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?
