Monthly Archives: May 2009

I believe that everyone wants to know more about staff that ruined our economy. Here is one called Credit Default Swaps which I will explore more using an article called Credit Default Swaps: The Next Crisis?

Credit Default Swaps (CDS) are second cause of the credit hurricane in financial crisis. Credit Default Swaps, which were invented by Wall Street in the late 1990’s, are financial instruments that are intended to cover losses to banks and bondholders when a particular bond or security goes into default – that is, when the stream of revenue behind the loan becomes insufficient to meet the payments that were promised.

“CDS were seen as easy money for banks when they were first launched more than a decade ago. Why? The economy was booming and corporate defaults were few back then, making the swaps a low-risk way to collect premiums and earn extra cash. Investors flocked to the swaps in the belief that big corporations would seldom go bust in such flourishing economy times.”

Even though CDS appear to be similar to insurance, it is not a form of insurance.  Rather it is an investment that “bets” on whether a “credit event” will or will not occur.  CDS do not have the same form of underwriting and actuarial analysis as a typical insurance product rather is based on an analysis of the financial strength of the entity issuing the underlying credit asset (loan or bond).

“(…) Commercial banks are among the most active in this market, with the top 25 banks holding more than $13 trillion in credit default swaps – where they acted as either the insured or insurer – at the end of the third quarter of 2007”

There are no regulatory capital requirements for the seller of protection. Credit default swaps can be written by just about anyone, but usually it’s insurance firms or investment banking house. American International Group (AIG), the large insurance corporation had bought many CDO and had written many CDS to protect investors against default of the CDO. By purchasing the CDO, AIG has eliminated the need for insurance contracts against their default, thus reducing AIG’s risk of needing to make insurance payments.

“AIG recently reported the biggest loss in the company’s history largely due to an $11 billion write-down on its CDS holdings”

Whether greater regulation would have prevented this crisis isn’t certain, but AIG was allowed to take these risks in the absence of regulation. Because the “credit-default swaps” it sold as a form of insurance that were not regulated, AIG wasn’t required to set aside money in reserve to cover potential losses from the mortgage-backed securities. The investment strategy was based on the belief that housing prices would only go up. When housing prices fell, there was nothing to cover the losses.

When you look at fashion magazines today you see that there is more emphasis on luxury high priced items that are equated with quality. However, a lot of clothing has a dark side to it. Now not only do the rich have access to the luxury fashions but so do the middle class. The middle class has access to these fashions through credit cards and at the expense of exploiting laborers.  I read an article called “MEET THE ECOSTYLISTS” by David Hayes and it focuses on how to stay up with trends while keeping a clean conscience.  It goes into the uprising popularity of “green, eco-friendly clothing”. But one might wonder are companies also selling “green” to us?  If going green was not going to be profitable in any way for the company I doub’t they’d be doing it. According to “MEET THE ECOSTYLISTS”:

“Ethical fashion is a broad catch all term for  clothing and accessories that tick one or all of the following criteria: items from a traceable chain made at a factory that treats it’s workers fairly; uses fabrics created from sustainable sources; is organic and Soil Association approved; uses dyes and finishes that don’t harm the enviromnent and does not create a huge carbon footprint getting to the shop rail.”

In my opinion this definition is very broad.  There is something called “greenwashing” and that means when companies advertise themselves to be more green than they really are.  If the fashion companies strictly cared for the environment and weren’t trying to make a profit on “go green”, then why do they need to label their products? Its because they are marketing it so that people can feel better about buying their things. It seems like more of a trend because even Wal-Mart is jumping on the “green” bandwagon however according to another article called “Is Wal-Mart going green?” (http://www.msnbc.msn.com/id/9815727/) Wal-Mart refuses to raise wages for labor groups that are below poverty level. This tells us that they aren’t addressing all aspects of going green. So what concerns me is the reason behind why the companies are going green. Fashion has become mostly about following trends and spending money instead of it being creative and individual. In the article it also mentions free alternatives to consuming really expensive “green couture”.  Websites such as freecycle.com allow you to exchange items or get them for free. If you ask  me this is the most “green” fashion I’ve heard of. However very few people know of it.

After reading the New York Times article “Steroid Report Cites ‘Collective Failure’” by Duff Wilson and Michael Schmidt I began to wonder to myself was releasing the Mitchell report a smart thing for the game?  There are names on that list that changed peoples lives forever.  Once your name is on that list the image that you had created throughout your entire career is wiped clean.  What stood out to me in the article was that not all players wanted to cooperate with Mitchel.  One would make the infrence that if you did not speak to Mitchel then you would be guilty one way or another.

“Of all the active players tied to the use of steroids and human growth hormone, which are illegal without a prescription and banned by baseball, only Jason Giambi of the Yankees cooperated with Mitchell’s 20-month investigation. The Toronto Blue Jays’ Frank Thomas, widely known for his antisteroids stance, was the only other active player who agreed to talk with Mr. Mitchell’s investigators.”

During this groundbreaking report Brian McNamee describes in detail how he and Roger Clemens would train and how he would inject steroids and Human Growth Hormones into his body.  Which Clemens adamantly denies.

“In the report, Mr. McNamee is quoted describing how he injected Mr. Clemens with illegal drugs at least 16 times from 1998 through 2001. Mr. Clemens, 45, adamantly denied the report’s accusations of his use of steroids and human growth hormone, his Houston lawyer, Rusty Hardin, said in a telephone interview Thursday night. Mr. Hardin said he had been told Mr. McNamee was pressured to give up names or face prosecution by the I.R.S. Special Agent Jeff Novitzky, who has led the Bay Area Laboratory Co-Operative and Radomski investigations.”

What makes this document a bit questionable is that Mitchell admits that his research was inhibited without the power of the government behind him.  He was not allowed to use any sort of subpoena to reprimand any of the accused.

The purpose of this document was to recognize the failure in the system and to fix the problem before it got much worse to the point of no return.

“There was a collective failure to recognize the problem as it emerged and to deal with it early on,” Mr. Mitchell said. He recommended that the players on the list not be disciplined, but instead said that baseball needed to “look ahead to the future” and establish stronger testing.”

Since Mitchell’s report many more players have been disciplined for using steroids.  The imperfect Mitchell report was the beginning of the end of the steroid era.  With more knowledge than ever before Major league baseball has been cracking down on steroid use.  Hopefully in the next few years it will be gone for good.

In my academic career and path to understanding the American financial system and the economy in general there was a question that had always perplexed me. I have gained a better understanding of why this is and in my research for my paper I came across this great article from the radical perspective site called “Financial realities after the dollar” by John Clegg. How is our beloved country considered to be the biggest superpower in the world despite our enormous debt? Or perhaps a better way to phase the question is why is America so comfortable with a debt of $12 trillion and growing. This careless attitude has contributed to the credit dependent lifestyle of everyday Americans as well. Our society is sold on the predominantly reigning belief that debt is “okay”. I mean if my government has a liability of $12 trillion why can’t I buy a house on $30,000 salary, hell its become the American way of life. Plastic money has become so readily available to everyone, and Average Joe is comfortable with making the minimum payment just like his government respectively.

The core of this problem is the overwhelming strength of the American dollar. America rose from the ashes of WWII as the richest country in the world and they didn’t waste any time in establishing a stronghold over the rest of the world.

The US emerged from the second world war as the richest power. Britain was weakened by debt; France was exhausted; the Soviet Union had been bled dry. US dominance was formalised by the Bretton Woods accords, named after the New Hampshire town where the new financial rules were laid down in July 1944. These affirmed the pivotal role of the dollar (in place of sterling) and created the two institutions that became Washington’s wings: the International Bank for Reconstruction and Development (IBRD, subsequently part of the World Bank) and the International Monetary Fund (IMF). The Marshall Plan for Europe was funded in dollars to consolidate the strength of the dollar and guarantee opportunities for US producers.

China is the biggest holder of U.S. government securities followed then by Japan and Russia respectively. The beauty of the dollar is that it has entangled these countries to the point where they can’t be indifferent to the fate of the U.S. China holds over two trillion dollars in their reserves and if the U.S. government were to collapse, China’s wealth would be diminished to worthless pieces of paper. And to be quite honest thats what the dollar really is. It’s just a piece of paper! Back when the gold standard was around, an American Dollar could be converted into gold that was held by the reserve. Therefore cash was an asset backed security. Today the only thing backing the dollar is the good will of the American government. So if tomorrow China came to claim their debt needless to say there would be a shit storm. China has to be careful because the prosperity of the dollar is closely tied to the prosperity of the global economy. This is also the reason that China recently proposed the implementation of a new global currency that would not be enslaved by the ups and downs of the U.S. economy.

The government believes that it can casually handle debt and that is why an unrgulated free market system can work so potentially well here (Notice that i said “can”). So the whole idea of Capitalism is based on excess spending, people making money and pumping it right back into the economy. The more you make the more you spend, and eventually you start spending even more than you make. This is not the case globally however. In the case of a country such as China, the personal savings rate astronomical.

But it takes more than increased purchasing power to drive consumption: some of this increase is squirreled away (China has the highest savings rate in the world) as families put money aside for sickness or retirement. So the government must increase incomes and build the current embryonic system of collective social security into something effective.

However to a certain extent a high savings rate can hurt the domestic growth of an economy. But the point of this comparison is not to suggest that Americans should save 40% of their income, rather my point is that they should save at least a little. The savings rate in this country has lingered around 2 to 3% and in 2005 that rate dipped into the red zone. That’s right; the people of America actually had a negative savings rate. Not only had we maxed out our existing resources we collectively went ahead and spent money we didn’t even have. In essence consumer spending also serves as a hedge to inflation where the interest rate will fluctuate in accordance with the demand of money. Had a weaker economy suggested a budget scale in line with ours their economy would collapse overnight.

In relationshp to my paper, “Credit as a life style” the overwhelming power of the American dollar has contributed to a way of life that revolves around credit and deficit spending both federally and personally.

This was an article i read for my paper on education, written by Jack Gerson and Steven Miller, from an independent newspaper which tackles the idea of privatizing education in order to help improve the standard of education, especially here in new york. The article was based on a commission given in December 2006 by the New commission on the skills of the American workforce who are trying to push for the privatization of education. This campaign has actually generated support from individuals such as Bill Gates who in fact helped fund this report given by the commission. This idea of privatizing education is a very serious and important one, especially as it is getting more attention and support. Supporters argue that by privatizing education, the overall value and standard of education would rise and therefore translate to a better educated workforce that can compete in global markets. But as we seen with private health care systems and private businesses, the only individuals that generally benefit from this are those that can afford it.

Tough Choices or Tough Times,” published by the National Center on Education and the Economy, is the definitive corporate statement on public education. The report calls for, among other things, making all public schools into “Contract Schools”; ending high school for many students after the tenth grade; ending teacher pension plans and cutting back on health benefits; introducing merit pay and other pay differentials for teachers; and eliminating the powers of local school boards by turning “public” schools to private companies to be regulated at the state level. These measures would cut the heart out of public education, severely penalize students and deal a heavy blow to teacher unions.

So the proposal is to massively overhaul the education system currently in place. This means created stricter criteria to be met by both students and teachers. But what i don’t understand, is how do they expect such a plan to work if they are also severely punishing teachers, and taking away many of the benefits of teaching. As many of us may be aware of, there is an increasing shortage of teachers, especially highly qualified ones. Such as overhaul would seem to deter individuals from wanting to teach. I could understand wanting to penalize students for lack of performance. Many young individuals these days aren’t pushing themselves to perform well academically, but it is also important to assure that student get the help and attention they need in order to do so.

 First, the role of school boards would change. Schools would no longer be owned by local school districts. Instead, schools would be operated by independent contractors, many of them limited-liability corporations owned and run by teachers. The primary role of school district central offices would be to write performance contracts with the operators of these schools, monitor their operations, cancel or decide not to renew the contracts of those providers that did not perform well, and find others that could do better. … The contract schools would be public schools, subject to all of the safety, curriculum, testing and other accountability of public schools.

So schools would basically be run as private corporations and not have to deal with much regulation by local districts and boards. This sort of deregulation is what led to many of the problems faced in the current financial crisis. Many of the corporations weren’t given much oversight and were allowed to run “freely” leading to massive problems in the long run that these businesses never saw coming. Such a situation would inevitably happen with these privatized schools.

The significance of the report is that the march toward privatization of public schools is now completely out of the closet. Evidence of this shift is already seen across the nation where the public schools of New Orleans were almost completely privatized, the mayor of Los Angeles favors charter school corporations and New York City Schools Chancellor Joel Klein sits on the (private) “Skills Commission”.

The privatization of public education already results in the transfer of tens of millions of dollars in public assets into corporate hands without a discussion of compensation or, still more fundamentally, whether society should allow public education to fall into private, corporate hands.

So this shift towards privatization of education is slowly occurring with instances all over the country. Whats frightening is that there doesn’t seem to be much public outcry over this happening as i feel individuals don’t think that such a thing would happen in this country, where not all individuals would be given access to education. Corporations are playing an increasing role in the funding and accessibility of education and this trend seems to have no end in sight. Public schooling was used to combat child labor, but what will happen when only the rich can afford to get an education. A scary thought indeed.

My research paper is about the general American dependency on credit has resonated into normally accepted lifestyle. Post WWII America has been looked on in fascination and envy by the rest of the world mainly because the opportunity to rise from gravel to marble is entrenched into our social fabric. So if you find yourself on the outside looking in you see a world where the growth potential is unlimited, and popular sovereignty reign over socialism and glass ceilings. Of course once you become a member of the elite club that is America you begin to see the glaring deficiencies. The dream comes at an expense that only a “few” incur, in other words one man is only rich because another one is just that much poor. Unfortunately the American culture has become one in which a person is judged by the standards of a materialistic society. So what follows is a constant cycle of redefining needs and wants. I came across the article “Chasing the American Dream” by Larry Kaagan in which he explains the phenomenon that is the American Dream.

How have the dramatic economic developments of the past decade transformed the American ideals of opportunity and self-fulfillment?

The answer is quite complex, and it would take a vigorous historical analysis to map the changes in the American lifestyle but I might be able to give it to you the ten dollar version. At the beginning of the 19th century the American dream followed the path of something along the lines of Maslow’s hierarchy of needs. Aside from civil rights, Americans craved for upward mobility, equity, home ownership, and a comfortably lifestyle.  After the Great War the stock market offered Americans a get rich quick scheme, as millions of people invested their money not knowing what they were investing in which led to the catastrophe we now know as the Great Depression. At which point the American Dream was to just be able to survive. The point being is that the Dream is not written in stone, rather it is a manifestation that is subjectively transforming as the world changes.

It was post WWII when the dream began to truly evolve. There was a flurry of economic activity coupled with low unemployment which led to a prosperous economy. The extension of credit became easy to come by, and societal standards were on the rise. You were defined by the things that you owned. That’s why the need for a car turned into a couple of luxurious cars, a regular home to a mansion, things to a lot of things. That is also the era in which marketing strategies began to adapt to the information revolution.

And the Dream has been leveraged as a powerful marketing tool, to sell everything from cigarettes to prefab houses to political candidates. It resonates in marketing and advertising in ways that are so ingrained as to be barely detectable.

So the problem is how far is Corporate America willing to go to sell us a fantasy. The answer is the recession we find ourselves in. At the heart of this problem is the credit crisis, and even the financial system has really collapsed because unworthy borrowers are unable to handle their end of the bargain. But perhaps the problem is not the people who spend more than they have, but the dream merchants themselves. The people that have worked so hard to make sure that Average Joe is stuck in a credit battle for his entire life.

In an era controlled by the information revolution the American Dream is constantly evolving and is therefore contributing more and more to the deterioration of a reasonable lifestyle. It is inappropriate for us to faithfully believe that we can keep spending money we don’t have and at the end we’ll get away with it.  It is time to fight back against the people pushing on us a material lifestyle that comes at our expense.

The face of the American Dream at the beginning of the 21st century is decidedly different than that of fifty years ago. It’s a weathered face, with lines of experience. But no matter how it ages, it seems to retain one aspect through thick and thin. It still seems to have a smile on it.

It is our job as American to keep the real American Dream alive, and that dream is not a get rich quick scheme.

I thought most of us would like to learn the history of mortgages and I reasearch little bit and learn all this about the mortgages. History of home mortgages go far back . Even thought  this system is pretty old , the basics have never changed – the real estate  had hight value  for decades and it made very hard to own for most people. So the only way to buy property is to borrow money. And that’s what they did as far back as the year 1190.

Mortgages started in “merry old England”

The beginnings of a mortgage system have been found, as mentioned, as early as 1190. English common law included a law that would protect a creditor by giving him an interest in his debtor’s property. According to this law, the mortgage was a conditional sale. Although the creditor held title to the property, the debtor could, in the event the debt wasn’t paid, sell the property to recover his money.The history of the actual word “mortgage” is very interesting. In the word “mortgage”, the “mort”- is from the Latin word for death and “gage” is from the sense of that word that means a pledge to forfeit something of value if a debt is not repaid. So mortgage is literally a dead pledge. It was dead for two reasons, the property was forfeit or “dead” to the borrower if the loan wasn’t repaid, and the pledge itself was dead if the loan was repaid. Here’s another interesting piece of trivia: originally, ownership rights extended from the center of the earth to the sky. Of course, now they’re generally limited to surface rights only.

Mortgages came to the Americas

As pioneers moved from Europe to settle in America, they brought their systems with them. As land ownership increased, so did the need for mortgages; so much so that by the early 1900s, they were already widespread and readily attainable.However, not everybody could get a mortgage. In those days, those seeking to buy property were often required to pay a 50% down payment on a 5-year mortgage. So, to buy a $10,000 house (wouldn’t that be nice today), the borrower had to have a $5,000 down payment and pay interest for 5 years. At the end of that 5 years, the unpaid (and unchanged) balance of $5,000 would have to be either paid or refinanced.This system continued through to the Great Depression, when lenders had no money to lend, and borrowers had no money to pay. The whole system collapsed with thousands of foreclosures. Mortgages were just not available.

Franklin D. Roosevelt’s New Deal was a established to help  consumer

Roosevelt’s election as President of the United States brought with it a turn towards a more consumer-friendly nation. He wanted to stimulate the economy by making it easier for people to buy. His government introduced laws and institutions designed to make this happen. Under these new laws, the securities and banking industries were kept under tight supervision, which in turn revolutionized the way mortgage loans were structured and made available to average Americans. In 1934, the Federal Housing Administration (FHA) was created to insure mortgage lenders against losses from default. Now that the risk had been taken away from them, lenders were more willing to give people mortgages. The FHA also developed the 30-year fixed-rate loan program, providing homeowners lower payments and more stability. So the system was working. However, lenders didn’t always have enough money to lend. And loan terms and interest rates were set according to the local economy, which varied around the country. More money, and a more consistent plan was needed.

Fannie Mae

In 1938, to make this money available, the government established the Federal National Mortgage Association (FNMA), better known as Fannie Mae. It bought FHA-insured loans and sold them as securities on the financial markets. This kept the pool of mortgage-lending funds full, in effect, creating the secondary mortgage market.Another advantage of Fannie Mae was the introduction of more fair and efficient mortgage-lending practices. Now that lenders were going to a central source for their money, loan terms, interest rates and underwriting guidelines became similar. And lenders had to follow Fannie Mae’s guidelines and restrictions if they wanted to sell their loans to the secondary market.

After World War II

World War II dramatically changed the mortgage scene. War veterans were coming home and entering the workforce. They became avid consumers who wanted to buy – the economy boomed. And with it, so did the demand for mortgages. In 1944, the Veterans Administration, in a similar program to the FHA, was given the right to guarantee mortgage loans made by private lenders, but this time, to veterans. This program enabled veterans and active military personnel to buy homes without making down payments. The demand for housing was incredible. This triggered a massive economic boom which was heard far into the real estate market. The mortgage industry had come a long way towards becoming efficient and stable.

In 1938, the Canadian government, not to be left out, introduced the National Housing Act (NHA). In 1954, they followed the United States’ example by insuring mortgage loans. The Bank Act was also amended to allow Canada’s chartered banks to lend money for mortgages. Everybody was recognizing the growth the housing market was contributing to the economy.Then, throughout North America, as baby boomers entered the workforce, including women, double-income families became the norm. They wanted larger, more expensive homes to fit their income and lifestyles. More mortgages were needed.So in 1970, U.S. Congress chartered the Federal Home Loan Mortgage Corporation (FHLMC), better known as Freddie Mac, to increase the supply of mortgage funds available to commercial banks, savings and loan institutions, credit unions and other mortgage lenders, thus making more funds available to more Americans.

Mortgage lenders and more

In the 1950s and 60s, most mortgages were 20-30 years. However, in the 1970s, interest rates rose rapidly, and the system had to adjust. Mortgages were reduced to 1, 3 or 5 year-terms, although even the 5-year mortgages were rare in the early 1980s when interest rates climbed to more than 21%. By 1998, the 5-year mortgage rate had fallen to an average of 6.99% and the 1-year rate to 6.5%. Banks, forbidden to lend mortgage money before 1954, had written about 63.6% of the more than $381 billion worth of mortgages that were outstanding in the third quarter of 1998.So you can see the amount of money floating around in the mortgage industry today. And with that amount of money at stake, you can understand why the credit business is so important – for both sides. The credit bureaus monitor your credit report; you monitor the information the credit bureau has on you. So, credit monitoring ties in very closely with the history of home mortgages.The home mortgage industry is constantly changing, constantly looking for ways to expand homeownership among lower-income and moderate-income families and individuals. One of the latest developments in the last few years has been the reverse mortgage, where a homeowner borrows against the value of a house to receive a line of credit or monthly payments. New programs are constantly being created.There are all kinds of possibilities when it comes to ways to create cashflow. The mortgage industry is looking for new ones every day. There are thousands of financial programs available for every consumer in every financial situation. There’s a right program for you. And now that you’re familiar with the history of home mortgages, you can see that some things never change – you still want that property – and you still need that “dead pledge”.

 

The ‘bubble’ description of the price hikes is plausible because more and more aspects of capitalism in this neoliberal period are becoming ‘financialised’. Thus, in the major mercantile exchanges for grains, investment funds and hedge funds have joined agribusiness and food processing firms as the major buyers and sellers. They are involved in these markets not in order to make a profit out of selling the commodity or through using it to produce other commodities, but in selling the right to sell the commodity at some fixed price in the future. This motivation creates the conditions for a bubble to develop.  

Market is big pie which consist of all kind of the product as we all  know. When everything was financialised of course food market and agricultural business was not left out, after 3 decades of relative stability , food prices dramatically increased last 3 years. Between May 2007 and May 2008, corn prices increased by 46 percent, wheat by 80 percent, soybeans by 72 percent; rice by 75 percent. As of this prices increase 130 million people were add to people who are starving already. Shocking number is it ? And we are talking about basic need of the person. Shelter and food is what person needs to survive. Oil prices skywriting, which crated reason for the food prices to increase and it was predicted. Thru out the inflation we know things go up and not necessarily our salary goes up , and how can we offered just basic needs.  Even thought prices for the food were going up, we still have quotas for the production of the food , the following paragraph  shows shocking information , that I discovered about the food production.

In Europe as well, since the formation of the European Common Market, the possibility of food self-sufficiency was undermined, as the objective shaping agricultural production has been the maintenance of a profitable price structure, even though it is achieved through the destruction of much wealth. Building a highly profitable agricultural sector, in fact, has meant instituting quotas regulating what quantity of each product a member country is allowed to produce, and imposing stiff fines on those who exceed these measures. Depending on the country and the particular quotas assigned to it, dairy farmers have been paid to kill their ‘surplus’ cows, so their milk production would not exceed the limits prescribed, and have been fined when they did not comply, while other farmers have been forced to uproot fruit trees, destroy ‘surplus’ crops, and so forth….

And in some part of the world people are starving, and as we read in the above paragraph information  about how surplus is destroyed is hard to bare, it is the  truth that we need to face. We can take U.S as example too, in one part of the country it is all well, people earn good income and very little percentage of people are starving  and food is easy accessed, which almost creates so much waste  as an example we can take  New York. And I am sure there are states where people who are in very bad situation who are starving and have no home and shelter and no even just basic bread to feed their kids or themselves. Who control all this, why this can’t be divided in to equal part, all that waste could go to charities and to people who starve with in their own country. Maybe if some charity contest were created, people would have done a lot better job by trying to win. This is the following paragraph I thought was very interesting from the article.

Perfect storm’, however, is not the only description that obscures the social agents responsible for the sudden food price increases. For the crisis is also often depicted as a price ‘bubble’ driven by the irrational speculative activity of short sighted investors who are bidding up wheat, corn and rice futures far beyond their ‘true value’ in a desperate desire to wring every last bit of profit before the bubble bursts and the price collapses. The implication being that these investors are as caught up in the process as the people who do not have the money to pay for the corn flour to make their daily tortillas! So, according to this logic, if a market bubble is responsible for the death by hunger and malnutrition of millions, then nobody is to blame

Well investor can not keep themselves from any part of the market, so they had to create the bubble in food industry as well , and this is the paragraph that  talks about some sad points , which created food prices to go up. Maybe I am very cynical about the whole situation and from the business point of the view maybe this is right way to do business. However “FOOD MARKET” was not left out from the bubble.

As we discussed in class about crisis in U.S economy one of the scary and hard part of the reality we need to face is how most of the Americans got themselves in to housing bubble .The buyers believed their dream of owning a home could come true and entrepreneur got themselves in to this careers that were called mortgage broker, real states agent, real state builders and etc. Every 3-4 person was in mortgages, everyone wanted to have a piece of this quick easy money market. However bubble did explod and it is scary what is going on with the housing market in today’s U.S economy. As I read this article http://www.truthout.org/article/part-i-mortgage-crisis-triggers-walk-aways , it explains little bit about the situation in housing market, most of it talks about how people simple did think about losing their job at some point. They did not think about market collapsing and everyone depend on stability which is not always case with the economy. Economy’s circle always goes up and down, but we didn’t expect to be this bad.

          “To understand why the next phase of the nation’s housing crisis might mean financially troubled owners just give up and walk away from their homes, look no further than the winding roads and carefully tended lawns of the Piedmont subdivision in the once-booming exurbs of Washington.”

 

People just walking away giving up their American dream. The reasons for that  a lot of families miscalculated their household income. Consumer spent their 99.5% of the personal disposable income in the interest rate and  daily consumption .Life was good when economy was good in the U.S, but still many consumers took for granted credit cards and very little saving , to many unnesessary purchases also created some part of the problem that cause consumer debt which links with house payment as well, however the problem is a lot bigger. Most of us forgot to ask the important  questions from ourselves , before we dove in to housing bubble:

WHAT WILL HAPPEN IF I LOSE MY JOB, HOW WILL I PAY MY MORTGAGE, HOW WILL I SALE THE HOUSE I BOUGHT AS INVESTMENT IF HOUSING MARKET COLLAPSE?

These are the questions we forgot to answer before we got themselves in to this housing bubble.

            “She stirs her tea while leaning on a granite countertop in the gourmet kitchen of her Piedmont home, the one she and her husband can no longer afford, the one they’ve listed for three months now as a short sale: “When we moved in we thought we’d spend the rest of our lives here,” she said, pointing to the expansive rooms with gleaming wood floors.” I used to say, ‘I love our house. It’s so wonderful. We’re going to live here forever.”’ Now I just say, ‘God, I hate this place. I just want to get out of here.'”

 

                How sad is reading these story over and over , I can not stop thinking where this people will live ? what will happen to all this people who have no jobs, who can afford home and with their kids , where will they go ? Is it to late how can we undue situation  in U.S economy ?

I found this article in New York Times when I researched about AIG bail out and its consequences, and lack of regulation over non-bank institutions. The article is called “Geithner Seeks Broader Powers Over Financial Firms” . As we may know that companies such as AIG or Lehman Brothers are very low regulated even I would say don’t regulated. These companies can do what they want with money and than as we see can be bailed out by government. But who is taking a price for that? Whose money comes it from? Of course ours, taxpayers.

“(…) Financial crises like those caused by the recklessness of A.I.G. “contains a basic and tragic unfairness – that those who were prudent and responsible in their personal and professional judgments are harmed by the actions of those who were less careful and less prudent.”

People’s hard earn money were lost because someone – kind of smart investors – made wrong choice based on what they will get from it which is money. Why government didn’t stop them when there was time to do it? Now, because of lack of control of these institutions we, honest people, are harm. Executives from AIG got bonuses from bail out for good work. It doesn’t make sense for me to give company money to recover it losses and save economy. However, this company instead used it to pay executives who get it in this bad situation.

“(…) the government been able to assume control of AIG in that fashion there never would have been seven-figure bonuses paid to executives, a total of about $165 million over all, even while the company was receiving some $170 billion in government backing.”

Nevertheless, government got these information and asked AIG executives to return money given from bail out. Who is going to give money back? That is so funny. Government should more control AIG’s actions and use of money. It should send someone inside the company and check how money is going to help to get out from foreseen bankruptcy. “The government now owns almost 80 percent of AIG.” Does it make sense how much it owns? I believe that AIG will not pay back so huge amount. In the future, the ones that will lose will be government and taxpayers. I learned that rich people get more money and hard workers lose their jobs and get poorer.