But first, a quick word about our main-stream media: they relished telling us week after week how bad the Enron scandal was and now refuses to give us the true reasons behind the sub-prime mortgage scandal.
It is indeed sad that it is up to foreign media to do the fair and balanced reporting job that the U.S. media should be doing.
A report at the link below has the real story from a source not committed to trashing conservative views.
Some milestones in the prehistory of the crisis:
- - - - - - - - - - - - - 1933 - As part of the New Deal, investment banks are stopped from also acting as commercial banks (which would have given them bank deposits and more stability).
- - - - - - - - - - - - - 1938 - As part of the New Deal, president (Franklin D.) Roosevelt creates Fannie Mae and in 1970 Congress creates Freddie Mac. With their implicit government guarantees they can offer cheaper loans and expand until they dominate the American mortgage market.
- - - - - - - - - - - - - 1989 - The American government step(s) in and pay(s) for the savings and loan crisis, which sets a precedent.
- - - - - - - - - - - - - 1995 - The Community Reinvestment Act is revised so that banks and thrifts are forced to give home loans to low and moderate-income households as well. In return they are allowed to repackage and sell those sub-prime risks to others, which Bear Stearns pioneers in 1997.
- - - - - - - - - - - - - 2001-03 - Instead of letting the market get rid of bad businesses and loans after the dotcom bubble and 9/11, the (Federal Reserve) reduces its rate from 6.5 per cent to 1 per cent (with) a dramatic expansion of the money supply, which creates a real estate bubble.
Mae and Mac ran leverage ratios that exceeded 60 to one (cheered on by the Democrats) to keep giving loans to people who could not really afford it. It only took more traditional interest rates for the bubble to burst.
The independent investment banks that did not have access to bank deposits collapsed and almost brought the whole system down.
All those who now think that the solution is to give more powers to politicians, authorities and central banks should look at what they did with the powers they already had.
A picture of my cave
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