A Commentary On The Financial Crisis…

Posted: 15/10/2008 in Uncategorized
Tags: , , ,
Dollars for Dollars…
So here we are on the tailwind of a rush job appropriations bill of 700 billion dollars that was supposed to ease the so-called financial crisis and make the boogey man go away. What happens? Bush decides to spend another 250 billion of our money for more bailout tactics that will not work. Why? Because as a nation, we have become financial morons, that is why.
In their misplaced desire to make republicans look bad just before a Presidential election, the media jumps all over the place trying to pin the tail on the elephant, instead of the donkey. Which is where it appropriately belongs? There has been some interesting articles favoring all sides of the argument, and if you take out the ones that exist simply for the purpose of degrading Bush’s reputation, some interesting facts become known.
One of the most interesting is one from Investor’s Business Daily that parallels the economy of today with that of the era of the Great Depression. According to a graph contained in America’s Second Wake Up Call (10 October ’08) the current crisis has been rolling downhill for several years. Moreover, as much as the Liberalies want to blame Bush, the decline is actually Clinton’s bastard love child. It started at the turn of the century, after the Clinton machine forced the subprime market into the public sectors banking model.
For those of you not wholly cognizant of how the subprime market works, it is actually a fairly simple affair when put into common everyday language. In subprime, loans are given to people who really do not deserve credit. In some instances, loans were even given out to people who had no verifiable income. However, that is OK because the banks and lending institutions were allowed to bundle the loan portfolios and resell them to investors as something called a “mortgage backed security.”
The investors made their money by the interest that was paid by the borrowers. That would be the person down the street who makes 40K a year, bought a 300K home, and walked away from the property thereby defaulting on the said loan, eliminating the interest income the holders of the paper no longer had.
Mortgage backed securities have actually been around since 1938, but subprime is a relatively new term and category in the lending industry. The main market is targeted to those people who are considered to be high-risk recipients of credit. These include lower income and disadvantaged people who cannot afford to establish good credit for one reason or another. While the emphasis is on the housing market, subprime also includes non-secured lines of credit as well.
Retail chains and other sales centered businesses who offer credit, such as department stores, cell phone companies, mail order etc use this tool as a way to boost their sales volume. Unfortunately, plastic money is not real money. And this we have the problems we are currently experiencing. It appears to me as though we would have had a market meltdown at some point, but my feeling is that it is happening now in large part due to the Presidential elections. (Yeah, I know, you think I have no idea what I am talking about. However, follow along for a few more lines.)
We conduct business here in the United States with the US dollar. What we buy, and what we sell is based upon that currency. The value of that currency is based upon a comparison to certain other currencies of the world, and that rate is called the US Dollar Index. In looking at the seriousness of the situation and its history, it appears as though the worst of this problem started when the price of our energy started to skyrocket last winter.
The price of gasoline was shooting through the roof, as well as heating oil, natural gas and other forms of energy. People had to choose between making their house payments and keeping warm and filling up their cars so they could get to work. Many claimed that the price of oil climbed because the Bush/Cheney political machine wanted to suck up as much obscene profits as they could before leaving office. However, that is not really the case. The cost of oil is driven more by the supply and demand ration more than anything else. For this claim to have substance, the supply of oil would have to have been curtailed, but it was not.
In fact, several reports I read through earlier this year stated that the supply was with 5% or so of demand on a consistent basis. So where was the problem? The problem was that the value of our currency plummeted, and it cost the US more to purchase a barrel of oil than it had in the past. A 30 September ’07 article from MSNBC claimed, “The dollar touched an all-time low against the euro on Monday, extending its biggest three-month decline in three years.” Even then, the solidity of our currency was disintegrating; making every single item we imported cost more. Since the US no longer has an intrinsic value to its currency, being fiat based since FDR’s era, credit has to be the main indicator of value.
The value of the dollar was set in March of 1973 at a value rate of 100.00. The index value or rating can go higher or lower as compared to the value of currencies in twenty other nations. As of today, 14 October ’08, the current exchange rate of one US dollar to one Eurodollar is 1.000/1.369. This means that if you want to go to Europe, and buy something, a product at one Euro will cost you about sixty cents. Last year at this time the exchange rate was about 1.000/1.600 or so, which meant the same transaction would cost you forty cents. In the time period of about the second week of January ’08 until early March, the rate was much worse. At one point, it was a rate of about 1.00/1.265 or so, which means the same transaction would have cost about seventy-five cents.
This plummet came at the same time it became apparent that Obama was going to be the selection as the democrat’s candidate. While Clinton was still in the running at that time, most international analysts did not place a lot of weight behind her chances. While I do not care for Clinton’s positions or tactics, she is still less of a tax mongering Socialist than Obama is.
But anyways, because of the oil crisis, people began to default on their loans, being unable to pay for everything they wanted due to the increasing energy costs. The Dow Jones and NASDAQ, as well as other major exchanges are all heavily weighted with financial institutions. When these companies started to buckle under the declining income ratios, their stocks plummeted, and the result was the crashing of the worlds markets.
Bottom line is, at least as I see it, is that if the subprime market had not been foisted onto the banking industry, and perpetuated by lawmakers such as Barney Frank and Pelosi, we probably would not be in the mess we are in today. Bush turned the recession that he inherited from Bill Clinton around and was making headway by trying to implement legislation that would have put an end to these risky lending practices, but was stymied at every turn by Frank and the democrat machine trying to get every person a home and credit to buy what they want without consequence.
It needs to stop, and it needs to stop now. By continuing to labor under the Marxist notion that all people should have equal possessions, we will continue to destroy our economy. Sinking trillions of dollars into buying bad credit, and starting new programs to distribute credit to people that cannot afford it is a ludicrous plan. It had damaged this nation’s credit and credibility, possibly beyond repair. Nobody is bailing me out of my position, why should I have to bail somebody else out with my tax dollars? Have we already sewn a hammer and sickle onto the face of Old Glory?
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