American Dream Over?

  • News
  • Thread starter JasonRox
  • Start date
  • #1
JasonRox
Homework Helper
Gold Member
2,323
3
With McCain pulling the plug on his campaign right now to focus on the "economy", how's the economy going to be like now?

Sounds like the McCain and Bush plan is merely get lots of money before it's too late and run!

What's going to happen now?
 

Answers and Replies

  • #2
Astronuc
Staff Emeritus
Science Advisor
19,838
3,321
American Dream Over?

No.

We'll get through the current crisis, and hopefully we'll be better for it.
 
  • #3
LowlyPion
Homework Helper
3,097
5
With McCain pulling the plug on his campaign right now to focus on the "economy", how's the economy going to be like now?

Sounds like the McCain and Bush plan is merely get lots of money before it's too late and run!

What's going to happen now?

He might as well pull the plug. For all his floundering around using his "verbiage" that the economy fundamentals were sound (shades of Herbert Hoover) and now the country teeters on Depression, he might as well haul his inept behind back to Washington and at least look like he is doing something instead of campaigning and proving that he doesn't have the slightest idea about the economy other than to help his banking lobbyist benefactors. Behind closed doors who's to know how confused, forgetful and out of touch he might be? That way at least the reporters can't sound bite him to death.
 
  • #4
Ivan Seeking
Staff Emeritus
Science Advisor
Gold Member
7,842
983
What's going to happen now?

We will get through it, but this will severely limit what we can do to address other problems, like healthcare, infrastructure, energy, education, national debt, national security, rebuilding the military, border control... And it will likely get worse before it gets better. For starters, perhaps millions of people will have lost their homes before this is over.
 
  • #5
Art
We will get through it, but this will severely limit what we can do to address other problems, like healthcare, infrastructure, energy, education, national debt, national security, rebuilding the military, border control... And it will likely get worse before it gets better. For starters, perhaps millions of people will have lost their homes before this is over.
Much as I hate seeing the financial institutions being helped out of the mess they created through their own greed I do think the gov't bail out is a necessary response as unfortunately if the banks go down they take everybody else with them.

I do think though the gov't should take proportionate equity from each company they help to ensure the taxpayers benefit from the revived fortunes of the banks. This would also help ensure no banks try to fleece the fund, as it would cost them more share capital, which I have no doubt given half a chance they would as I very much doubt the managers whose greed created this mess have suddenly changed their mindsets.
 
  • #6
3,042
15
I don't follow economics. Is what happened here an enron case of banking greed? I heard there were too many high risk loans. Also, the crash of the housing market had a big role in this whole thing also, right? So it's not the banks fault alone is it?
 
  • #7
18,510
8,435
Another obvious political stunt. Didn't McCain say himself he doesn't know much about the economy? How much help could he really be?
 
  • #8
LowlyPion
Homework Helper
3,097
5
They say he canceled David Letterman this afternoon because he was going back to Washington, but strangely stayed on to give an interview to Katie Couric ... at the same time that Letterman was taping. And so concerned was he for the Nation's plight and the urgent need for his alleged statesmanship, he will be staying in New York through tonight and won't get there until tomorrow.

Reverend Muthee come pray for us.
 
  • #9
Astronuc
Staff Emeritus
Science Advisor
19,838
3,321
Another obvious political stunt. Didn't McCain say himself he doesn't know much about the economy? How much help could he really be?
At this point, I have to wonder if anyone on the U.S. Senate Committee on Banking, Housing, and Urban Affairs or anyone one on the US House Committee on Financial Services really knows what they are doing.

The current situation didn't just happen. It evolved over time, and there has been plenty of time to recognize what what happening and take action. But, for whatever reasons, the current fiasco was allowed to happen. The US government failed in its obligation to protect the General Welfare and Domestic Tranquility of the People of the United States.
 
  • #10
Art
I don't follow economics. Is what happened here an enron case of banking greed? I heard there were too many high risk loans. Also, the crash of the housing market had a big role in this whole thing also, right? So it's not the banks fault alone is it?
The high risk loans led to the crash in the housing market and so it is fair to say that the fundamentals of the crisis are the banks' doing. However without greedy speculators borrowing more money than they could afford to pay back there wouldn't have been the defaults leading to the housing crash and so the banks' customers are also to blame for taking the loans the banks should never have given them.

One wonders though if £700b is actually enough to save the finance sector? I would like to see the banks help themselves too by rights issues.
 
  • #11
jal
549
0
Those who have access to money are going to make a killing buying low.
Did someone happen to mention that the new owners/bosses could be from the middle east?
 
  • #12
3,042
15
The high risk loans led to the crash in the housing market and so it is fair to say that the fundamentals of the crisis are the banks' doing. However without greedy speculators borrowing more money than they could afford to pay back there wouldn't have been the defaults leading to the housing crash and so the banks' customers are also to blame for taking the loans the banks should never have given them.

One wonders though if £700b is actually enough to save the finance sector?

Let's define some terms so we are talking the same language here:

speculators? (Heard this term, no clue what it means though)
defaults? (You mean the bank taking back the house?)

Also, why was there nothing in place (regulations) to revent this from occuring to the degree it has?
 
  • #13
Art
Let's define some terms so we are talking the same language here:

speculators? (Heard this term, no clue what it means though)
defaults? (You mean the bank taking back the house?)
Speculators covers those people who bought property under the motivation that the house value would rise so they would be able to unload it at a profit.

Default means they weren't keeping up with the payments so the bank foreclosed on them.

The way it works is in many instances the borrowers, nor the banks who lent them the money, ever expected to be able to make the repayments. Both sides went into the deal gambling the price of the property would rise and so when the house was sold in 6 months or so time the bank would get back it's money plus the interest and the borrower would walk away with a nice profit too.

When property prices stopped rising the banks worried about being able to get back the money they had lent tried to claw back their loans as quickly as possible resulting in more properties going on the market leading to further falls in property prices which quickly created a meltdown in the housing market. As a huge part of the banks assets are the mortgages they hold whose value is intrinsically linked to the value of the property it represents it meant the value of their assets took a huge hit hence the current problem.

That's the simple version. It is also complicated by the fact banks trade these mortgages between themselves and so banks which may not be in the mortgage business directly may still be carrying a ton of these now toxic assets on their books.

The reason there were no regulations to prevent this from happening is political. The powers that be in Washington are firm believers in free markets and so it naturally follows they are anti-regulatory in their views.
 
Last edited by a moderator:
  • #14
LowlyPion
Homework Helper
3,097
5
Christopher Dodd the Chairman of the Senate Finance Committee hasn't yet heard from McCain about any of this financial mess. His opinion was that McCain wasn't rushing back to save the National Economy so much as he was rushing back in an attempt to save his campaign.
 
  • #15
3,042
15
Yeah but, since the depression this kind of thing could have happened, yet it didn't happen until now. Why?

I assume it was anti-regulatory this entire time. So, is this simply a case of greedy guys at the top that once replaced, will make this problem go away for a good time to come?

In other words, this one time event isnt a good enough reason to be regulatory thereafter.

Also, I did not know banks trade mortgages between themselves. How does that work? The person taking out the loan obviously pays the bank the got the loan from. I guess at the end of the month that bank then gives that loan payments to the bank it traded the mortgage to?
 
  • #16
JasonRox
Homework Helper
Gold Member
2,323
3
I'm glad you guys believe it's in semi-good hands and that it will turn around. My gut feeling says no because ever since 9/11 came around, Americans were relying more and more on credit to live and hence "fooled" everyone that the economy was sound.

Plus with the $700 billion Bush plan... that's a method of disaster. Did anyone read about that?
 
  • #17
3,042
15
I'm glad you guys believe it's in semi-good hands and that it will turn around. My gut feeling says no because ever since 9/11 came around, Americans were relying more and more on credit to live and hence "fooled" everyone that the economy was sound.

Plus with the $700 billion Bush plan... that's a method of disaster. Did anyone read about that?

Do you have any supporting evidence that 'Americans were relying more and more on credit to live'? I've never heard about this before.

Man, $700 billion is $28k per citizen.

Katrina, housing crash, economy crash, false war in Iraq.....................

Um, do we have monkeys running the government? This is incompetence beyond extreme.
 
  • #18
Art
Yeah but, since the depression this kind of thing could have happened, yet it didn't happen until now. Why?

I assume it was anti-regulatory this entire time. So, is this simply a case of greedy guys at the top that once replaced, will make this problem go away for a good time to come?

In other words, this one time event isnt a good enough reason to be regulatory thereafter.

Also, I did not know banks trade mortgages between themselves. How does that work? The person taking out the loan obviously pays the bank the got the loan from. I guess at the end of the month that bank then gives that loan payments to the bank it traded the mortgage to?
No it wasn't always deregulated: in 1999 the Gramm-Leach-Bliley Act relaxed banking rules making it easier for banks to lend money and gave rise to the practice of mortgage derivatives whereby the lending companies on the coal face bundle mortgages and sell them on to other institutions. In theory this covers them from carrying all the risk as it is now spread around amongst all those companies which bought these bundles. In practice these mortgages were not worth anything like the value they were sold on for as the banks negated the rules governing how much they can lend against such and such an income etc. (which is why many are now being investigated for fraud).

Although the front end banks may at first glance seem to have successfully off-loaded their problems onto someone else, in practice they were screwed too, as the problems they created downstream resulted in tighter credit where banks either could not or would not lend to each other. Without this influx of funds to lend out, the mortgage companies no longer have a business, and even if they had the money to lend out no-one is going to buy their mortgage derivative packages any more, and so their fundamental business model is broken.

With credit thus tightening there are less people buying houses with this reduced demand being reflected in lower property prices and so the snowball just keeps getting bigger.

The hope is that, with the banks who hold the toxic assets being bailed out by the gov't, inter-bank liquidity will improve and the whole machine will start working again though IMO although the bail out solves the immediate problem of bank's going bust in the wider picture there is still a chicken and egg situation. The financial markets can't return to normal until the housing crisis ends and property prices stabilize and property prices won't stabilize until the financial markets return to normal.
 
Last edited by a moderator:
  • #19
Astronuc
Staff Emeritus
Science Advisor
19,838
3,321
Do you have any supporting evidence that 'Americans were relying more and more on credit to live'? I've never heard about this before.
It's quite true, and it has been evolving since the 1980's.

I wrote this Sep 18, 2006
Skyhunter simply pointed out that the 'good news' is not the whole story. The downside was omitted - and thus the conclusion that 'nothing' is wrong is a fallacy.

What's wrong - for one, the US economy is highly leveraged. The aggregate debt is increasing. What happens when even the interest can't be paid?
I could have elaborated - can't make the monthly payments (mortgage, credit card, . . . . ).

The only reason the economy has grown in the last several years is because the US government has been deficit spending. That would be like an individual claiming increase wealth/income while charging on the credit card.

There are other systemic problems such as under-employment and chronic temporary unemployment that have compromised the economy.
 
  • #20
3,042
15
It's quite true, and it has been evolving since the 1980's.

I wrote this Sep 18, 2006
I could have elaborated - can't make the monthly payments (mortgage, credit card, . . . . ).

The only reason the economy has grown in the last several years is because the US government has been deficit spending. That would be like an individual claiming increase wealth/income while charging on the credit card.

There are other systemic problems such as under-employment and chronic temporary unemployment that have compromised the economy.

Ah, I see.
 
  • #21
1,031
18
That would be like an individual claiming increase wealth/income while charging on the credit card.
Commercial ventures have alway relied on borrowed money. It's the capital in Capitalism. It makes no more sense for the country to waste money than it does for an individual. But if the money is used to increase economic activity, then the sooner spent the better. The alternative is fiscal order and economic chaos.
 
  • #22
vanesch
Staff Emeritus
Science Advisor
Gold Member
5,092
17
I wrote this Sep 18, 2006

:approve: Astronuc for president ! :cool:
 
  • #23
Astronuc
Staff Emeritus
Science Advisor
19,838
3,321
Commercial ventures have alway relied on borrowed money. It's the capital in Capitalism. It makes no more sense for the country to waste money than it does for an individual. But if the money is used to increase economic activity, then the sooner spent the better. The alternative is fiscal order and economic chaos.
The problem comes when the obligation to repay the credit exceeds the ability to pay or earn, and that is where too much of the economy is at the moment. That and the inflated value of real propery in too many cases, and that fact that too many people 'bought' (on credit) more than they could afford.

There is also income/revenue (including profit), and necessarily profit/income exceeds the repayment of debt (positive feedback). Then one is expected to reinvest the profit. When repayment of debt exceeds income/revenue, there is a negative feedback, and capital is lost.

The US financial system is unfortunately in a perfect storm. Too much is owed (on credit) and there is insufficient revenue to cover expenses including repayment of credit (debt).
 
  • #24
cristo
Staff Emeritus
Science Advisor
8,122
74
One thing I don't understand, and this is a genuine question rather than a cheap shot, is how can the government bailing out these huge companies be constitutional? I'll admit I don't know all that much about the US constitution, but I thought the one thing that the US was about was having a small government that didn't meddle in the everyday lives of its citizens. But then, I don't see how a government that now in essence owns the monopoly of the mortgage lenders, and huge insurance companies, as well as investment banks can be a 'small' government.

This somewhat confuses me since, especially from views I've heard on PF, 'constitutional rights' are the most important thing to US citizens: c.f. comments against gun control. Isn't this rather hypocritical?
 
  • #25
Astronuc
Staff Emeritus
Science Advisor
19,838
3,321
Congress is authorized to appropriate money, not the executive branch, and Congress has the power to tax, and regulate the economy. So the only Constitutional issue is whether or not the Secretary of Treasury can spend the money to inject capital in the markets. He can, but only if authorized (by law) by Congress. So now Congress must fashion a bill/law that will enable the government to rescue the economy.


US Consitution, Section. 8.
Clause 1: The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

Clause 2: To borrow Money on the credit of the United States;

Clause 3: To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

Clause 5: To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

Clause 18: To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.
 

Related Threads on American Dream Over?

  • Last Post
Replies
6
Views
3K
  • Last Post
3
Replies
69
Views
10K
  • Last Post
Replies
21
Views
5K
  • Last Post
3
Replies
73
Views
6K
  • Last Post
7
Replies
169
Views
38K
Replies
18
Views
7K
E
Replies
19
Views
9K
Z
Replies
114
Views
11K
  • Last Post
Replies
1
Views
6K
Replies
4
Views
1K
Top