# News American Dream Over?

1. Sep 24, 2008

### JasonRox

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?

2. Sep 24, 2008

### Staff: Mentor

American Dream Over?

No.

We'll get through the current crisis, and hopefully we'll be better for it.

3. Sep 24, 2008

### LowlyPion

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. Sep 24, 2008

### Ivan Seeking

Staff Emeritus
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. Sep 24, 2008

### Art

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. Sep 24, 2008

### Cyrus

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. Sep 24, 2008

### Greg Bernhardt

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. Sep 24, 2008

### LowlyPion

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. Sep 24, 2008

### Staff: Mentor

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. Sep 24, 2008

### Art

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. Sep 24, 2008

### jal

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. Sep 24, 2008

### Cyrus

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. Sep 24, 2008

### Art

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: Sep 24, 2008
14. Sep 24, 2008

### LowlyPion

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. Sep 24, 2008

### Cyrus

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. Sep 24, 2008

### JasonRox

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. Sep 24, 2008 ### Cyrus 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. Sep 24, 2008

### Art

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: Sep 24, 2008
19. Sep 24, 2008

### Staff: Mentor

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.

20. Sep 24, 2008

Ah, I see.