Another Look At The Financial Crisis
Thursday December 4, 2008
It's also very sobering. Things I didn't know about ratings agencies: they really didn't know how to rate the CDOs based on risky mortgages, but did anyway.
The Securities and Exchange Commission sanctions only a handful of firms as credit ratings agencies. The revenue of the top three almost tripled between 2002 and 2007. And the largest, Standard and Poor's, is owned by McGraw Hill. You're to be forgiven if you, like me, think of McGraw Hill as a publisher. Not so much anymore.
Listen to this Planet Money episode that features Peter Schiff, the president of Euro Pacific Capital. He saw the bubble in 2004 and was derided. Why isn't he an advisor to the incoming Presidential administration? (Hint: he's libertarian.)
We pretended the debt was manageable... I understand that economies grow as the result of savings, not as the result of spending. We've got the cart before the horse here. We think the key to growth is people spending money. But the only reason we're able to spend money is because there is real economic growth happening outside the United States where people are saving money that we're able to borrow. And they're producing all this stuff, that we are able to consume...If you're a reader rather than a viewer/listener, then turn your attention to The End of Wall Street's Boom by Michael Lewis, author of Liar's Poker. Then ask yourself why Steve Eisman, formerly of Oppenheimer, isn't a White House advisor.
[T]he financial crisis that we're seeing ... is a real economic crisis. What's happening right now is not the problem. What's happening now is a consequence of the problem. And the problem was for years we borrowed too much money ... rather than investing that money ... we simply spent the money. And now we don't have the means to pay it back.
Comments
While I think Peter Schiff has made some valid points, my own point of view is that the current economic crisis is fueled by Wall Street’s perception that easy credit (funny money) rather than paying people a living wage is the way to grow an economy.
People who don’t make enough money to put a roof over their heads, food on their tables, and clothes on their backs have no choice but to rely on credit. It’s the robber baron/company town oppression revisited.
It works for Wall Street, but it falls apart on Main Street. I am deeply troubled and perplexed by Congress’ penchant for bailing out AIG while giving the auto industry such a hard time.
I understand the bank bailouts, but the lack of oversite of AIG is indeed troubling to me.
Perhaps I’m cynical, but I have to wonder (having worked intimately with these folks) whether the anti-union forces are behind the push to deny bail out funds to the Michigan-based auto industry.
Those jobs fund a huge portion of our economy. It’s real money rather than funny money. It smells of union busting to me. . .especially since the major news networks are essentially reporting the same story. Makes me wonder who has given them the press release and marching orders.
The global economy simply can’t function unless the middle class is thriving and making good money. I thought Wall Street and DC had learned this lesson, but maybe not.
And, the part of me that is most deeply cynical wonders whether Michigan is being ignored because of the huge black population working for the auto industry. Racism and union busting in one neat package.