From the current headlines it appears that the US Govt. is about to sink a staggering amount of money into Freddie Mac and Fannie Mae in order to keep them from collapsing as investors remove their money in droves from the US property markets.
If this occurs, it would have to surely be the biggest example EVER of taxpayers subsidising the actions of private enterprise, and my mind just shuts down with the implications and flow on effects for the american mortgage system, the global financial system, and our way of life.
The chickens are really coming home to roost on the excesses of the past, and I suspect that the perches aren't strong enough to take the weight.
I hope that my many US friends on Hubpages make it through OK. Somehow.
So much for the "free market economy."
But I think whichever way this falls - the rest of us will not be immune to the fallout .
This is what happens when you lend money you don't have to people who can't pay it back - just to ensure the system keeps rolling and consumers keep consuming.
Buy, buy, buy
Here's Krugman's take on it from the NYT today:
http://www.nytimes.com/2008/07/14/opini … ref=slogin
He seems to think we are all making a mountain out of a molehill. I kinda think we've been making a molehill out of a mountain. I mean, every single time someone has analyzed our situation the fatal error has been underestimating the size and scope of the problem. We just lurch from on crisis to the next, and it just keeps getting worse. I don't see why or how a multi-trillion dollar bailout will make things better. I don't get it. Someone enlighten me.
Here is how it works:
Mortgage companies over lend to people who should not be buying a house in the first place (due to finances not any other reason).
FM and FM guarantee that money using government funds they do not have.
House prices go insane.
People who bought a house they have not paid for now have massive equity in that house.
They borrow against that equity.
They spend the money on new cars, TVs etc.
The economy booms.
The directors of the banks and finance houses make lots of profit and remove said profit in the form of bonuses for a job well done and pay-offs to FM executives and various gov officials.
Every one is happy.
The amount of finance suddenly dries up because there is no actual income in the first place - it has all been spent on new cars and other crap or taken out of the system by the top few percent.
The problem is actually much bigger than anyone thinks.....
You have already agreed to pay for this if you are American. That what the government guarantees were for. Guarantees to pay these debts. And all those lovely executive commissions
Free market economy my ass.
pgrundy - I want to see how throwing a few trillion of cheap money at the problem will fix it. Given that the problem was caused by too much cheap, easy to get money.
But there's a lot more involved than the housing loans. This is a "perfect storm" of several different problems reaching their peaks together.
In the past, when the USA was a manufacturing nation, money spent there stayed in the country to provide wealth to build up the country's assets.
Now, almost everything that US citizens spend on fuel, consumer goods, clothing, etc. flows out of the country and makes other countries wealthy. And then they can come and buy your assets for bargain basement prices.
While the once strong currency of the US is dropping rapidly.
A few years ago, it took almost 2 Australian dollars to buy something that cost US$1. Pretty soon they'll be of equal value.
Sure, Australia is not much better - we import just about everything, and our manufacturing industry has run down as well.
So we've reverted to digging up stuff and shipping it overseas to be made into things. That's about all that's keeping us going, and retuirning some of the money back we send overseas for plasman TV's, cars, and iPods.
And to those who think that the price of oil will drop soon, I hope you're right. But I don't think so.
Because many countries who used to sell their oil overseas are hanging on to it to raise the living standards of their own people. And they also want to buy more as well.
But hell, who am I to try and analyze the problems of the world.
I think I'll go and play the banjo for a while. It's impossible to think gloomy thoughts while doing that.
Just saw your post Mark. You're dead right.
Hmmm, banjo--that sounds great! Me, I'm off the bank (ack!)---with any luck, I will at least get my long-prayed-for lay-off from The First Bank of Haides. I don't care if I have to sell apples on the street corner, anything else at all would be relief.
When I get home I'm taking my dog for a long walk.
Mark, thanks for the explanation--it was a rhetorical question actually, but you nailed it. Smoke and mirrors. Nothing but fumes here for years, and now the fumes are evaporating...
Well, it won't be boring.
The price of oil is not going down any time soon either.
And it is not that oil is more expensive - the dollar is just worth less.
Oil is more expensive, too - prices are going up in other countries. They are just going up faster in the US because the greenback is dropping like the proverbial.
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