Stock Market, Bailout, My Retirement, My Future.

[vg4030]

It's coming from China, Japan, and other countries who are "lending" us unprecedented amounts. And since we won't be able to pay it back, it's very likely that nearly every major US asset will ultimately pass into foreign control, including most S&P 500 companies. As the value of the dollar plunges, the Chinese will stop producing goods for Americans and begin producing it for themselves. And Wal-Marts will be empty because we've lost the means to produce anything.

So youre saying this 700bn is coming from overseas?

I know japanese banks etc are buying stakes in Goldman etc... but its not a loan and not a controlling majority.

 

[AmerikazMost]

So youre saying this 700bn is coming from overseas?

I know japanese banks etc are buying stakes in Goldman etc... but its not a loan and not a controlling majority.

Basically, it works like this:

When the government runs a budget deficit--spending more money than it's taking in through taxes and bonds--it needs to get that money from somewhere else. It can either print new money, causing some level of inflation depending on how much, or by borrowing money from other countries. When the U.S. borrows money from other countries, that lowers the demand for American dollars relative to other currencies. This shift in the relative demands is then reflected in the relative value of the currencies, which is exactly why the dollar has fallen so far over the past few years.

Now, how do foreign countries buy domestic goods? With domestic currency. Because a country in Europe can now get $1.50 with one euro instead of $0.90, they can get more dollars and hence buy more "stuff" in America, including American businesses.

That is the danger of having a falling dollar. When it weakens, we lose ability to buy foreign goods, and foreign countries gain ability to buy our stuff. You can blame going to war and cutting taxes simultaneously for that.

Though, I'm optimistic the dollar will pick up (it's already starting) and we'll start buying things back and buying stake in other countries again.

 

[Jokerman]

So youre saying this 700bn is coming from overseas?

Not specifically, but effectively. Just as the almost $1 trillion for the Iraq war can be looked at as having come from overseas, but not directly for that stated purpose.

Foreign countries buy our Treasury Bonds, which are basically IOUs, and give us money or credit. This is what the US National Debt is about. It's officially almost $10 trillion. And that doesn't even take into account the governent's promised future Social Security and Medicare benefits, which we've already squandered.

All told our actual National Debt is $50-80 trillion and growing by $2-3 trillion a year. That's if we don't spend any more money. So if we owe $10-80 trillion dollars, where would $700 billion more dollars come from? Out of thin air. Whether we call it taxpayers or overseas countries or military and civilian pensions or social security, it's the same non-existent money, otherwise known as credit. An economy that lives on credit, dies by it as well.

 

[vg4030]

Thanks for the explanation Jokerman and AmerikazMost
Much appreciated

 

[PuffnScruff]

That's such a lame excuse for how this happened. The major role that the legislators played was not implementing oversight mechanisms, not the non-discrimination policies.

Giving out loans to people for houses appraised at 8 times their annual salary has nothing to do with the non-discrimination policies. Not requiring proof of income when loans are made has nothing to do with it either.

Why would a company make such outrageous loans? How could they possibly expect people to pay them? Because housing values kept going up, and they saw no end in sight (or didn't want to look that far ahead). If housing values kept going up, then people got free equity and could refinance their mortgages if they needed to. But low and behold, the prices stagnated and people with these loans were asked to make payments higher than the value of their homes.

And since these greedy mortgage lenders decided they could make more loans by not requiring down payments, the home owner had nothing invested in the houses. So what do you do when you have nothing invested in a piece of property whose value is falling and the cost is extremely too high? You mail the keys back to the bank and say, "Here, it's yours. Have fun." And then the banks have to eat the outrageous risk they took.

If these lenders are going to act like banks, they should be regulated like them.

I wasn't stating that as the reason for the sub-prime bubble to burst. I agree with what you are saying. It is completely true. But legislator's DID try to put oversight over fannie and freddie. Many times. According to one article I read he tried 17 times, but it was always blocked by the democrats. McCain predicted this was going to happen back '05 and tried to get bill passed then and in '07. Blocked along party lines.

But don't you think the Community Reinvestment Act encourages risky lending to some degree also? Especially some of the changes the President Clinton made to it.

Thank you James Johnson and Fraklink Raines. Wait...who are they advisors too again? It couldn't be the person who has received more money from fannie and freddie in just 3 years than John Kerry received in 20, could it?

 

[AmerikazMost]

I wasn't stating that as the reason for the sub-prime bubble to burst. I agree with what you are saying. It is completely true. But legislator's DID try to put oversight over fannie and freddie. Many times. According to one article I read he tried 17 times, but it was always blocked by the democrats. McCain predicted this was going to happen back '05 and tried to get bill passed then and in '07. Blocked along party lines.

But don't you think the Community Reinvestment Act encourages risky lending to some degree also? Especially some of the changes the President Clinton made to it.

Thank you James Johnson and Fraklink Raines. Wait...who are they advisors too again? It couldn't be the person who has received more money from fannie and freddie in just 3 years than John Kerry received in 20, could it?

To say they contributed nothing would be asinine, but I would say it's insignificant. It's like in the movie Lumo where the government representative blamed the rapes in the Congo on the women who dress too provocatively. I'm sure that has something to do with making them targets, but to blame the women for being raped? That's pretty ignorant and disgusting.

Same applies here. The financial corporations were in high demand for investment opportunities after the dot-com bubble burst, so they move to the housing market. The problem is that prime mortgages are in short supply. Thus, with no regulations or accountability, you can lower your lending standards and start pushing into the subprime market. This pushes housing prices way up, and Bear Sterns and the like saw no end in sight. Since these companies were not regulated, they could leverage at 30-1 and push massive amounts of money into these risky assets. When the bubble bursts, the risk eats you alive when you have no assets to back up your debt.

It's all about a creative response that occurred because their balance sheets weren't regulated like banks. It turned out to be creatively disastrous.



To be honest--and I don't mean to sound partisan or politically biased--I think the CRA is just an excuse that fiscal conservatives use so that they don't have to blame laissez-faire market economics.