Many people have asked how is it we have racked up 20 Trillion on our national debt? This is a deep and incredibly misunderstood subject. Not all of what I am about to say is the entire cause, but it has been a huge contributor.
The simple answer is WALL STREET and WAR. In order to save this nation after the last financial crisis that occurred in 2008, where 10.6 Trillion was lost by the year 2010. Chairman Ben Bernanke’s choices, although criticized by many in this country was really left with no other choice but to give a bail out.
When Banks sought out ‘Mortgage backed securities’, hereinafter referred to as MBS in order to expand their loan portfolios at decreased risk in harmony with the FDIC, which started around 1994, it was seen as an appropriate vehicle to encourage growth and expand trade. Hence the successful years under the Clinton administration and Alan Greenspan. Little would we know that by the year 2008 this would all end in disaster, owing to one major factor?
As with all things this starts gradually, banks make money MBS’s make money and a necessary stimulus has been implemented. With time this started to become a very successful model to develop and expand the housing industry.
Others on Wall Street saw this as an absolute winner for growth. Many new investors, saw lucrative returns with companies, like Goldman Sachs, Morgan Chase, Bear Sterns, Lehman Bros. and so on. At the turn of the millennium new MBS companies started, also commonly known as hedge funds. Herein lay the key factor that started what has been called, the sub prime mortgage. These unregulated financial entities saw an opportunity to loan money at greater risk. With higher interest rates and increasing house prices, where was the down side? The man in the street saw this as an option to own a home, and for those that had homes, it was now an option to own a second home, for investment purposes. Housing, what could be more solid than a growing market place, where housing with this new found financing was available to be a great investment?
The market place started to kick off in a big way. Construction was growing, people were buying and selling as prices rose, money was being made, by construction companies, home owners, real estate brokers, banks, MBS’s and so on. But with all great schemes there comes a day of reckoning. With the growth of private investment, hedge funds, MBS’s and the like, there seemed to be no end to the potential. Its journey was exponential.
In 2004, the housing expansion started to slow as house prices had reached an all time high! Some houses had doubled and tripled in value. Loans had been easy to get based on having a reasonable credit score, this shadow banking financial community was not regulated like the banks, and Alan Greenspan fought hard against this happening. The result was as the houses had been purchased with no fixed term, or fixed annual percentage rate, known as an APR. Interest rates started to rise. Now with the new higher interest rates on houses that were much higher than their original price, selling was becoming increasingly difficult. Even what I will call the unregulated financial funders were starting to feel the pinch, they too were being backed by other hedge funds in order to share the risk. It was like a bunch of bookmakers placing and defaulting their risks.
All was well until 2007, when mortgage holders started to default. The complex funding community had so many facets it’s beyond explanation in this blog. The worldwide investments from individuals and corporations had become so complex that no one could see the truly exposed entity, should there be a crisis. Yet the funding community was fraudulently, still selling investments on Wall Street, all believing there would be no end to this ‘Golden Goose’ that laid the egg!
In 2006 Wall Street paid out 23.9 Billion in bonuses to executives!!! Life was good and no one could see and end in sight. Except for the people in high places and a group of smart young men, starting out, from the ‘Ivy league’ Colleges. They in turn bet against their own company in a process know as shorting. So make money on the way up and make it on the way down? I won’t explain shorting here, but in simple terms its buying shares that you believe will go down. Many off shore companies were created for that purpose.
As interest rates grew, mortgage holders fell into default and foreclosure. The collapse seen by the top and the bottom, but not all those in between, became reality. Lehman Brothers were the first to be widely known, amongst other lesser-known entities.
Fanny Mae and Freddy Mac were backed by the government. Wall Street knew there would be a bailout! And you know who ended up paying for all this?
YES YOU, not Obama or his administration. The solution? Print more money, keep interest rates low, keep jobs, otherwise the nation was headed for a worse recession than the “GREAT DEPRESSION’, of 1929.
This behavior on Wall Street resulted in only ONE ARREST, a man from Credit Suisse!!!
In addition the war in Iraq and Afghanistan has added another 4 Trillion… is it no wonder we have this debt? So stop blaming the last 8 years, for our country’s debt, and wake up to reality. The politicians could well be asked about Wall Street, and what has been done, that’s for sure. With bonuses still being paid out to executives in vast corporations and financial entities to the tune of millions, one must ask the question who really runs the country behind super pacts and lobbyists?
So Mr. Trump I hope you are up for the task, and you can deliver on all your promises?