Friday, 22 January 2010 00:00
Didn’t anyone anticipate this recession (summer of 2008)? Didn’t anyone foresee that, among other factors, the combination of unprecedented personal debt and sub-prime mortgages was a lethal package that would trigger a recession at the slightest downturn of the economy? Wall Streeters and bankers were doing great and thus, even if they had any qualms, they were keeping it to themselves. Congress also contributed to the problem. But what about all those economist geniuses? They were not involved in the profits of these schemes. So where were they? That we have never heard a peep from any of this group prior to this recession is incomprehensible. It isn’t as if this is the first time that this has occurred. It has happened a number of times before over less than 100 years. It is quite obvious that broad economic theories are a joke.
The Sub Prime Mortgage fiasco was a major factor in triggering the current super recession. What is a Sub Prime Mortgage? Owning one’s home is the ultimate American dream so investment bankers preyed on this desire by offering mortgage rates well below current interest rates to entice marginal buyers. But the catch in those mortgage contracts was that some years down the line the percentage would balloon. Bankers convinced buyers that by “ballooning time” the buyers’ increased wages would be able then to handle the increased payments. It would take, of course, continued prosperity for this to occur.
But Sub Prime Mortgages were not the only trigger of the recession. Perhaps just a tip of the iceberg. The average American family carries an astounding $12,000 credit card debt. Credit card interest rates range upward to thirty (30%) percent so the ability for most persons to ever reduce this burden becomes problematic. It is debt slavery at its worst. A quite similar situation occurred in Ancient Greece (around 500 BC) until a man named Solon tackled this problem. He wiped out all mortgage debts. Incidentally this was the beginning of the most momentous event in all of history.
The birth of Democracy.
Thirdly at fault, there was U.S. Congressional action led by Barney Frank and Chris Dodd that required that banks reserve a certain percentage of mortgage loans for sub prime loans. My memory is vague on exactly how this law was worded but there is no doubt that it fueled this problem.
The great irony now is that we cannot get the economy going until we can get the public to start spending again. In effect to go further into debt.