spending spree by enacting medicare part D, and going to war with afganistan, and the big one, the false war in Iraq.

To insert the cliffs notes, Bush allowed the big banks to run wild with predatory loans, destroyed the housing market, enacted TARP giving trillions to bail them out, and so the frat boy party is over, leaving the nation in shambles because of the republican way of doing things.
Spend like maniacs, but don't have a way to pay for it.

I don't agree that this caused the recession. For one thing, Clinton enjoyed then benefit of luck. He was potus during the Dot Com boom which had absolutely nothing to do with him or his policies. I am pretty sure that it was the housing situation that caused this mess. I am sure because people smarter than me have stated such. I won't totally discount your theory, but I'll have to hear more than that to convince me, and your avie kind of detracts from your credibility.

That's incorrect. Clinton/Gore funded massive telecommunications upgrades and expanded access to the internet. That along with providing funding for re-training of people displaced by NAFTA. Most wound up training for Information Technology.

There was also a huge paradigm shift in the financial markets...in that they went from an analog way of doing business to a digital one.

 

[Sallow]

credit.
If people (or governments) could not borrow money there would be no problem.

Yes..and we'd all go back to herding sheep and growing our own crops.

I know-----personal responsibility got too hard so people gave up.

You ever run a business?

 

[dilloduck]

First issue on the table:

What caused the recession?

Long answer:

Wall Street found a way to transfer risk from one place to another, and sell it. In what I call the Old Testament days, when a bank made a loan, the risk of the borrower defaulting was on the bank's books.

In the New Testament days, the bank could sell the loan in the secondary market and remove that risk from its books.

There is nothing wrong with that. A secondary market actually provides liquidity for more loans to be made. This greases the skids for the American Dream.

But in the 80s there began a period of massive financial innovation. While we were all marveling at the technological revolution happening in Silicon Valley, a securitization and structured product revolution was happening in the world's financial markets. And these markets grew and grew. In the US, the financial services industry exploded and became 20 percent of GDP.

I joke sometimes that if it were legal, Wall Street would securitize the revenue streams of hookers and sell those securities. But it's true. They really would if they could.

A security allows you to take the future revenue of an asset and sell it today.

All those principal and interest payments of a 30-year loan can thus be sold, even though they have not yet been received.

So a $200,000 loan will net about $400,000 in principal and interest payments over the life of that 30 year loan. You will double your money.

Well, a bank does not want to wait 30 years to get its principal and interest back. So it sells that monthly revenue stream to the secondary market. The secondary market packages that mortgage with billions of dollars of other mortgages and then sells those off to investors.

All fine and dandy. Worked great for many decades.

But what changed?

Derivatives changed. Radically.

For a fairly good in-depth explanation of the derivatives market, read [ame=http://www.amazon.com/Traders-Guns-Money-unknowns-derivatives/dp/0273704745]Traders, Guns, and Money[/ame]. Written in 2005, the author light-heartedly explains what is about to explode. He laughs to keep from going crazy.

With derivatives, you no longer bought actual loans. You bought revenue streams. And the more risk you bought, the more revenue you received. But the drier the stream got, the quicker you stopped receiving money if you had bought the higher risk.

Because of the explosion of securitization and mark to market accounting, the world's paper wealth had astronomically exploded. By 2000, there was $70 trillion of investor money floating around.

Just in time for these newfangled derivatives. Investors went hog-wild over these products. Nutso crazy for them. Could not get enough of them.

Wall Street outdid itself marketing these things. The did such a bang-up advertising job, that demand for them went into the stratosphere.

Well, when demand is high, and good risks are low, what do you do?

Easy peasy. You go out and find other risks. Risks that aren't so good. And you sell those.

And when there are still tens of trillions of dollars on the table, well, you'd be an idiot to leave it there, wouldn't you? So you go out and find even riskier stuff to sell.

The Wall Street firms then began buying up brokerages to keep their supply chains of these raw materials secure. There was a lot of competition for the raw material (loans) and they needed to keep their pipelines flowing.

Home loans were not the only raw material. So were corporate bonds and sovereign bonds. A bond is a loan to a corporation or a government. Like Xerox or Greece, or Spain, or Italy, or McDonald's.

All the risk of these loans was packaged up and sold.

And the risks got greater and greater and greater, and somewhere along the way someone lost track of how much risk was floating around out there.

Hey, as long as the rubes are buying, what do we care?

Then, somewhere in late 2005, AIG's Financial Products division discovered all the derivatives they were insuring were chock full of risk. Bursting with risk.

So AIG FP told Wall Street they were no longer going to insure that risk. It was too great.

It was also too late for AIG, but they did not know that yet. The ticking time bomb had not yet gone off.

It takes three years for a subprime bomb to explode. That's when an ARM resets and the negative amortization kicks the monthly premium through the roof of your house. And that is when you stop paying. Default.

But anyway, when Wall Street was given the bad news by AIG, did they decide to stop buying and selling toxic waste?

Oh, hell no! And this is when they became bald-facedly criminal. They could plead ignorance prior to this point, but after this point it was flat-out, undeniable fraud.

They actually accelerated the buying and selling of toxic waste.

And just for the record, it was at this time that the GSEs began slowing down their participation in the sub-prime market. They were less than 50 percent market share by the end of 2005.

Lehman Brothers, Bear Stearns, Goldman Sachs, JP Morgan, Morgan Stanley. And many, many, many other banks around the world. They were the secondary market.

There was a property bubble in Iceland. Iceland's bubble popped so hard they are now back to the Dark Ages. They have all gone back to fishing.

There was a property bubble in Ireland. On a relative scale, Ireland's property bubble makes ours look tame! And when their banks collapsed, all of them, the Irish bank took on all their debts. And that means Ireland is going to default some day. It is as inevitable as the sun rising tomorrow.

There was a property bubble in Spain. Spain's banks have been nationalized.

England had a property bubble. Many of their banks have sank beneath the main.

Italy's banks, finito. Germany's banks, kaput.

In my town, our population doubled in four years. New neighborhoods sprang up like weeds. And at no time did I hear anyone say, gee, look at all these negroes moving in and borrowing money to buy these ridiculously inflating houses.

That's because there are no negroes in my town. Not a one.

But, boy, you would think they were everywhere to hear the people bitching about the CRA!

When one builder went under and his houses all over the state were auctioned, I went to a bank to get pre-approved for a loan so I could go to that auction. The loan officer literally slid the loan app with one hand, and a HELOC app with the other hand, across the desk to me.

And this was AFTER everyone knew the gig was up!

I slid the HELOC back and said, "I did not get an over 800 credit rating that way."

I went to the auction and the house I was interested in was bid over its last listing price within 30 seconds. And this was AFTER everyone knew the gig was up.

That sale fell through. The house remained unsold for three more years.

It eventually sold for ten grand less than I offered immediately after the auction bid fell through.

So it wasn't the negroes, folks. That is just a bogeyman those who want you to believe the banks are doing God's work want you to see.


A middle class income earner nets a bigger profit. That's who the target was. Middle class people with bigger incomes can take out bigger loans, which means bigger interest payments. Which means bigger houses with bigger equity, which means bigger HELOCs.

Look around. When you see a foreclosed home, do you say, "Gee that guy looks just like me. I had NO IDEA he was a negro!"


Now, I said the banks figured out how to transfer risk from themselves and move it. They figured out how to sell it.

Guess who bought it?

















You did.



Your 401-k manager was given box seats to a baseball game and all the hookers and blow he could handle so he would buy large swathes of tranches from the banks.

Sorry he lost your retirement money when the bubble blew!


Your public employee pension fund manager was given Super Bowl tickets and all the hookers and blow he could handle so he would buy large swathes of tranches from the banks.

Sorry, folks, we lost our asses when the derivatives bubble popped. We can't keep all the promises we made to you. We are going to have to raise taxes and increase your contributions.



Your insurance company investment officer was given all the hookers and blow he could handle. Insurance companies don't make money off your premium payments. There's only about a five percent margin there after outlays, so they take that and invest it.

Sorry, folks. We lost our asses when the bubble popped and now we are going to have to raise your premiums!



Your college endowment fund manager was given all the hookers and blow he could handle. Remeber Larry Summers? Clintons' TreaSec. He was one of the masterminds behind the construction of the derivatives bubble. After he left the government, he went on to run the Harvard Endowment Fund whereupon he lost them $2 bilion when the bubble popped. Just like every other college fund around the country.

Sorry, folks. We lost our asses when the bubble popped and now we are going to have to raise tuition and cut back on scholarships!



And the beat goes on, because now the sovereigns are defaulting.

It wasn't the negroes. The actual causes have been right in front of your face all this time.

I'm telling ya---giving stuff to people on credit is a bitch.

 

[occupied]

First issue on the table:

What caused the recession?

Long answer:

Wall Street found a way to transfer risk from one place to another, and sell it. In what I call the Old Testament days, when a bank made a loan, the risk of the borrower defaulting was on the bank's books.

In the New Testament days, the bank could sell the loan in the secondary market and remove that risk from its books.

There is nothing wrong with that. A secondary market actually provides liquidity for more loans to be made. This greases the skids for the American Dream.

But in the 80s there began a period of massive financial innovation. While we were all marveling at the technological revolution happening in Silicon Valley, a securitization and structured product revolution was happening in the world's financial markets. And these markets grew and grew. In the US, the financial services industry exploded and became 20 percent of GDP.

I joke sometimes that if it were legal, Wall Street would securitize the revenue streams of hookers and sell those securities. But it's true. They really would if they could.

A security allows you to take the future revenue of an asset and sell it today.

All those principal and interest payments of a 30-year loan can thus be sold, even though they have not yet been received.

So a $200,000 loan will net about $400,000 in principal and interest payments over the life of that 30 year loan. You will double your money.

Well, a bank does not want to wait 30 years to get its principal and interest back. So it sells that monthly revenue stream to the secondary market. The secondary market packages that mortgage with billions of dollars of other mortgages and then sells those off to investors.

All fine and dandy. Worked great for many decades.

But what changed?

Derivatives changed. Radically.

For a fairly good in-depth explanation of the derivatives market, read [ame=http://www.amazon.com/Traders-Guns-Money-unknowns-derivatives/dp/0273704745]Traders, Guns, and Money[/ame]. Written in 2005, the author light-heartedly explains what is about to explode. He laughs to keep from going crazy.

With derivatives, you no longer bought actual loans. You bought revenue streams. And the more risk you bought, the more revenue you received. But the drier the stream got, the quicker you stopped receiving money if you had bought the higher risk.

Because of the explosion of securitization and mark to market accounting, the world's paper wealth had astronomically exploded. By 2000, there was $70 trillion of investor money floating around.

Just in time for these newfangled derivatives. Investors went hog-wild over these products. Nutso crazy for them. Could not get enough of them.

Wall Street outdid itself marketing these things. The did such a bang-up advertising job, that demand for them went into the stratosphere.

Well, when demand is high, and good risks are low, what do you do?

Easy peasy. You go out and find other risks. Risks that aren't so good. And you sell those.

And when there are still tens of trillions of dollars on the table, well, you'd be an idiot to leave it there, wouldn't you? So you go out and find even riskier stuff to sell.

The Wall Street firms then began buying up brokerages to keep their supply chains of these raw materials secure. There was a lot of competition for the raw material (loans) and they needed to keep their pipelines flowing.

Home loans were not the only raw material. So were corporate bonds and sovereign bonds. A bond is a loan to a corporation or a government. Like Xerox or Greece, or Spain, or Italy, or McDonald's.

All the risk of these loans was packaged up and sold.

And the risks got greater and greater and greater, and somewhere along the way someone lost track of how much risk was floating around out there.

Hey, as long as the rubes are buying, what do we care?

Then, somewhere in late 2005, AIG's Financial Products division discovered all the derivatives they were insuring were chock full of risk. Bursting with risk.

So AIG FP told Wall Street they were no longer going to insure that risk. It was too great.

It was also too late for AIG, but they did not know that yet. The ticking time bomb had not yet gone off.

It takes three years for a subprime bomb to explode. That's when an ARM resets and the negative amortization kicks the monthly premium through the roof of your house. And that is when you stop paying. Default.

But anyway, when Wall Street was given the bad news by AIG, did they decide to stop buying and selling toxic waste?

Oh, hell no! And this is when they became bald-facedly criminal. They could plead ignorance prior to this point, but after this point it was flat-out, undeniable fraud.

They actually accelerated the buying and selling of toxic waste.

And just for the record, it was at this time that the GSEs began slowing down their participation in the sub-prime market. They were less than 50 percent market share by the end of 2005.

Lehman Brothers, Bear Stearns, Goldman Sachs, JP Morgan, Morgan Stanley. And many, many, many other banks around the world. They were the secondary market.

There was a property bubble in Iceland. Iceland's bubble popped so hard they are now back to the Dark Ages. They have all gone back to fishing.

There was a property bubble in Ireland. On a relative scale, Ireland's property bubble makes ours look tame! And when their banks collapsed, all of them, the Irish bank took on all their debts. And that means Ireland is going to default some day. It is as inevitable as the sun rising tomorrow.

There was a property bubble in Spain. Spain's banks have been nationalized.

England had a property bubble. Many of their banks have sank beneath the main.

Italy's banks, finito. Germany's banks, kaput.

In my town, our population doubled in four years. New neighborhoods sprang up like weeds. And at no time did I hear anyone say, gee, look at all these negroes moving in and borrowing money to buy these ridiculously inflating houses.

That's because there are no negroes in my town. Not a one.

But, boy, you would think they were everywhere to hear the people bitching about the CRA!

When one builder went under and his houses all over the state were auctioned, I went to a bank to get pre-approved for a loan so I could go to that auction. The loan officer literally slid the loan app with one hand, and a HELOC app with the other hand, across the desk to me.

And this was AFTER everyone knew the gig was up!

I slid the HELOC back and said, "I did not get an over 800 credit rating that way."

I went to the auction and the house I was interested in was bid over its last listing price within 30 seconds. And this was AFTER everyone knew the gig was up.

That sale fell through. The house remained unsold for three more years.

It eventually sold for ten grand less than I offered immediately after the auction bid fell through.

So it wasn't the negroes, folks. That is just a bogeyman those who want you to believe the banks are doing God's work want you to see.


A middle class income earner nets a bigger profit. That's who the target was. Middle class people with bigger incomes can take out bigger loans, which means bigger interest payments. Which means bigger houses with bigger equity, which means bigger HELOCs.

Look around. When you see a foreclosed home, do you say, "Gee that guy looks just like me. I had NO IDEA he was a negro!"


Now, I said the banks figured out how to transfer risk from themselves and move it. They figured out how to sell it.

Guess who bought it?

















You did.



Your 401-k manager was given box seats to a baseball game and all the hookers and blow he could handle so he would buy large swathes of tranches from the banks.

Sorry he lost your retirement money when the bubble blew!


Your public employee pension fund manager was given Super Bowl tickets and all the hookers and blow he could handle so he would buy large swathes of tranches from the banks.

Sorry, folks, we lost our asses when the derivatives bubble popped. We can't keep all the promises we made to you. We are going to have to raise taxes and increase your contributions.



Your insurance company investment officer was given all the hookers and blow he could handle. Insurance companies don't make money off your premium payments. There's only about a five percent margin there after outlays, so they take that and invest it.

Sorry, folks. We lost our asses when the bubble popped and now we are going to have to raise your premiums!



Your college endowment fund manager was given all the hookers and blow he could handle. Remeber Larry Summers? Clintons' TreaSec. He was one of the masterminds behind the construction of the derivatives bubble. After he left the government, he went on to run the Harvard Endowment Fund whereupon he lost them $2 bilion when the bubble popped. Just like every other college fund around the country.

Sorry, folks. We lost our asses when the bubble popped and now we are going to have to raise tuition and cut back on scholarships!



And the beat goes on, because now the sovereigns are defaulting.

It wasn't the negroes. The actual causes have been right in front of your face all this time.

As good a summation as I have ever read, Lowly carpenters I talked to knew it was coming a long time before I ever heard a banker even mention the word bubble. You can't build spec houses forever, had to end up with someone holding the bag, never would have guessed we would have unconditionally bailed them out so completely that they would not even take a lesson from the whole mess.