I don't buy it that a US housing bubble could cause a global recession. Something else is going on,

[thereismore]

some kind of systemic cancer of capitalism. It has got to be more fundamental than US housing bubble. What is it?

[ProdigalJunkMail]

1. the housing bubble is a part

but a large part...it filters into MANY different areas of business...

sP

[BuyingThyme]

2. Our entire economy is a fraud.

Maybe the housing thing simply exposed it as such.

[Sal Minella]

29. I see it as "predatory mortgage-bundling/selling thing" rather than "housing thing."

Nothing at all odd about borrowing funds to buy a home.

Something exceedingly odd about bankers pushing horrible mortgages down people's throats and then shuffling all the financial risk off onto somebody else.....

[Vincardog]

59. Bingo Something exceedingly odd about bankers creating financial instruments out of thin air

and selling them off at great profit.

[knowbody0]

3. karl marx predicted this

[ananda]

6. Boy, the Manifesto sure looks good now, doesn't it?

nt

[crikkett]

20. forgive my knee-jerk reaction: manifesto >>> gulag

:scared:

[Jackpine Radical]

35. The Soviets wre at best nominal Marxists.

I mean, Hell, Marx expected someplace like Germany to be the first to go Communist. His thinking was all about industrialized capitalism not about feudal agrarianism like Russia. The fit was not good when they grafted bits & pieces of Marxist theory on top of the remains of a brutal Medieval monarchy. Marxism as he wrote it was a 19th century idea and would be a disaster if anybody actually tried to implement it as written, but don't judge it by the way Lenin deliberately misapplied it in order to set himself up as the new Czar after the Revolution.

[crikkett]

54. No problem. How should I judge it?

Cuba? China? North Korea?

To be sure, I am conditioned to distrust Marxism. So as they say, please talk me down.

[EmilyAnne]

63. Totalitarianism is the real problem. Russia was a totalitarian nation before the Bolshevik

revolution and after.

[ananda]

4. Watch "The Trap"

"The Trap" is a BBC documentary that you can
download and watch for free, by the great
Adam Curtis.

It gets at the heart of what ails us and
the economy... and it aint nuthin nice.

It has to do with insane ideas and intellectual
underpinnings behind the desire to take
government and politics out of the lives of
people and corporations in the name of individual
freedom... which has had a most ironic and
paradoxical result...

[undergroundpanther]

67. Bingo!! and it's the inane

narcissistic 'dream' of status seeking,greedy sociopathic assholes lost in a fantasy land.A LIE that's gone on too long,a con that sucks the life out of anything it touches..Methinks it's time to drive a cold steel stake right into the cancerous evil heart of these overweening ego pigs who can never have enough.

[marmar]

5. Debt derivatives.......The veil has been lifted.

The faux engine of economic growth has been exposed.

[specialed]

7. It's part of the problem.

The real problem was allowing Credit default swaps to be sold and close-traded based on residential mortgages. The other real problem was allowing the creation of Credit default obligations as well. Until we build a regulatory frame work that instills trusts in the market place then lending will remain frozen. So thats got to get done asap.

[Myrina]

8. 3% of the people own 98% of the wealth ...

... and they're not 'Stimulating the economy' with it, they're sitting on it.
So the wheels of commerce are slowing to a stop.

Somehow, there has to be a (gasp!) TRANSFER OF WEALTH back to the average folks who shop and pay bills
and keep local economies going, or the whole game is over.

[Fabio]

9. The issue was easy credit and the false/ineffective hedging of risk -->

It has happened in basically every sector of the global economy but was particularly an issue in the housing/real estate sector where high leverages ratios and mistaken assumptions about constantly climbing home values were prevelant.

Here's a good video that can explain at least the the crisis of credit as it pertains to home mortgages.

Part I
http://www.youtube.com/watch?v=Q0zEXdDO5JU&feature=related
Part II
http://www.youtube.com/watch?v=iYhDkZjKBEw&feature=related

[sandnsea]

14. Mistaken assumptions?

Honestly, do you believe these financiers were so stupid as to not understand a $50,000 median household income would not sustain the mortgage rates they thought they were going to charge? And the prices that houses were rising to? They knew, they were just too greedy to care about the long term consequences of their actions.

[Fabio]

24. I am referring to homeowners who

mistakenly believed they would be able to refinance at a gain at a later time because their own home invariably would be worth more. Mistaken assumption.

As per the financiers, the issue is not mistaken assumptions, it's that they sold mislabeled risks -- ie CDO rated as AAA, when in fact they were synthetic instruments that could (and did) fail in the case of a systemic financial breakdown.

[sandnsea]

30. Based on the word of experts

who were working at the direction of those selling those instruments. The ones who claimed to have all the economic expertise now want to blame the people who listened to them while continuing to claim the right to multi-million dollar salaries and bonus packages.

[Fabio]

34. what are you saying?

home values in the US have consistently climbed since 1940. Many people thought it would continue as the historical evidence is quite clear, fewer thought it unsustainable.

http://www.census.gov/hhes/www/housing/census/historic/values.html

No one was forced to take a mortgage -- surely many were encouraged to take debt they ultimately could not afford -- but "fault" lies with both parties - the Lendor and the Homeowner.

[sandnsea]

37. This was a scam from the gate

They concocted these mortgage securities when they started whining about Fannie & Freddie having a monopoly. It was an intentional investment tool with an intentional marketing strategy, from the homeowner to the investor. A big fat scam.

The only way people ended up with debt they couldn't afford is when interest rates went to 10-15%, which the creators of these mortgage securities knew they would do. That's the profit they were selling.

When they got in cahoots with the ratings companies, it was all over which anybody with a pea for a brain should have seen. The fault is Wall Street, 100%. They did this on purpose and it blew up in their faces and unfortunately, the people will suffer most just like we always do.

Companies have simply got to stop using their stock as gambling chips and start running companies based on old fashioned products and services and profits again.

[Fabio]

43. I find this analysis incomplete.

I am not saying that much of the blame lies with Wall Street, but I refuse to believe that folks were forced into mortgages. Certainly it was alluring and there was lots of fine print, but individuals bear some responsibility for their own actions.

[sandnsea]

44. The mortgages are completely irrelevant

They were the paper used to build the balloon on. If they could have figure out how to convince people there was a market in toilet paper, they'd have built this balloon on that kind of paper.

If every person in the country paid up their mortgages tomorrow - it wouldn't begin to fill the trillions of phony dollars these investment companies traded and overvalued and insured and hedged.

The homeowners are no more than collateral damage.

[karynnj]

68. Those videos are great do a great job explaining what happened

Thanks for posting them.

[sandnsea]

10. They sold the mortgage bundles as securities

Speculation, just like with oil. Except when it popped, there were trillions of global dollars involved, plus insurance that had been sold to back the sales in the first place, which also is backed by trillions of dollars of securities.

The mortgages and real estate bubble were pawns in the game, what they used to pretend they had something of tremendous value to sell and then blew the value all out of proportion just like they did with oil.

[blm]

11. The banks had accounting system just like Enron - they got big bucks to FIX THEIR COOKED BOOKS

before it all became obvious. That's why banks still have NO MONEY to lend honest consumers.

Enron would have escaped, too, if they had an influx of billions of dollars to FIX their crooked books.

[tavalon]

12. Smart, you are.

CDOs, hedge funds, it's a massive mess that reaches so far up the ass of the failed capitalism as to be just gross.

[NightWatcher]

13. I believe this is the ultimate goal of capitalism...growth for the sake of growth till it consumes

all, kinda like the motivation for cancer

Today is Reagan's dream realized

[Mari333]

15. add the cost of 2 unending wars to the deficit

thats been ignored far too long.

[napi21]

16. Check this video. It's the best explaination of what happened that I've seen.

http://video.google.com/videoplay?docid=4759275362410693117

It's an animation put together by some college senior as his thesis. Many expert economists praised him for it too.

[FredStembottom]

25. Wow! Excellent!

Entertaining, too.:thumbsup:

[FredStembottom]

26. Double post

Removed

[CountAllVotes]

42. excellent explanation ...

however, this has been going on worldwide!

:kick: & RECOMMEND!!

[napi21]

57. Yes it has. GREED is not just an American thing! n/t

[jakeXT]

58. I was missing things like CDO^2

http://marketplace.publicradio.org/videos/whiteboard/uncorking_cdos.shtml

or did I miss it?

[Viva_La_Revolution]

17. same problem, expanded across the whole financial system...

Just as mortgages were sold off in pieces, repeatedly, inflating the "worth" each time, they did this with commercial investments, hedge funds, pensions, even the brokerage houses themselves sold derivatives of themselves.

It's now become clear to the masses that all of this is virtual money, it doesn't really exist. The gig is up.

Boom! goes the dynamite.

[FredStembottom]

18. No underlying value to the U.S.?

I can't help but think that a country that manufactures nothing - and hence designs nothing - and hence doesn't even train it's kids for activities like that.... has no real value.

The various bubbles were just bridges trying to reach across to a day when the U.S. maybe, once again, might have real value.

But thanks to Conservative cult-group members having gotten hold of our government planning, there s no no New Day for those bridges to reach. So they have collapsed.

That's how I think of it ennaways............

[whoneedstickets]

19. It's all about securitization and leverage..

..Here's how I see it
1) Tech bubble bursts...stock market going sideways = low returns
2) Bush cuts taxes on wealthy .. newfound $ look for high return investments
3) Hedge funds boom (these are Side A)
4) Other $ looks to the hot/stable US housing markets
5) securitization fuels new investment input, mortgage securities receive high ratings (errantly based on history of US housing)
5) the push of investment into the mortgage banking system leads to a search for new borrowers
6) banks lend at a leveraged rate (10:1 or more) many more borrowers required as $ flow into the market
6) quest for borrowers means lending standards are forgotten and predatory lending practices proliferate
7) Seeking to offset risk, mortgage banks buy credit default swap - CDS & default insurance(this is Side B)
8) hedge funds, betting on a collapse, use more bush tax-cut $ to buy CDS (Side A $ match Side B $ for a while)
9) the feeding frenzy attracts global investors (like banks in Iceland for example) perpetuating steps 3-7
10) underlying assets collapse in value, taking down highly leveraged banks who can't cover. Calls on insurance and CDS (see AIG)
11) ripples spread out on this leveraged house of cards.

[Fabio]

33. There a some good points here but I would add

the fact that market to market rules -- while meant for the best -- have been a pretty major driver for banks going down, as they have been forced to value assets at prices marked by distressed sellers.

Also, I disagree that the Bush tax cuts were a meaningful driver in money used in hedge funds -- the hedge fund industry is largely funded by institutional investors -- who are almost universally 501c3 -- and thus unaffected by the tax cuts directly.

[Bonhomme Richard]

21. Derivatives..BINGO! and....

That and the insane economic structure that relies on convincing people that they have money to spend when they don't.
The powers that be figured that they could get people to continue spending when, at the same time, they would pay them less. All the time skimming off the top.

[Postman]

22. It's the Credit Default Swaps....

They bet more money than there is in existence.....

[redqueen]

41. Yes.

But I want to blame Hedge Funds too, just because.

[The2ndWheel]

23. Since any of our organized ways of life require growth, it's not just capitalism

http://www.worldwatch.org/node/6008

Buzz Holling, one of the world's great ecologists, is a kind and gracious man, with a shock of white hair and a warm smile. Born in Toronto and educated at the University of Toronto and the University of British Columbia, he worked for many years as a research scientist for the government of Canada, where he pioneered the study of budworm infestations in the great spruce forests of New Brunswick. Later, as an academic researcher and eventually as director of the International Institute for Applied Systems Analysis in Austria, he created powerful mathematical models to explain the ecological phenomena he saw in the field. Using these models, he achieved major breakthroughs in understanding what makes complex systems of all kinds-from ecosystems to economic markets-adaptive and resilient.

Since the early 1970s, Holling's research has attracted attention in disciplines ranging from anthropology to economics. His papers have been distributed like samizdat through the Internet, and Holling himself has become something of a guru for an astonishing number of very smart people studying complex adaptive systems. Some of these researchers have coalesced into an international scientific community called the Resilience Alliance, with over a dozen participating institutions around the world. Although Holling is now retired from his last academic position at the University of Florida, he's still terrifically vigorous and focused on furthering the Resilience Alliance's work.

Holling and his colleagues call their ideas "panarchy theory"-after Pan, the ancient Greek god of nature. Together with anthropologist and historian Joseph Tainter's ideas on complexity and social collapse, this theory helps us see our world's tectonic stresses as part of a long-term global process of change and adaptation. It also illustrates the way catastrophe caused by such stresses could produce a surge of creativity leading to the renewal of our global civilization.

[Skarbrowe]

27. hmmm

Edited to say that all those posts above mine were posted while I took forever to write this out. Sorry for any and all repetitiveness.

Money was being made off selling mortgages in bundles. These mortgages were mostly, but not all, subprime. There were even mortgages where people didn't have to prove they had income to get the mortgage. The lenders were in this frenzy of selling the mortgage, not making a legitimate loan to a customer. These lenders made millions upon millions of dollars by rebundling these very bad, bad, not so bad and even good mortgages to Wall Street when it got whiff of all the money making capabilitiy in this mortgage selling scheme. The credit ratiing agencies, Moody and others, wanted in on the act so they labeled all this bad - what was now called mortgage backed securities- the best of the best- AAA. They didn't even know what they were stamping AAA. But, no one wanted off the gravy train.

Bits of all these mortgage bundles were split up and put into another bundle called a CDO. Only the person who created these things knows what they are..and that's a maybe. Having a AAA rating on this now Wall Street backed and traded commodity caused many pension plans, foreign goverments and many, many trusting people all over the world who thought they were buying into a "safe" and conservative AAA security, buy into something that was totally valueless if mortgage defaults started growing.

Everyone in the world, poor Iceland, took a big chance, but also a big risk and got in on this frenzy of American backed mortgage securities. Most of the time they really didn't know what they were investing in. The AAA rating and slick salesmen in Armani suits made the sale. These investments were supposed to be safe based only on the myth that American homes would never start to lose value for any reason.

This is just off the top of my head after watching that CNBC special the other night. It took it from the very beginning, the day after 9/11, and the monetary decisions made due to that possible economic catastrophe. Obviously, lack of regulation or any oversight of any kind and unimaginable greed led us to this disaster.

But, yes that's why our housing bubble can take down the world economy. These CDO's were tied into everything we did financially with every country. Also, when our big money lenders fail ( due to these failing CDO's tied to defaulted mortgages), money can't move. Credit is gone for everyone, everywhere.

I'm trying to understand it. What I've read and seen is sickening. I have no idea how bad things are going to get. I only know they will get worse long, long, long before they get better.

[Numba6]

28. It's all them damn Rosicrucian's fault

They took over from the Masons

http://en.wikipedia.org/wiki/Rosicrucian

:rofl:

[damntexdem]

31. I do buy it, given how the cancer systematically spread the risk to unwary investors.

And given how much international lending to the U.S. resulted in international investing in U.S. real estate.

And given how the political cancers did away with regulations that might have prevented the practices that led to the meltdown.

[RandomThoughts]

32. I think there are a few things

First free market Capitalism took a beating in the 30's but then a really big war trashed many countries, 80% of all production was in the USA after WW2, so there was a big shot in the arm for American Capitalism.

Plus, Communism arose, and it was a sudo-check on Capitalism, if Markets went extreme, countries might go communist since USSR was supporting the idea in many 3rd world markets. So free markets, or big corporations were not allowed to just steal the money of countries, there also had to be some support to keep people happy.

Berlin Wall comes down, USSR goes capitalist, China follows, now there is no check, Then after Reagan the only enemy were government/unions/regulation keeping the riches from walking away with everything. With cooperation of both democracies and totalitarian regimes, since really the democracies were trying to go more totalitarian, and hence considered totalitarian countries (as long as free market) as friends. The vault doors were open.

People hatched tricks(since they knew nobody would put them in jail for it) just to make quick dollars at the expense of a sustainable system, and they got real rich.

And here we are.

Thats my guess.

[kestrel91316]

36. IMHO the rising price of gas was the thing that knocked the props

out from under the bubble. People suddenly had to spend so much on gas (and electricity and home heating) that they couldn't keep up with their McMansion mortgages.

[daleo]

38. I agree, the problem is unsustainable global capitalism

I think it is a result of the current unsustainable model of global capitalism. Corporations wanted cheap labor and high prices for their goods. This could go on for a while, but only at the cost of transfer of assets and accumulation of debt in the consuming countries. This was masked for a while by excessive debt levels in the west, and the associated ephemeral wealth effect. Now that the debt bubble has busted, the scope of the problem is coming clear.

[On the Road]

39. It May Not Seem Like a Large Enough Event

But:

1) the real estate bubble was worldwide.

2) When housing prices collapsed, consumer spending followed. A lot of jobs depend on that spending.

3) The effect is multiplied due to leveraging. Fractional reserve banking means that banks loan out many times the amount they have in deposits. Foreclosures are expected to be in a certain range, and banks are expected to be able to recover a certain amount on foreclosed homes. If either of those numbers skyrockets, the bank is in trouble.

4) A lot of firms, especially in the financial industries, invested in resold bundles of loans. Many of those investments were themselves leveraged, which means that small changes are magnified.

There are many things going on, but the change in real estate value is huge, and the effects cascade throught many other industries. It is absolutely enough to cause the kind of problems we're seeing.

The good news is that once housing prices stabilize, so do the negative effects caused by falling prices.

[Uncle Joe]

40. The inevitable gravitational pull of global economic equalization after

the lopsided ratio of American to the rest of Earth wealth began to wear off from the post World War II era.

After World War II, the United States was exceptionally rich as compared to the rest of the devastated industrial world, we were relatively unscathed, and much of the "Third World" still hadn't entered the Industrial Age.

I believe to a large degree the seismic effects of equalization have been camouflaged for several decades by the use of credit; national, corporate and private, combined with gambling our economy by basing a disproportionate amount of it on finance.

Government, Wall Street and American Corporations focused their vision more on micro, short term quarterly profit and personal greed as opposed to the macro, mid-long term wisdom of adapting to a changing world.

I believe we as a nation actually took a major step backward from necessary pain with Reagen's policies, that's when the national debt began to explode, that's when we turned away from Green Technology, fighting to maintain the old rather than adapting to the new, that's when the corporate media became more blatant with their propaganda; brain washing the American People in to viewing the nation through an actor's lens as being a "shining city on a hill" cold and disconnected from the reality of humanity's plight.

I believe throughout history, empires have fallen in large part because of viewing them selves as separate, exclusive or better than the rest of humanity and thus became rigid in their thinking; they knew it all, if speed kills rigidity certainly hobbles.

[specimenfred1984]

45. Capitalism is only as good as its regulation

Without regulation, all we have is crime.

[ItNerd4life]

52. And poor regulation got us into this mess.

I like the way you phrased it.

[nichomachus]

46. It's in the mix -- but a completely insignificant part of the problem

Had the economy and the markets been healthy, it would have just resulted in a much-needed correction in housing prices, part of the normal market swing in these things. Some home buyers who went in over their heads would have been hurt -- as always happens in these things -- but we would have come out of it in a year or so. This is what happened in the late 80s, early 90s. The housing market rebounded within a couple of years.

The problem this time, as some many others noted, were the funny-money securities being generated by the "experts" off of the housing bubble. When you take out 100 insurance policies on the same mortgage, which is pretty much what they were doing, you're headed for deep shit.

But, the ultra-wealthy and the top-level thieves are trying to pin the whole thing on a construction worker in Duluth who took out an adjustable mortgage on an overpriced house.

[galloglas]

47. "some kind of systemic cancer of capitalism" ????

No. The systemic cancer IS capitalism. Unregulated capitalism, and its extension to cover "corporate person-hood", is the very problem itself.

If we wish to have capitalism, let us have it in the way the world had it for some thousands of years. If one wishes to amass capital and put it to work (and I believe this is a good thing), then any human person willing to do so should put all of their capital at risk. Additionally, a person using capital to run a business (IMHO) should be allowed only to run as much business as they are personally able to oversee.

From a standpoint of morality, it might be best to limit their earnings to something like 50 to 100 times the income of their lowest paid worker. Some may wish to believe that large enterprises would not be possible under such conditions. And that is true. So what to do?

IMHO, that is the point at which government should be the owner of the larger enterprises, with what are normally considered "profits" accruing to the public weal, just as they often have been with publicly held utilities.

Does that automatically guarantee malfeasance, as the GOP always claims? No! Lax supervision allows such, when not closely overseen, but unregulated and "corporate person-hood" capitalism guarantee that as an outcome.





It is a Biblical concept. One cannot serve both God and Mammon (money).

[thereismore]

60. You got me there! You are right of course. nt

[burythehatchet]

48. The logical end-game of capitalism is that one person ends up with all the power/money

but the reality is that as soon as wealth becomes too concentrated with the upper class, the system corrects itself, usually in a bloody fashion.

[The2ndWheel]

53. Substitute species for person, and it works just as well

[yella_dawg]

49. Naomi Klein

calls it Disaster Capitalism. http://www.amazon.com/Shock-Doctrine-Rise-Disaster-Capitalism/dp/0312427999/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1235588011&sr=8-1">Amazon.com

Catherine Austin Fitts calls it the Tapeworm Economy. See: http://solari.com



Either might characterize the housing bubble as at best, a distraction.

[DireStrike]

50. It's the derivatives, not the housing.

The ingenious system that allowed wealth to be created from nothing also allowed negative wealth to be created from nothing. Go figure.

[leftofthedial]

51. systemic cancer is it

the bailout, etc. is the financial equivalent of a heart-lung machine.

capitalism is dead, no matter how long its champions keep the corpse "breathing"

[Lydia Leftcoast]

55. The issue was the wealthy and powerful manipulating the game to their own

advantage while telling the masses that everyone was subject to the same rules.

[taught_me_patience]

56. Wages have not kept up with inflation

over the last 20 years. The "gap" was filled by credit. We are seeing the unwinding of a credit bubble.

[TheKentuckian]

61. The problem is they turned all those mortgages into securities

and spread them throughout the world economy. When this all crashed out it opened a hole of some 14-50 trillion. A lot of money suffered a sudden existence failure.

[AngryAmish]

62. I'm sure you don't.

[nichomachus]

64. So the USSR tried Communism and it failed. The US tried

Capitalism and it failed. The only countries that are doing OK are the ones we call "Socialist." Many of them are now having problems, but all of their problems can be traced to causes springing from Capitalism, either because they tried it themselves in some areas or because they're just suffering from the ripple effects of unrestrained capitalist greed.

[Name removed]

65. Deleted message

Message removed by moderator. Click here to review the message board rules.

[thereismore]

66. What a snotty and uncalled-for response. I am sorry for the people who have to put up with you. nt

[GeorgeGist]

69. Does the word GREED ring a bell ?

If so, then you'll understand that the Unified Theory of Capitalism defines both the problem and the solution:

Profit = Theft

[MadMaddie]

70. I will say that all of the countries being tied to each other

through banking and other types of businesses. People claim that if the US moves towards more nationalism then thats a bad thing.

I think that there are certain industries that should be considered part of National Security, they should be able to stand on their own on US soil if a crisis occurs. Why is our entire economy dependent on Wall Street and stockholders? Banks that are so big and have questionable dealings?

My two cents...