The stock market is crashing. Americans are losing their homes to foreclosure. The dollar is crashing and continuing to decline; supermodels don't even want to paid in U.S. currency. Oil appears to inevitably break the $100 price target. We hear and read it everyday and we know who's responsible. Think again.
The credit crunch is the cause every professional communicator is underscoring most. Foreclosures, mortgage delinquencies and late payments, repossessions, are all up because home loans were issued to people who clearly could not afford them. Anybody, from the man on the street, that self-educates himself reading The Wall Street Journal, and watching CNBC and Bloomberg, to the Goldman Sach's analyst who comments on this issue, says that the financial institutions are at fault for issuing these loans without requiring any documentation proving that the borrower could afford such a loan. But who ultimately gave their John Hancock to agree to pay for these loans? Who didn't determine that he was unable to pay a $3,000 mortgage because, because his liabilities left him with $1,000 in cash flow every month? We are!
Now the Federal Reserve is cutting interest rates to try to remedy the situation which helps the dollar decline further. Foreign investors are taking their money elsewhere. And we have more organizations and agencies to blame. It's everyone's fault but ours.
Oil is almost at $100 a barrel. Who's to blame? According to the Energy Informational Administration, the U.S. and China are projected to account for half of the world oil consumption growth in 2007 and 2008. Buy a hybrid vehicle. Get on solar energy. Very cliche, I agree, but I have yet to personally know anybody who has done either, and most of them complain. My cousin drives a hybrid, only because he works with the Department of Environmental Protection, and its issued to him so he could work. We can get the price of oil down if we didn't demand so much of it and if we didn't buy so many things on credit that we can't afford that's got us looking bad to the rest of the world -- hence the lower dollar.
And, of course, the mastermind of all evildoers, Mr. George Bush, Jr. Do you know how many people I see on Bill Maher, other television programs, and the street who stated that they voted for George Bush the first time, not the second? As an incumbent, the odds of staying in office are in his favor. I was convinced he was going to win the first time and the second without having to sit through one political talk show; all I had to do was determine who had the more popular name. As soon as I heard a news segment talking about how Bill Clinton wasn't showing up at any of Al Gore's campaign events, I knew he didn't stand a chance. Americans vote for the candidate with most star power, period. It doesn't take a political analyst to know that Hillary Clinton will be the next president of the United States. So don't complain that Bush cheated. If Al Gore was going to win, he would have won by a big enough margin that it wouldn't have mattered if Bush fixed the vote in one state; there are 49 more. In life there are no asterisks; only scoreboards.
Become financially literate and grow your wealth to the point that you have a corporation that keeps jobs in America if you think that's the problem. Know your means, and live beneath them or make more money. The founding fathers were able to build a great nation from positions of wealth. You are in America. And you can educate yourself to make as much money as you want. I don't need to tell you how many kids have started a website from their school dorm that is now worth millions. Most of us are just not willing to pay that price.
Follow Neal Rodriguez on Twitter: www.twitter.com/notifyneal
And "fraud." Agreeing to issue a loan without having proper documentation to show that the money is being lent to a credit-worthy borrower is fraud.
Fraud also consists of conspiring to be sure that payments are posted in such a way as to maximize, not minimize, the opportunity for "fees and penalties," which now constitute a very substantial part of any bank's income. The borrower has no control over this.
People need credit, under fair terms and at a fair price. They are vulnerable to the manipulations of the companies from which they must from time to time borrow. It is not simply the case that "the borrowers were stupid and now it's all catching up with them." If bankers exercised their fiduciary duty toward their customers and shareholders alike, with appropriate care, they would not be bankrupt themselves.
Globalization was supposed to help our country by opening up foreign markets for our products, but that presupposes that the United States produces things that other people want to buy. As foreign nations with low wage rates have improved their infrastructure, though, companies have naturally moved their manufacturing operations to locations where the wage rates are a fraction of what they are in America. The economists tell us that fact should not worry us, because of the theory of “natural advantage”. Low value, labor intensive production will move to developing nations with low wage rates, but it will be replaced by the production of high value, high technology goods here in the U.S., which will benefit everyone.
If the U.S. had sensible tax policies, that might be true. But we don’t. In our system, a corporation that earns a dollar from manufacturing high technology goods in certain countries will keep the full dollar. If they manufacture the same goods in the United States, they will keep only about 60 cents after federal and state taxes. In other words, simply by locating their high value activities abroad, a company can earn more than 50% more than if they performed the same activities in the U.S. Corporate managers are not stupid. They respond to these incentives, and the rapidly increasing number of well educated foreign workers enables corporations to shift activities to the most tax efficient location. Our “natural advantage” thus dissolves. In direct consequence, the market power of middle class American workers has been fading, leading to nearly 30 years of stagnant real income growth for the bottom 99% of our population.
There is a simple solution. The Shared Economic Growth proposal, explained in detail at www.sharedeconomicgrowth.org , would instead provide a strong incentive for corporations to move their valuable operations back inside the U.S. borders
You have people in the banks trying to get their bonus for this quarter or for this year by selling unsuitable products to credulous people, while threatened with being fired if they don't make the quota.
The credit crunch is occurring because it `made sense' on the individual level to everyone involved with bringing it about, and because working in finance is an overpaid rollercoaster ride.
People working in finance see their colleagues come and go - they realise that as employees they're every bit as disposable a commodity as the products they sell - they pocket what they can while they can.
The graduates who might have become engineers or scientists 60 years ago are now intent on working in finance to get the most money in the shortest period of time, with the result that there are complicated, model-dependent financial products available whose risk and volatility turns out to be somewhat more difficult to estimate than was originally believed.
One of my classmates of '98 was on the board of a company valued at $400m in June '06 which crashed to $40m in the space of 6 months last year - but he did OK out of it, thank-you very much - and it's what people at college aspire to do these days.
You bring up good points, for sure. Yes, the financial industry set about to dupe middle America. Granted.
But that does NOT negate the truth of Neil's post! The subprime mortgage situation is in plain black and white: I'm buying a HOUSE (not a stereo, not a car, a HOUSE) that I can only afford because at the moment I have 0% interest. And in a couple years, I'll have at least, say, 10% or so interest.
Who in their right mind--if they've taken the time to actually think it through and crunch the numbers--would do that to themselves?
Yes, these people were sold up the river by the financials, sure. They're out to make a buck and they don't give a good goddamn whether they help you along the way or not. If people are too deluded to realize that, and too benighted to READ THE TERMS of the contract they're signing--FOR THE ROOF OVER THEIR HEAD!!!!--how does personal responsibility NOT come into play with that?! All it takes is 2 eyes to read with and a friggin' calculator!
And as far as credit cards go--you make a decision to buy things with a piece of plastic because you do not have the cash in hand to pay for them outright, and then when that blows up in your face, it's the credit card companies' fault? Ludicrous.
As someone who considered filing for bankruptcy--at 26--because he financed a life he couldn't afford almost entirely with plastic, I'm not just telling tales out of school. No, I didn't know what I was getting into. And yes, I was "predatorily" pursued by credit companies.
But no one put a gun to my head and told me to take out 15 credit cards so I could live the high life on a freelance writer's salary, just as no one put a gun to anyone's head and made them buy a house they couldn't afford.
I did it to myself, and so has the rest of America.
We've become a nation of the Faithful ready to put that faith in anybody because it's all so terrifying and out of control. We've been hypnotized, dumbed down in school and the evening news, and told to ignore the man behind the curtain--so let's start right there!
I believe in personal responsibility. But we're raised on God and Country and Mom and Apple Pie, and that stuff sticks! It's good to have truths. But what about when they're not what you've been sold? Whose fault is that?
From post re Goldman Sachs-arranged collateralized mortgage obligations to sophisticated money managers:
""He shows how toxic waste was sold to overly eager investors...Goldman Sachs was injecting dangerous financial products into the world"s commercial bloodstream for years...on a scale of billions even when Henry M. Paulson Jr., the current Treasury secretary, led the firm. The point to bear in mind is that as Goldman was peddling C.M.O.'s, it was also shorting the junk on a titanic scale through index sales showing how horrible a product it believed it was selling.""
Let's get this straight--Everyone want to blame greedy stupid consumers for taking really bad mortgage deals, right? But we find out this started at the top, qualifying rules were bent so that Goldman and others could package these "TOXIC" investment instruments, purchased by professional financial experts, not lunch bucket lottery hopefuls, which Goldman then SHORTED, making even more profit and sticking everyone else with the bad debt. Oh, and their boss through much of this is now the current Sec. of the Treasury.
You're raised to believe in the system, so it might be that on your first time through you take it up the kazoo. Then, because you've been kept ignorant but you're not stupid, you get it pretty quick that it's time to change the system...and when you take that stance, you've just put on a tri-cornered hat!