There are numerous factors driving the stock market down. Here are a few important ones:
1. Debt overhang: We have issued far more debt than we can pay back. This is being used, among other things, to reengineer fundamental laws, governance and rights globally. The debt overhang and the governmental changes it is being used to engineer (financial coup d’etat) are bad for stock markets and broad-based private property rights.
2. Absence of good pricing data: Large financial institutions have no way of accurately pricing outstanding risk of a significant amount of complex instruments. Among others things, history is proving that they cannot trust the chain of trust: bankers, auditors, lawyers. As a result, their ability to transact and loan to each other freezes. In one sense, think of this as the price of the absence of integrity within the system.
3. Economic warfare: We are experiencing the first planetary “pump and dump” — we are now in the dump phase. The largest or craftiest financial institutions with access to and control of sovereign government intelligence and resources are able to subsidize themselves and gain market share and control of tangible assets by driving down shares of other financial institutions and companies.
4. Individual investors are leaving the party: Remember when your parents would not allow you to go to a party that did not have adult supervision? Given the refusal of the government to use enforcement powers to enforce the laws or to protect market integrity, the stock market lacks the equivalent of adult supervision.
5. Corruption tax: Centralization and corruption are expensive for everyone but the insiders … and the number of insiders is shrinking.
If I were a psychologist I would describe the stock market as manic-depressive with suidical tendencies. The only aspect of America that has any comfort factor is the United States is the OPEC of knowledge and Americans respond best in crisis. 2008 is very similiar to 1929 in that most “expert” didn’t realize the country was in economic depression until March of 1930, almost six later. The Spring of 2009 will be the time when the country as a whole realizes the actual shape it is in.
Danny L. McDaniel
Lafayette, Indiana
Susan:
I get your point about “rewarding” the “bad” behavior of those who took in more house debt than they should have. I keep thinking about the Parable of the Talents and, from a more selfish point of view, about the economic consequences if we let their houses go into foreclosure. Another part of me wonders, if we “bail out” the grasshopper who unwisely bought the $750K house, will that guy become more compassionate about the working poor and unemployed who are in the positions THEY are in, not being able to afford necessities for their families even though they work hard or are willing to do so, through a system that is just unfair? Will the guy who gets bailed out then see that he is getting “welfare,” that it is not fair, and that neither should the financial institutions and the “system” that allowed him to make his unwise decision be entitled to welfare at the expense of his neighbor, the ant. I’m not sure there is a way to get out of the mess we are in if we do not provide an exit strategy for the grasshoppers, because they may be a majority of the population. I sure would like to find a way to reward the ants of the world. After all, they are the ones who should be managing the $750B we just handed over to Treasury.
Catherine, Thank you for your clarification of the CRA stuff. There is so much disinfo in the present partisan atmosphere. I am a software developer and a grassroots organizer. We communicated once on your forum last year when I was educating myself on many issues and became active in the Ron Paul campaign. If you would ever like to visit Florida, I am certain we could help you put on an event. I would like to talk with you some day about opportunities after some of this panic settles down. (Hopefully it will!) I want to help create the tools for the transformation that we seek. Maybe I can come to Tennessee. Bless you and stay well! Let us know when we can purchase or download your whole seminar.
carolyn,
thanks for your response.
but shouldn’t we liquidate the banks and mortgage companies
and give it to the victims as compensation rather than
using tax payers’ money?
i’m only concerned as to which would lesson the impact
to the economy as a whole.
We have the story of the ant and the grasshopper. So what do we tell the ant husband and his wife with two children who is smart enough to know he can’t afford the $750,000 house. So he continues to rent and stay in cramped quarters, while the grasshopper buys the home and then goes bust. Now the nice Government guys may want to reset the price of the $750K house down to the real value so the grasshopper won’t end up in foreclosure. The ant is mad that he could have been foolish the last several years lived high and now be forgiven.
Won’t this encourage lots more mess and where is the cut off-let alone the justice – and what about the billions we the people just bought which will be marked down too while the banks will still get the billions. What a mess!! Which billionaire who drove this thing forward gets put in jail-surely not the head of Countrywide or Lehmanns or Goldman Sachs or the Clintons who helped throw out Glass Steagall or the Bush crowd. Nope-we can hope there will be justice but we the people are taking.
I want that moment when finally we throw open the window and say- I’m madder than hell and I’m not taking it anymore.
This might drive us to that.
Then we can take the country back.
Bob:
I am not aware that it was illegal not to make sub-prime loans. I believe what some of the talk radio hosts were referring to when they have alleged this are:
(1) The Community Reinvestment Act, which allows regulators to refuse to approve a bank merger (which many big banks want to be in a position to have happen) if they do not lend in some of the poorer communities in their area. For example, Chevy Chase Bank & Trust, which was in an affluent DC suburb, was not permitted to argue that their lending area was exclusively rich suburbs so they did not have to go out into Prince George’s County and into DC to make loans. They could not be prosecuted for not lending outside Chevy Chase, they just wouldn’t have their merger-type transactions approved if they didn’t.
(2) Regulators argued that the formulaic underwriting rules had the effect of discriminating against borrowers who, though working poor, really could afford low-cost mortgage loans if lenders were less strict in their standards for proof of income. For example, if someone were a housekeeper or cleaning person and didn’t get a W-2 or even, perhaps, have a bank account, it was argued that person ought to be able to show the income stream in some other way. This is not requiring a sub-prime loan to be approved; it was, at least theoretically, requiring that poorer people, many of whom are minorities, be treated fairly under the circumstances of their actual lives, not the circumstances in which a majority of middle-class people find themselves.
Do I believe no-down-payment loans to people whose incomes are unstable is a good idea for the sake of increasing the homeownership rate, as both Andrew Cuomo as HUD Secretary under Clinton and more recent Bush-appointed Secretaries (Martinez and Jackson) have maintained? No, I do not. It is not fair for people who can’t afford homes to be encouraged to buy them. I believe we as a society need to work for the goal that more people can afford homes.
James:
Re: your statement:
“I agree with Ron Paul and Jim Rogers that we
should not be bailing out irresponsible Americans
who bought homes with no money down and borrowed large
cash living beyond their means.”
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First, believe me, you do not want more foreclosures in your neighborhood, city, country. More foreclosures lead to (1) more homeless people (who are expensive and a bother to manage, to say the least), (2) a lower value for your house, (3) more crime, (4) not enough property taxes to run your town or city and (5) lower values of MBSs that act as reserves for banks, jeopardizing their ability to satisfy their capital requirements. So, even if you are not for moral reasons inclined to forgive and be generous to those who (a) had the bad luck to lose a job, get divorced, or need medical care that was not covered by health insurance (these are the three main causes of bankruptcy in this country), (b) weren’t smart enough to read the terms of their mortgage loans that they got for the first time at the closing of their loans to see if their lender lied to them about the interest rate, or (c) were unsophisticated enough to think that the bank wouldn’t lend them money for a house if they couldn’t afford it, you should understand that in your own self-interest, it is not good for those less intelligent, less disciplined, or less fortunate than yourself to go through foreclosure.
Were we all in on the credit bubble? Yes, most of us have been. Should we have just continued to adjust our living standards down each year as our money purchased less and the costs of living just went up and up, as the guys at the top robbed us little by little, like frogs in a pot on the stove? Yes. That does not change the fact that WE WERE ROBBED AND LIED TO AND MISLED. Who has done the greater harm — Joe Sixpack who went along with the crowd and lived beyond his means, or Robert Rubin and Dick Cheney (just to pick two names of supposedly different parties)?
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Re: your question: “But wasn’t this at the same time illegal predatory lending
by the banks and mortgage companies?
Shouldn’t they be liquidated and prosecuted?”
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I do volunteer work with Legal Aid helping people on foreclosure. The answer is, yes, many/most of these loans were illegal in many ways, including violating the Truth in Lending Act, the Real Estate Procedures Act and other federal laws. How would borrowers who can’t afford attorneys and aren’t poor enough to get Legal Aid assistance know this and defend themselves, however? Appraisals were shamefully over value. Lenders did things like suggest borrowers transfer property to a wife’s name when tens or hundreds of thousands of dollars in credit card debt in the husband’s name would otherwise get in the way of their qualifying for the loan — and then they ignored the husband’s debt. They tacked on unconscionably high fees for the loans. They paid brokers bonuses if they could talk borrowers into loans at higher interest rates than their credit ratings would justify. Brokers and lenders lied to borrowers, telling them they had fixed rate loans when the interest was adjustable. They failed to tell borrowers that the initial rates were teaser rates that bore no reality to where the rate would go as soon as the initial period expired. The loans were underwritten using the assumption that the teaser rate would be in effect for the whole loan period, with knowledge that the borrower’s income would be insufficient to cover the debt payments as soon as the interest rate was adjusted. The list goes on and on. You can say these people should have been more sophisticated, but I consider this behavior to be unconscionable and to justify an adjustment of the loan to a reasonable, fixed rate, forgiveness of late and penalty fees and charges for the lender’s legal fees, cram down of the loan principal to the post-bubble value of the house and reamortization over 30-35 years. If that’s done, many borrowers will be able to pay their debt service and keep their homes.
Yes, the perpetrators of this huge scam on society should be prosecuted. But more important, WE SHOULD GET BACK THE MONEY THEY STOLE. Catherine has said she believes in the death penalty for corporations that commit capital crimes. The question there is, does the death penalty harm innocent people more than the guilty? I can’t answer that.
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Re: your question: “In other words, if the mortgage contracts were illegal,
don’t the victims have a right to legal redress?
Are these people victims or fools or both?”
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Yes, the victims have a right to legal redress, but unless they are poor enough to qualify for a Legal Aid attorney, where would they get the money to pay an attorney to figure this out? These are complex situations. Yes, many are victims AND fools. But let me ask you this, do you think that someone off the street with a 100 IQ (the average IQ I’m told) OUGHT to understand LIBOR and the intricacies of how a mortgage loan works, and what rights he or she has under RESPA snd TILA? And is someone who trusts a mortgage broker or banker to be thought a fool for doing so?