In a phrase, how do you sum up an unprecedented event that could cost the U.S. Government $7.76 trillion dollars (not counting billions more in investment losses and corporate failures)?
We came up with: “From Bubble To Trouble: The Financial Crisis of 2008.” And that’s what we’re calling NBR’s Thanksgiving Special, which looks into the causes of the current crisis.
The “bubble” refers, of course, to the housing bubble of 2004-mid 2007. It set the stage for the financial meltdown that we’re now experiencing (that’s the “trouble”).*
But how did some bad mortgage loans take the nation’s financial system to the brink of collapse -- and send the world into a deep recession? The verdict is still out, but our reporters came up with some possible explanations….in two separate reports.
The first, by Erika Miller, looks at how changes in the mortgage market led to a huge increase in the securitization of home mortgage. That led financial institutions worldwide to be holders of risky loans, which imploded when the housing market began to tank.
The second, by Stephanie Dhue, looks into government’s role in failing to adequately regulate the market. She shows how government agencies failed to spot the overload of risk being taken on by financial institutions for a number of reasons, including:
- A hands-off policy regarding financial derivatives products;
- A lack of action regarding conflicts-of-interest involving bond rating companies;
- The Securities and Exchange Commission’s lax regulation of investment banks.
Two other reports look ahead -- to the situation that is likely to emerge when the dust settles.
In the first of these reports, Erika Miller looks at the future of the American financial system, better known as Wall Street. She says the “new” Wall Street is likely to be operating with far more caution -- with a much smaller number of firms as players.
And Suzanne Pratt looks at the end result of this crisis on the American consumer. She says the days of conspicuous consumption, fueled by easy credit, appear to be numbered….and will probably be replaced by an emphasis on building up savings.
This isn’t the first financial crisis we’ve been through during NBR’s 30-year history, but it’s certainly the most serious one. That’s why we’re spending this Thanksgiving trying
to help our viewers understand what went wrong -- and where we’re going from here.
*While it wasn’t our primary intention, this title also has a Shakespearean angle. In Act Five of MacBeth, a witch recites the following incantation over a boiling pot: “Double, double, toil and trouble, fire burn and cauldron bubble…” And that may have a link to the current crisis: according to one view, the three witches in MacBeth represent darkness, chaos and conflict.
Comments
Our economy is terminally ill. It has three diseases.
1) Healthcare costs.
2) Pension and entitlement costs
3) National debt.
The economy cannot become healthy unless these three problems are solved. Stimuli are a short boost whose effectiveness reduces with every use. The current recession was due in year 2000. By inflating the real estate values, and borrowing from the Chinese, we managed to postpone it till 2008, whence it has returned at many times its original strength. We may be able to postpone it again, but in a short while, it will return stronger than ever.
So now we know that there was a reason for requiring 20% down for mortgages. George Carlin had a few things to say about "stuff". And I don't like the Jonses anymore.
JW: So, when the POOR people who could'nt afford a $250k conforming limit they raised the limit to $729k (see H.R. 5140). Who exactly do you think that was meant to help? Blaming the recession on the Community Reinvestment Act of 1970's shows you are about as biggoted a wack-job, drill-baby-drill, ditto-head as they get.
THIS BANKING MESS HAS THREE PART BLAME 1) THE GOVERMENT WHO GETTING LOBBY BY FREEDY MAC AND FANNY MAE , 2) TURNING BLIND I TO THE PROBLEM COZ THEY WANTED THEIR POOR PEOPLE IN THEIR AREA TO BE ABLE TO BUY A HOME AND THEY COULD BARELY DO IT AT THE 1% STARTING RATE OF THE SUB-PRIME LOAN , SO WHEN THE 3) GAS PRICES AND THE LOAN RATE WENT UP ONE MORE LEVEL OF $4 FOR GAS AND 5% FOR THE LOAN AND THEY STILL HAD TO PUT GAS IN THEIR SUV RESSION HAPPENS!!!
posted by JEFFERY WOODARD at 11:43 AM on 11/28/08
AND IF GAS GO BACK TO $4 A GALLON NEXT SOME WE WILL REPETE THIS AGAIN FOR 2010 AND BACK IN RESESSION
THIS BANKING MESS HAS THREE PART BLAME 1) THE GOVERMENT WHO GETTING LOBBY BY FREEDY MAC AND FANNY MAE , TURNING BLIND I TO THE PROBLEM COZ THEY WANTED THEIR POOR PEOPLE IN THEIR AREA TO BE ABLE TO BUY A HOME AND THEY COULD BARELY DO IT AT THE 1% STARTING RATE OF THE SUB-PRIME LOAN , SO WHEN THE GAS PRICES AND THE LOAN RATE WENT UP ONE MORE LEVEL OF $4 FOR GAS AND 5% FOR THE LOAN AND THEY STILL HAD TO PUT GAS IN THEIR SUV RESSION HAPPENS!!! HOW TO FIX THIS $6000. FROM THE GOVERMENT FOR NO WATCHING WHAT WAS HAPPENING WITH OIL AND NOT DRILLING TO COUNTER OPECS NOT SHIPPING OIL AND DRIVING OIL PRICES TO $144 A BARREL THIS CAUSES RESSION TOO!!! DOUBLE WHAMY!!!
Great show. The fact that the previous 4 days of gains in the financial markets suggests Wall Street still packs a punch. But a calm voice and a set of impressive advisers may not do that much to sell US cars or mini-mansions, and even if they do, it doesn't mean those that buy them can afford to spend the money on low-productivity assets.
Government spending alone cannot retain the value of the dollar. Inflation hitting 12% by next Thanksgiving is a logical outcome of policies I've heard so far. Historically speaking, without WWII and the destruction of foreign production capacity FDR's new deal would have probably evolved into a form of inefficient "central planning".
To avoid the known failures of "central planning" we need to return to a citizen supported government revenue system.
We can do this by adopting a tax system that discourages consumption and encourages production and investment while removing all taxes on subsistence consumption.
A switch from an income, wage and corporate tax to a universal transaction tax with a pre-bate equal the tax paid on subsistence consumption and a rebate of investment, cost of production and charity would fairly achieve this goal.
The rate would be too small for cheaters to risk not paying. The banking and credit system's existing IT infrastructure, could make tax collecting and pre-bate/rebate payments very efficient.
For the consumer it basically says, "if you have money to buy, then you have money to pay the taxes". While at the same time every dollar you earn you keep, creating a huge incentive to work, save and take-on business risk to increase production.
In the long run, the way to retain the value of the dollar and our freedom is to increase our productivity faster than our consumption.
Is their another way to achieve this objective that is more fair and efficient?
Why weren't stagnant wages for the last 30 years mentioned? This report had way too much of the "bad bad borrower" and not enough of the greedy wall streeters taking advantage of the low interest rates provided by the Fed. to push securitized mortgage products around the world, collecting fees at every juncture.
If Paul Krugman lifted his eyes from the Economist, or Suzanne Pratt reported from somewhere beside Bloomingdale's, they might find that not all Americans have been spending like drunken sailors, but trying to cope with higher energy prices, higher health cost and higher grocery bills while trying to buy an overpriced hone and escape the rent trap, all with declining real wages and the dissolution of the national manufacturing base. You may excuse me if I don't hop into my Lamborghini and take a long drive to soothe my nerves, perhaps drive out to one of my vacation homes. I live in the real world, not on television.
Just a follow up to my suggestion of a gasoline tax. The US has just come off a $4.00 a gallon price spike so $1.00 tax at the current price will take it back to $3.00. This price level will not only push motorists into more efficient cars, it will also temper the oil price as consumption is curtailed. I also looked up the consumption of gasoline.
390,000,000 gallons per DAY! That's over 2.7 BILLION a week.
That's about 141 BILLION per year.
Without messing too much with the personal or corporate tax system and keeping the greedies eyes and hands off the "gas tax" revenue, the accumulating bailout expenditure would be close to being paid out over the next 10 YEARS! And as the economy turns around, the sale of some of the toxic assets and the repayment of some of the bailout money from the recipients together with the gas tax should just about work out!
I fixed it!
I note the 'housing bubble' is designated between 2004 - 2007. As these sub-prime loans generally had a 3 year term before they reset, the crisis is set to last into 2010, another year to 2 years of PAIN. I can't see the US government being able to bailout the financial sector for much longer without putting the nation into a prolonged recession as this massive government debt has to be paid sometime. I have a suggestion: As the US is the only national government that hasn't got a tax on automotive fuels. Put a $1 flat tax on all gasoline! No tax on diesel as this impacts too much on haulage and agriculture.Put the money raised ONLY to debt reduction, no compromise. This gas tax will also temper the consumption of gasoline and push American motorists into more fuel efficient cars in the future. Pass this on to Pres/E Obama.