We are in a recession.
Economists have been trying to tell us that we are in a slow recovery but that is all spin. Now, after years of high unemployment and a shaky stock market, the american public is reaching it's limit. There are movements now to protest the irresponsibility of the big banks and the lax regulatory stance by the government that havef gotten us in to this mess.
Economists have been trying to tell us that we are in a slow recovery but that is all spin. Now, after years of high unemployment and a shaky stock market, the american public is reaching it's limit. There are movements now to protest the irresponsibility of the big banks and the lax regulatory stance by the government that havef gotten us in to this mess.
I can't help but see this protest as somewhat ridiculous. The situation that caused this financial crisis is not a simple one and is not something that will be fixed by protests. The American public, for the most part, has no idea what happened to cause this and is reacting by throwing a tantrum.
The domestic crisis has its roots in good intentions. The government wanted to make it possible for the average person to own a house and so they created Fannie Mae and Freddie Mac, two semi-governmental organizations who's purpose was to buy mortgages from banks so that the banks could then use the money that would otherwise be held up in the loan to make another loan to another home buyer. This allowed banks to make many more mortgages because they didn't have to wait for the old ones to be paid off before they could make new ones. This all went wrong when regulations were relaxed to the point that the banks realized that they could just make bad loans, collect the fees and pass off the responsibility to Fannie Mae or Freddie Mac. The government (who guaranteed the loans held by these corporations) was left with all the risk.
But wait, there's more! The banks, trying to get rid of these mortgage contracts faster, would package them together in a super-group of mortgages called a Collateralized Debt Obligation (CDO) and then sell shares of it to investors. I know that is a lot to take in, so here's the skinny: They would make the loans trade-able so that people could buy them like they were stocks or bonds, and so that mutual funds could invest. The problem is that the CDOs had rotten bits in them and were destined to collapse. The people creating them didn't care because once they sold them as investments they no longer held the risk, just the money.
There is even more! I won't get too deep into this one because it is very complicated. Investment companies created another innovation. They created what is called a Credit Default Swap. This contract acted like insurance without the name (and without the regulation). It meant that one financial institution would pay another to take some of the risk if an investment (like a CDO) failed. This eventually got so out of control that these Credit Default Swaps were being made like bets by third parties who had nothing to do with the investments that they were for. You could literally buy insurance on an investment you thought was bad in the hopes that it would fail and you would get paid for that failure; and you didn't even have to own the investment.
That's all the background that I am going to get into here, now for the response.
Where did all these bankers get all this money? It wasn't their money, if it had been then they would have been more responsible with it. WE gave it to them! we handed over bank deposits and 401k investments and just ignored what they were doing with our money. We as a society have decided that investments are too complicated and that we had better let someone else do it for us. There are countless retirement funds and college savings plans that have been decimated because of this fiasco but we are not faultless. We have allowed people to run amok with our money and now we are paying for it.
I suggest to anyone who is willing to listen, that you take your money out of the bank and put it into a Credit Union. Stop investing in a 401k and move your money to an IRA that you manage yourself. Or do what one of my friends does and buy precious metals and micro-loans. Deprive the people who would be irresponsible with your money of your money.
There are many more contributing factors to the current economic crisis like the housing bubble, government entitlements, and the euro-zone debt crisis but taking personal responsibility for our money is the biggest thing we can do for ourselves. The criminal fund managers, and unethical bankers don't care about protests, they are not elected officials that need our approval, but they need our money, lets take it back!
1 comment:
The protests are about the belief that people intentionally took money out of the system knowing it would collapse. They got rich(er) making up these investment products which they fundamentally knew were bad. Whether they managed to do so legally or not isn't so much the issue is whether they were morally right to do so.
Yes, the masses helped. Yes, the government was corrupt. And yes even though both of those things are true we still have a right to be pissed of at folk who made fortunes because of it.
I agree that voting with our wallets is the best thing we can do, but if we don't make it super clear that we're tired of supporting these ass holes and their lavish life styles, the banks will cry foul, say they are too big to fail and demand more bail out when they start to loose revenue. Right now, with the current political climate, we need big demonstrations to make it clear that the idea of the super rich taking tax money to cover corporate failures while still staying rich themselves is not OK. The only way to make that clear is to be pissed off and to do something about that anger.
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