The television news, Radio, and Internet are awash with stories telling U.S.tax payers that another greedy Wall Street Baron is biting the dust!
U.S. taxpayers will bear the burden of the failure of this financial company and other financial firms, not just in the next year but over time. The Treasury may get money to cover the bill by pushing the deficit higher and borrowing money by selling bonds -- most of which will be snapped up by China. The IRS will want its "pound of flesh" at some point. That money will come from the pockets of the working man, or future, payroll deductions of our children.
This is a bad time for people like myself, who believed in the Capitalist System all our lives. It gives fodder to the Secular Socialists, and especially the Leftist controlled Democrat party at the most opportune time for them.
With Obama's popularity on the wane as more and more voters come to realize that he can talk the talk, but the way he walked the walk in the past belies his talk!
The problem simply is too much debt. In other words, the typical U.S. consumer is awash in debt brought about by the profligate use of credit cards. I believe some of the blame should be laid at the feet of the advertising sector of the World.
These are the people who put adds on television, radio, newspapers, magazines and even on the Internet, enticing us to buy a product that we should have," because we deserve it". Even if we cannot afford it. The Credit card companies are only too happy to oblige the card holder, because they make more money if you cannot pay the balance, but only pay the interest--usually 18% or more!
Couple this with the purchase of homes with little or no down payment, and barely enough income to support monthly payments. Overly aggressive lending practices by lenders,that poured millions of dollars into the home mortgage business, that were offered to these marginal home buyers at extremely low initial interest rates.
These low rates were come-ons, could and did escalate as the low initial offering rate period expired and the revised interest rates, in some cases, rose by 30-50%. These higher mortgage interest rates dramatically increased monthly payments, and over extended home purchasers simply did not have the income required to be able to make these increased payments. source:The Money Blog
To answer the financial crisis, the nine largest banks in the USA are forming a fund with a value of $70 billion. The banks are Bank of America (BAC), Barclays (BCS), Citigroup (C), Credit Suisse Group (CS), Deutsche Bank AG (DB), Goldman Sachs (GS), JPMorgan Chase (JPM), Morgan Stanley (MS) and UBS AG (UBS). Reuters reports that "any one of the 10 banks would be permitted to borrow up to one-third of the total facility." This will be on top of the Fed's plan to make more easy credit available to banks and brokerages.
Top Academic Economists believe this is a bad idea, because what becomes of the fund if any three of the members need to draw the 33% to which they are entitled? That would not only obliterate the fund. It would vex the other banks who might need capital if the credit crisis grows long and much worse. And the way things are going it may happen! Many Economists believe this is a way to disguise a "BuyOut" plan that is disguised as a "bailout" by the three largest Capital Funds,Goldman Sachs, BAC and Deutsche Bank. These three have financial assets which are the envy of the others in the Banking business.
The underlying problem facing Americans is the continued devaluation of our Dollar. This will accompany this Bank crisis and the continued extension of credit to financial giants like now bankrupt Lehman. This will only lead to more predatory lending practices, inappropriate underwriting standards, and the potential consequences of securitization of debt instruments.
This includes the packaging of bundles of mortgages and other loans into a big single investment that are sold to pension funds and other investors around the world. If the early warnings had been heeded, the world "would have avoided the kind of meltdown we are experiencing today". source:David R. Francis
In 1995, over US $380 billion were in circulation, two-thirds of which was outside the United States. By 2005, that figure had doubled to nearly $760 billion, with an estimated half to two-thirds being held overseas,primaraly by Communit China, representing an annual growth rate of about 7.6%. As of December 2006, the dollar was surpassed by the euro in terms of combined value, and of cash in circulation. Since then the current value of euro cash in circulation has risen to more than €695 billion, equivalent to US$991 billion at current exchange rates.
Wikapedia reports that: "Economist Paul Samuelson and others maintain that the overseas demand for dollars allows the United States to maintain persistent trade deficits without causing the value of the currency to depreciate and the flow of trade to readjust. Milton Friedman at his death believed this to be the case but, more recently, Paul Samuelson has said he now believes that at some stage in the future these pressures will precipitate a run against the U.S. dollar with serious global financial consequences!"
Hopefully, we will survive this financial crisis before the Chinese call in their notes. But all Americans, both Democrats and Republicans should realize that when so many people engaged in so many aspects of Our finance have lost their ethical compass, and put their short-term personal gains above their customers considerations.The end result is default! This was the case in the subprime mortgage market in the U.S. It has had a profound macroeconomic impact. Putting it simply, the broad economy gets hurt by greed and selfishness as ensuing financial losses mount and trust fades. source: Christian Science Monitor
Another factor to consider is the possible election of a President who promises to introduce more expensive Wekfare programs that will further burden the taxpayers. This would be a fatal financial mistake!