How much of the Brokerage Failure has to do with politics? Seems like quite a bit! Just like the easy money of the Roaring Twenties, the easy money of the recent times can easily lead to a new Depression. Much of this had to do with Congress allowing Freddie and Fannie to run wild with low quality loans which the lenders all believed would be guaranteed by the full faith and credit of the US Government. Which they are, but now at a direct cost to the taxpayer. All this bail-out business has everything to do with politicians, bankers, brokers, and other financial institutions trying to save each other’s necks rather than do what they have fiduciary responsibility to do, protect the investors.
Now we are past the beginnings of this and well into the final demise of some of the institutions. Then the price tag rolls into the share holders and the taxpayers. But don’t think it stops here… next we see the loss of small business and many, many jobs. I don’t think they can turn the real estate market around fast enough to save Wall Street. Do you?
Political Econocide. The culprits/perpetrators are: Congress, Wall Street, Big Banks, Hedge Funds, Bond Brokers, and Mortgage Companies to name a few. They killed our economy. They found easy money in loans to citizens of this country, then leveraged it into more borrowed money for bonds, then more borrowed money for investment in commodities which they all expected to bid up in the exchanges. Now we can see they borrowed to borrow, and then to borrow again. They even ignored good quality business while they wasted their time with “fools gold”. On top of all of this, it is beginning to look like many congressmen, on both sides of the aisle, received large donations from Freddie and Fannie! They thought your mortgage, paid for by your hard earned payments, was easy money for them to line their pockets with!
What will happen next? We don’t know for sure but expect a possible 30% reduction in stock prices, expect more bank failures, expect loan money to dry up, expect cash to become constrained, expect lots of job losses, and expect to become very, very thrifty… just like your grandparents who are old enough to have been born near the last Great Depression. Expect to vote for someone who can represent us better in Congress. If the past is a predictor, then about 1 out of 5 people will not have a job in the near future. We may not have wild inflation but if you don’t have cash in your pocket or in your bank account, then what do prices mean?
But this is what happens to us when we bid each other up on homes, and by not being thrifty at home, we cannot expect anyone in Congress to be thrifty either.
BTW… the major earmarks of the last depression were Excessive Credit, Constrained Cash, Real Estate Bubble, Stock Bubble, Natural Disasters, Corporations Hoarding Cash, and 20% Jobless Rate. Pretty much all of this is in place except for the Jobless Rate. Right now, many people are employed by the Government and that alone could be the one thing that keeps us from a total Depression.
(Copyright 2008 Michael P Arnold, MPArnold)