to help pull the econ out of the great depression, FDR, among other things, created Fannie May and (later) Freddie Mac, (henceforth to be called "Fannie/Mac"). these, with the Resolution Trust Organization, helped back loans, mortgages, and investments that were going bad due to the snowballing lack of confidence and income in the economy. they were NATIONAL agencies. but in order to help pay for the Vietnam War, Lyndon Johnson DE-nationalized them by making them private, or quasi-private (like the Fed), corporations - where shareholders could put money into them (by buying them). to keep pushing up the value of Fanny/Mac's stock, to pay out better and better dividends, to satisfy and induce clients (banks), and to increase salaries of board members and executives, these F/M-backed mortgages owned by banks (which were still being paid off by homeowners) were allowed by F/M to be SOLD by the banks to the investment banks, finance corporations and hedge funds - as well as to China, etc. - which had ballooned during these last three decades of Republican rule. These mortgages were bundled up into packages of $250,000, $500,000, and upwards, which meant they could legally be used by the finance groups to "back" securities, or INVESTMENTS on wall st., at ridiculous leverage - where, e.g., $1 of ("homeowner"-owed) mortgage would not only be treated as one ACTUAL dollar, but would back (or insure) $10, $20, etc., worth of securities. Securities are GAMBLES. Especially when they themselves can be bought up AGAIN and again by other groups, (or by short-sellers), at even crazier rates. So the risk-taking groups (and even banks) who end up owning these mortgages NEED to have the extra capital around to pay when the risks fail - and if they DON'T, then they need to squeeze more money out of the mortgages, either by buying more and more mortgages, or by getting the banks to raise mortgage interest rates - thus forcing people out of their homes. When people defaulted on their mortgages, that rendered all the securities/investments extremely weak if not failed, and that sent wall st., and so business, into a shock.
Why was this allowed to happen? Well - Reagan's "SUPPLY SIDE" economics believed that wealth could be created simply through the financial manipulation of money - as in a PONZI scheme of supposedly infinite(-risk) investment, and then in the belief that government DEFICITS were both economically and POLITICALLY good, the latter because they could be shackled onto incoming Democratic administrations. That's what they did to Clinton. Clinton, however, managed to remove the deficit and BALANCE the budget, (actually gave it a surplus). How did Clinton do this? Partly by reducing the wealth of the common citizenry by allowing overseas flight of our corporations, and by eliminating welfare, etc. AND/BUT, he also balanced the budget by the Fed Chairman Alan Greenspan keeping interest rates artificially low. Thus US dollars wanted to stay and invest in the US, meaning the dollar was STRONG, and could buy things from overseas REALLY CHEAP. Since it was worth more, it was easy to pay down the deficit.
Another major reason this was allowed to happen was that DEREGULATOR McCain's present economic advisor, Phil Graham, set in motion the "Enron Loophole" in 1999, which totally freed up current insane levels of investment leveraging. And even though regulations against "naked short-selling" exist, they have not been enforced, because Republicans have packed the positions of power, including those in the JUSTICE DEPARTMENT.
But, do you see? All of this has been an evasion of the REAL costs of the Vietnam War - which were basically a WASTE of resources and productivity. It has been a growing encouragement of BORROWING over real productive wealth. The true FUNDAMENTALS of economy are MANUFACTURING/information, WILLFUL LABOUR, INFRASTRUCTURE, and GOOD FAITH AND TRUST. These are our true CAPITAL. Money is no more than a VEHICLE for the manifestation and transformations of these phenomena. Money is not capital per se. So when supply-siders convinced us all to invest in BORROWING and INVESTING - and borrowing to invest and vice versa - they were basically asking us to addict ourselves away from economic food into economic cocaine, crack, etc., so that the whole economy became a huge balloon of self-serving ego and UNTENABLE RISK.
ok - i want you to think about this bail-out and what it means and why it won't work, and i will write again about it soon.
we are now faced with two choices:
depression or fascism - more on this theme in another post ... AND THIS:
everything we are experiencing now, and will be experiencing soon, is what the people of Germany went through during the rise of the NAZIs. ... IN NEXT POST...