I am writing today to announce the closure of the Michigan Messenger. After four years of operation in Michigan, the board of the American Independent News Network, has decided to shift publication of its news into a single site, The American Independent at Americanindependent.com. This is part of a shift in strategy, towards new forms [...]
An abstinence-only presentation provided to numerous school districts in Calhoun and Eaton Counties in October of this year provided false and misleading information to students about HIV, experts allege.
Two county registers of deeds filed a class action lawsuit Monday on behalf of Michigan’s 83 counties alleging that the Mortgage Electronic Registration Services owes millions of dollars in property title transfer taxes.
Despite evidence of the impact of mercury on children and public health, Michigan Attorney General Bill Schuette last month joined with 24 other state attorneys general in filing a lawsuit to scuttle new EPA regulations that would reduce mercury emissions from power plants.
Burning money (photo: 3dom via Flickr.com)
You were going about your merry way, just going from Point A to Point B and back again every day, punctuated by the occasional sick day or small vacation. Like the rest of Americans, you’re just trying to keep a roof over your head and “food on your family.” You’re more likely to check the Weather Channel and the 6 o’clock news than Google Finance or CNBC.
And then suddenly there’s a bloody financial crisis with billions and trillions of dollars being bandied about and talk of global markets crashing as if we were on the verge of another Great Depression.
“How the hell did we get here?” you’re asking yourself.
Here’s the path we navigated together, the trip most Americans didn’t know we were taking together:
Road Map to Economic Hell
• Predatory lenders made loans with the cheap money to people who did not have an adequate level of collateralization for traditional loans.
• These predatory lenders and other lenders re-sold these loans to investment banks, where they were in turn gathered into larger bundles called “collateralized debt obligations,” also known as CDOs.
• Investment banks like Bear Stearns (R.I.P.) and Lehman Brothers (now bankrupt and in bailout) purchased CDOs as part of their portfolios.
• Insurers like AIG (well, especially AIG) created and invested in unregulated “credit default swaps,” or CDSs, a newer kind of financial instrument that distributes both risk and profits from investments like CDOs — but since CDSs are not regulated, there’s no oversight or assurances as to quality of the underlying assets.
• The credit market, which includes loan facilities for things from cars to houses and from businesses to banks, tightened for many reasons, including the demand for money due to the Iraq War — we were spending money faster than we could borrow it.
• Market speculators (traders who deal in riskier financial products in different markets), sensing problems with investing in any credit-related products, put their money in sure things like consumables, driving up the price of commodities (including fuel), which in turn compels under-collateralized borrowers to default on loans and make an even bigger mess of the credit market. Housing prices begin to plummet as defaults rise.
• Property values fall and foreclosures increase, forcing lenders at all points of the credit spectrum from mortgagors to investment banks to conduct fire sales of subsidiaries and non-core assets to raise cash to cover obligations.
• Investment banks like Bear Stearns and Lehman Brothers can’t sell assets fast enough, as they have the least amount of physical collateral, since it’s tied up in those shaky CDOs, which have become prevalent across lending institutions and investment banks.
• The guarantors of mortgages (Fannie Mae, Freddie Mac) find themselves upside-down when too many loans go bad.
• The insurer of mortgages (AIG) can’t sell assets fast enough to raise cash to cover obligations because of mortgage insurance or losses from the unregulated CDS’s.
• And the U.S. government has few remaining options in its arsenal, save for nationalizing these failing entities, since choosing not to do so would crash the market globally, and the rich guys who own Congress and the White House wouldn’t like that at all.
Analysis
There are many places this could have been slowed down if not stopped.
The first of which was in 1999; Phil Gramm (John McCain’s senior campaign adviser) managed to weasel the financial industry out of any regulation on CDSs and other similar investment vehicles by way of the Gramm-Leach-Bliley Act, which effectively gutted the Glass-Steagall Act. Retention of the Glass-Steagall Act, along with better regulation regarding proof of collateralization for mortgages to prevent predatory lending, might also have helped. Improved monitoring of market manipulation in commodities was needed; mortgage holders might not have had to choose between buying arbitrarily more expensive gas to get to work or paying the mortgage had not speculators driven up the cost of gasoline and underlying oil.
An invisible dark twin traveling with us has been health-care costs, which also could have been better controlled with sufficient political will, instead of allowing escalating costs to drive people out of industries, out of business and out of jobs, let alone out of their homes.
And changing our entire national ethic about the so-called ownership society and the appropriate use of purchasing power would have made a difference. Should we run out and go shopping simply because our president tells us to do so, to prop up the economy so that he looks better? Shouldn’t we expect to rent rather than own if we do not have adequate capital to make a down payment? Should we really expect to have two brand-new cars in the driveway every three years or less? If we have a surplus, should we give it all back or save it for a rainy day? Should we pay down our debt rather than continuing to build it?
Should we be looking at being an investment society, one in which we invest in the health and safety of our people, in the education and subsequent innovation that made this the largest economy in the world?
It might be time, too, for all of us get out of that Point-A-to-Point-B rut once in a while and check out some news and information on the economy and financial industry, because if we don’t, it’s going to demand our attention in a way we can least afford for it to.
(photo: burning fake “ghost money”, 3dom via Flickr.com)
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