Fetid Swamp

[rek]

Of all the explanations now bobbing about in the thick fetid swamp of the punditocracy, such as that which posits that the whole crisis is the result of Democrats is ABSURD. We can keep barking up the wrong tree, failing to understand, or combat, what is going on.

Fact: Alan Greenspan was empowered by REPUBLICAN Ronald Reagan in 1987. Prior to that, he was

director of policy research for REPUBLICAN Nixon's presidential campaign in 1968. He later popped up as chairman of REPUBLICAN President Gerald Ford's Council of Economic Advisers.

In 1987, six months after taking the job, Greenspan presided over the biggest stock market crash in Wall Street's history.

Alan Greenspan took the Federal Reserve interest rate down to 1% for more than a year, from mid-2003 to June 2004, kindling and stoking the real estate boom and bubble.

Fact: Ben Bernanke was empowered by REPUBLICAN GW Bush, in 2006. Before his appointment as Chairman, Bernanke was Chairman of the REPUBLICAN President's Council of Economic Advisers, from June 2005 to January 2006.

But now we're here again, four years after we left these rates, back down at 1%. There is perhaps no other data set more indicative of the failure of the Greenspan/Bernanke ideology of debt-driven macroeconomic administration, indeed, of the entire free-market, laissez-faire consensus that has recently so dominated the ideology of economic management, than this fact!

Bernanke has TWO more bullets left (.5%) to reach 0% interest rate. By then the deed will be done, once and for all. The "Chosen" bank will have us all.

[BodybyFisher]

Talk about partisan, to say that 6 months after Greenspan took office that is was HIS fault is a tremendous oversimplification, on the order of the magnitude of saying that 9/11 was Bush's fault 6 months after he took office, here are the facts:

What Caused the Stock Market Crash of 1987?

By Jennifer Itskevich

Ms. Itskevich is a student at Rutgers University and an intern at HNN.

In the days between October 14 and October 19, 1987, major indexes of market valuation in the United States dropped 30 percent or more. On October 19, 1987, a date that subsequently became known as "Black Monday," the Dow Jones Industrial Average plummeted 508 points, losing 22.6% of its total value. The S&P 500 dropped 20.4%, falling from 282.7 to 225.06. This was the greatest loss Wall Street had ever suffered on a single day.1

According to Facts on File, an authoritative source of current-events information for professional research and education, the 1987 crash "marked the end of a five-year 'bull' market that had seen the Dow rise from 776 points in August 1982 to a high of 2,722.42 points in August 1987." Unlike what hapopened in 1929, however, the market rallied immediately after the crash, posting a record one-day gain of 102.27 the very next day and 186.64 points on Thursday October 22. It took only two years for the Dow to recover completely; by September of 1989, the market had regained all of the value it had lost in the '87 crash.2

Many feared that the crash would trigger a recession. Instead, the fallout from the crash turned out to be surprisingly small. This phenomenon was due, in part, to the intervention of the Federal Reserve. According to Facts on File, "The worst economic losses occurred on Wall Street itself, where 15,000 jobs were lost in the financial industry."3

A number of explanations have been offered as to the cause of the crash, although none may be said to have been the sole determinant. Among these are computer trading and derivative securities, illiquidity, trade and budget deficits, and overvaluation. Below we have quoted representative analyses.

CAUSE #1: DERIVATIVE SECURITIES

Bruce Bartlett, senior fellow with the National Center for Policy Analysis of Dallas, Texas:

Initial blame for the 1987 crash centered on the interplay between stock markets and index options and futures markets. In the former people buy actual shares of stock; in the latter they are only purchasing rights to buy or sell stocks at particular prices. Thus options and futures are known as derivatives, because their value derives from changes in stock prices even though no actual shares are owned. The Brady Commission [also known as the Presidential Task Force on Market Mechanisms, which was appointed to investigate the causes of the crash], concluded that the failure of stock markets and derivatives markets to operate in sync was the major factor behind the crash.

CAUSE #2: COMPUTER TRADING

Website, University of Melbourne:

In searching for the cause of the crash, many analysts blame the use of computer trading (also known as program trading) by large institutional investing companies. In program trading, computers were programmed to automatically order large stock trades when certain market trends prevailed. However, studies show that during the 1987 U.S. Crash, other stock markets which did not use program trading also crashed, some with losses even more severe than the U.S. market.

CAUSE #3: ILLIQUIDITY

Website, University of Melbourne:

During the Crash, trading mechanisms in financial markets were not able to deal with such a large flow of sell orders. Many common stocks in the New York Stock Exchange were not traded until late in the morning of October 19 because the specialists could not find enough buyers to purchase the amount of stocks that sellers wanted to get rid of at certain prices. As a result, trading was terminated in many listed stocks. This insufficient liquidity may have had a significant effect on the size of the price drop, since investors had overestimated the amount of liquidity. However, negative news to investors about the liquidity of stock, option and futures markets cannot explain why so many people decided to sell stock at the same time.

Bruce Bartlett:

While structural problems within markets may have played a role in the magnitude of the market crash, they could not have caused it. That would require some action outside the market that caused traders to dramatically lower their estimates of stock market values. The main culprit here seems to have been legislation that passed the House Ways & Means Committee on October 15 eliminating the deductibility of interest on debt used for corporate takeovers.

Two economists from the Securities and Exchange Commission, Mark Mitchell and Jeffry Netter, published a study in 1989 concluding that the anti-takeover legislation did trigger the crash. They note that as the legislation began to move through Congress, the market reacted almost instantaneously to news of its progress. Between Tuesday, October 13, when the legislation was first introduced, and Friday, October 16, when the market closed for the weekend, stock prices fell more than 10 percent -- the largest 3-day drop in almost 50 years. In addition, those stocks that led the market downward were precisely those most affected by the legislation. [ultimately, the legislation was stripped of the provisions that concerned the stock market before being enacted into law.]4

CAUSE #4: U.S. TRADE AND BUDGET DEFICITS

Bruce Bartlett:

Another important trigger in the market crash was the announcement of a large U.S. trade deficit on October 14, which led Treasury Secretary James Baker to suggest the need for a fall in the dollar on foreign exchange markets. Fears of a lower dollar led foreigners to pull out of dollar-denominated assets, causing a sharp rise in interest rates.

Website, University of Melbourne:

One belief is that the large trade and budget deficits during the third quarter of 1987 might have led investors into thinking that these deficits would cause a fall of the U.S. stocks compared with foreign securities (this was the largest U.S. trade deficit since 1960). However, if the large U.S. budget deficit was the cause, why did stock markets in other countries crash as well? Presumably if unexpected changes in the trade deficit were bad news for one country, it would be good news for its trading partner.

CAUSE #5: INVESTING IN BONDS AS AN ATTRACTIVE ALTERNATIVE

The-Adviser.com:

Long-term bond yields that had started 1987 at 7.6% climbed to approximately 10% [the summer before the crash]. This offered a lucrative alternative to stocks for investors looking for yield.

CAUSE #6: OVERVALUATION

Website, University of Melbourne:

Many analysts agree that stock prices were overvalued in September, 1987. Price/Earning ratio and Price/Dividend ratios were too high [Historically, the P/E ratio is about 15 to 1; in October 1987 the P/E for the S&P 500 had risen to about 20 to 1]. Does that imply that overvaluation caused the 1987 Crash? While these ratios were at historically high levels, similar Price/Earning and Price/Dividends values had been seen for most of the 1960-72 period. Since no crash happened during that period, we can assume that overvaluation did not trigger crashes every time.

THE LEGACY OF THE '87 CRASH

Bruce Bartlett:

What the 1987 crash ultimately accomplished was to teach politicians that markets heed their words and actions carefully, reacting immediately when threatened. Thus the crash initiated a new era of market discipline on bad economic policy.

--------------------------------------------------------------------------------

ENDNOTES

1 "The 1987 Stock Market Crash." http://www.arts.unimelb.edu.au/amu/ucr/stu...97/Yee/1987.htm 23 July 2002.

2 "Key Event: 'Black Monday'Crash of 1987 Rocks Stock Markets." Facts on File World News CD-ROM. Facts on File News Services. http://www.facts.com/cd/v00066.htm 23 July 2002.

3 Ibid.

4 "Triggering the 1987 Stock Market Crash: Antitakeover Provisions in the Proposed House Ways and Means Tax Bill?" Journal of Financial Economics, vol. 24, no. 1 (September 1989), pp. 37-68.

[BodybyFisher]

I won't argue that the low rate environment contributed to this, but the problem was that the market was built on a house of cards, raising the rates was in effect to cut the US's throat. The US's economy was charged with low rate borrowing, it was a no win situation.

[Cadillac Jim]

There’s plenty of blame to go around for the banking crisis. Here’s two articles with links that you can use to research most of what is known to date:

http://www.businessweek.com/investor/conte...1017_950382.htm

http://www.freerepublic.com/focus/news/2086429/posts

Videos:

http://www.youtube.com/watch?v=FewmvkaTXHU

http://www.youtube.com/watch?v=NhQAHKxuR1Q

http://www.youtube.com/watch?v=7h00DsC9-zI

Here is a video from CSPAN that summarizes herings in 2004 showing that the current banking crisis was understood by all concerned in Congress back then. Reforms and regulations were proposed by the Republicans but opposed by the Democrats:

http://www.youtube.com/watch?v=_MGT_cSi7Rs...feature=related

It looks to me like all concerned were doing what they thought was the right thing to do. No one objected or now objects to the Community Reinvestment Act of 1977. Many wanted more safeguards and regulation, others saw that as an attack on the goals of the CRA. This is what is called a failure to communicate.

I think that some people who deserve some blame are the financial people who repackaged these loans, stratified them into risk categories, and sold some of them into the US and world financial structure as low-risk investment vehicles. This amounts to fraud, and I don't think that I'm just relying on hindsight to use that term.

But, Democrats and Republicans, each was doing what they thought was the right thing to do at the time, and no one wanted to put the economy at risk in doing so. Rather than placing blame that can be used to support political agendas in a tight election, perhaps we might consider how we can work together to solve this crisis. That was our common failure: not working together.

[BodybyFisher]

In terms of the financial crisis, I have posted elsewhere and today I received this from a friend, its pretty clear and the warning signals were known in 1999, remind me of who the president was then, I forget, I was too worried about the TECH bubble bursting because the Clintonistas went after Microsoft to protect Netscape so that could compete. Leave it to these types and we will no longer keep score in sporting events, competition will go the way of the dynasaurs. And while I am at it, for anyone who thinks that the Clinton Administration was some how responsible for the balanced budget and good economy during his administration, consider the HUGE impact the internet had on the economy with the DOT COMS, computers, software, web page design, infrastructure, stocks, innovation, hardware, etc. Oh but that's right ALGORE invented the internet, that's right. The Clintons helped because the cut the military budget while castrating them at the same time, causing this >>> Review some of the dropping of the ball that the "its a police matter" "public polling' Clinton Admin allowed http://en.wikipedia.org/wiki/1998_U.S._embassy_bombings You gotta love limp wristed types.

This was in the New York Times in 1999 folks. READ THIS, this is from the LIBERAL New York TIMES...

September 30, 1999

Fannie Mae Eases Credit To Aid Mortgage Lending

By STEVEN A. HOLMES

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.

Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.

Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.

In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.

Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

[BodybyFisher]

Here is an EYE opener, do we want more of this during an OBAMA administration???

http://www.freedomministries.com/prior9-11.html

Subject: FW: ARE YOU SURPRISED?

After the 1993 World Trade Center bombing, which killed six and injured 1,000; President Clinton promised that those responsible would be hunted down and punished.

After the 1995 bombing in Saudi Arabia, which killed five U.S. military personnel; Clinton promised that those responsible would be hunted down and punished.

After the 1996 Khobar Towers bombing in Saudi Arabia, which killed 19 and injured 200 U.S. military personnel; Clinton promised that those responsible would be hunted down and punished.

After the 1998 bombing of U.S. embassies in Africa, which killed 224 and injured 5,000; Clinton promised that those responsible would be hunted down and punished.

After the 2000 bombing of the USS Cole, which killed 17 and injured 39 U.S. sailors; Clinton promised that those responsible would be hunted down and punished.

Maybe if Clinton had kept his promise, an estimated 5,000 people in New York, Pennsylvania, and Washington, D.C. who are now dead would be alive today.

AN INTERESTING QUESTION:

This question was raised on a Philly radio call-in show. Without casting stones, it is a legitimate question. There are two men, both extremely wealthy. One develops relatively cheap software and gives billions of dollars to charity. The other sponsors terrorism. That being the case, why is it that the Clinton Administration spent more money chasing down Bill Gates over the past eight years than Osama bin Laden?

THINK ABOUT IT!

It is a strange turn of events. Hillary gets $8 Million for her forthcoming memoir. Bill gets about $12 Million for his memoir yet to be written. This from two people who have spent the past 8 years being unable to recall anything about past events while under oath!

INCREDIBLE AND GOLD STAR MOTHERS

Gold Star Mothers is an organization made up of women whose sons were killed in military combat during service in the United States armed forces. Recently a delegation of New York State Gold Star Mothers made a trip to Washington, DC to discuss various concerns with their elected representatives.

According to NewsMax.com there was only one politician in DC who refused to meet with these ladies. Can you guess which politician that might be? Was it New York Senator Charles Schumer? Nope, he met with them. Try again. Do you know anyone serving in the Senate who has ever had anything but contempt for our military? Do you happen to know the name of any politician in Washington whose husband once wrote of his loathing of the military?

Now you're getting warm! You got it! None other than the Queen herself, Hillary Clinton. She refused repeated requests to meet with the Gold Star Mothers. Now --- please don't tell me you're surprised. This woman wants to be president of the United States --- and there is a huge percentage of uninformed voters who are eager to help her achieve that.

Please forward this to as many people as you can. We don't want this woman to even THINK of running for President