The bailout was supposed to save the market and the economy, but the market collapsed anyway, losing 20% of its value. I checked Yumi's and my 401k and they have both lost 20% of their value. Sure, the market may regain that value, but it is lost time and money to do so. One naturally wants to know how it came to this debacle. I have tried very hard to read and study with an open mind as to the cause. I have arrived at the following reasons.
1. Banks and financial institutions should have been more closely regulated. They were overly aggressive in loaning money and investing in derivatives, mainly real estate derivatives that included non-performing loans (often unbeknownst to the derivative purchaser).
2. Non-government (mainly ACORN) and semi-government (Freddie Mac, et al.) entities pushed excessively hard to extend home ownership to lower income groups. Banks and other financial institutions relaxed their lending standards under the pressure (the threat of bad publicity, lawsuits, accusations of racism, etc.) and made hopeless and unwise loans. Attempts were made to save the situation, but these attempts were blocked in Congress by a certain party. There are two reasons for the blocking. 1. Any and all proposals by Republicans were to be fought against, no matter the consequence. 2. The Republicans didn't see the point of bringing the reforms to a vote since they were doomed by insufficient support from the other party.
3. When the cash flow for these banks and financial institutions began to dry up due to the non-performing loans, some went belly up and were taken over by other banks. Others were allowed to fail outright, and yet other were bailed out by the government.
4. The market would have fallen with or without the bailout, and it is clear that there are members of Congress who should carry heavy blame. However, I would be very surprised if they had to take any responsibility for their incompetence. Nevertheless, my family has suffered a heavy financial loss due to these incompetent and agenda-driven leaders, and I will not easily forget it.
3 comments:
Very competent summary of the situation. I would add that there are fundamental banking habits that may need to change at some point. One of them is that banks lend much money out that they don't really possess in reserves. I have heard 10 to 1 very often. When they need to cover their butts or when there are loans out there to make beyond their their 10 to 1 pattern, they borrow so as not to miss the opportunity to rake in interest.
It all seems so risky.
The printing of money helter-skelter that is not backed up by gold or anything at all will continue to be a weak link in the whole process.
We too have lost easily 20% of our worth. It is true that said worth was overinflated in the first place. I knew it, however, that will not change the reality of a more feeble retirement for me in 10 to 12 years. I will have worked about 45 years before retiring and even then, I am sure that I will continue to work some.
I heard on the news to day that the reason for non-recovery could also be ECONOMIC TERRORISM. There are signs that some of the negiations in the stock market the last 12 days are calculated and planned by planted subjects there to cause last minute, before the bell selling off and causing panic in both on the market and in the media. The more they do that...the more panic, and chaos. Hmmmm. Something to think about. Let's see if they say more on that in the next few days.
I have not heard about economic terrorism, but I have heard some tinfoil-hat ideas the the whole bailout/economic collapse business was brought about to help Obama. Democrats tend to do better in elections when times are bad,and Republicans tend to do better when times are good. Thanks why you hear Democrats preaching doom and gloom every two years. It just so happens that its true once in a while.
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