Credit Crisis Triggers Unprecedented U.S. Response

[Judi Lynn]

Source: Washington Post

Credit Crisis Triggers Unprecedented U.S. Response
By David Cho and Neil Irwin
Washington Post Staff Writers
Saturday, August 9, 2008; Page A01

Since the credit crisis erupted a year ago, the Bush administration has presided over one of the broadest expansions of the government into private lending in U.S. history, risking public money to prop up financial firms both large and small.

The administration has transformed federal agencies into dominant players in such diverse realms as student lending and mortgage finance while exposing itself to trillions of dollars in loans.

The scope of these commitments demonstrates the unprecedented nature of the challenge facing the nation. Not since the Great Depression have so many debt markets been in turmoil at the same time, financial historians say. During the savings and loan crisis of the late 1980s and early 1990s, for example, the financial upheaval was largely contained to banks and thrifts, though the real estate market also felt the impact.

Now, the contagion has rapidly spread from mortgages to bonds and exotic securities, student and corporate lending, credit cards and home equity loans, and residential and commercial real estate. The disruption has buffeted investment and commercial banks, mortgage finance agencies, and insurance firms of different stripes.



Read more: http://www.washingtonpost.com/wp-dyn/content/article/2008/08/08/AR2008080803415.html?nav=rss_print/asection

[UpInArms]

1. they have socialized the risks and privatized all the profits

and we the taxpayers are going to be saddled with debt the likes the world has never seen

:(

[caseymoz]

5. Good way to put it.

William Greider wrote an excellent article about this.

http://www.thenation.com/doc/20080818/greider

One of the suggestions he made was if a company was "too big to fail" break it apart with anti-trust laws as a price for having to bail it out.

Let's face it. Like a gambler, Bush, the Federal Reserve, and Congress have put our entire treasury on the line, and I hate to say there is no way this is going to work. I could see the deficit growing to over a trillion dollars in the 2009.

[UpInArms]

6. welcome to DU, caseymoz

glad to have you amongst us

:hi:

[emald]

14. yo, the United States debt clock

shows over 9.5 trillion owed right now, something like 31,000 for each man woman and child. It is growing by 1.3 billion a day. A day. It can't stay this way for long.

[JerseygirlCT]

15. Yes, I like that

Also, there should be private penalties to be paid by the executives who steered these companies into trouble. No bonuses, no parachutes. Out you go. With fines to pay back the public money.

Nice gig - make a fortune when things are going well. And... make a fortune when things aren't going well.

[lovuian]

24. The People of the US have had the treasury stolen and

Congress helped the theft

Its the death of the Dollar

[juajen]

31. How true. I call them the Pirates of the Potomic. NT

[bluerum]

26. That is a clear and valid argument for anti-trust laws. However there were

additional circumstances that led to the collapse of the mortgage industry. They bought a load 'o crap.

The laws that allowed these crappy sub-prime mortgages to be sold to homeowners, then bundled and sold off again and again so as to muddy their trails and make it impossible to hold anyone accountable for them are 80% (est) of the root cause.

Now, using the pretext of helping the homeowners, the busH mis-administration is bailing out the mortgage industry by opening the doors of the treasury to the wolves.

on edit: grammar

[Doctor_J]

8. It's the Con "Free Market" in action

they always socialize sick businesses and privatize the healthy ones.

[kestrel91316]

9. Well, yeah. That would be the entire point. It's why they let the whole

thing happen in the first place.

They have monkeywrenched the American economy and the American Dream in one fell swoop.

Mission Accomplished(TM).

[disndat]

28. In other words

we are becoming a 'banana republic,' an oligarchy, centralizing power to the few at the top. The WH is still moving massive amount of U.S. tax dollars to rebuild Iraq at the same time that Iraq is becoming very wealthy selling their oil again.

[JerseygirlCT]

13. Exactly. That's nicely put.

And infuriating.

[fascisthunter]

17. Socialism for the Wealthy Class... but not for the Common Man

that's the Republican way.... they are the biggest hypocrites this country has ever had to endure.

[Joe Bacon]

19. The Republic Party's Golden Society in action

Rich get golden parachutes and everyone else gets a golden shower. If "Free Enterprise" is so good, why don't the rich practice it?

[PfcHammer]

23. or "they kornholed® us all"

the rethugs stuck it to the public in every orifice possible with apparent impugnity :puke:

[indypaul]

30. Think this was pre-revolutionary but:

"The law deals harshly with man or woman
who steals a goose from off the common.
But lets the greater felon loose
who steals the common from the goose."

[Faygo Kid]

2. They take care of their friends.

They of course would never assume risk for average Americans needing health care.

But bailouts of the financial giants? That's George W.'s "base," don't forget.

[ixion]

3. "one of the broadest expansions of the government" ... PERIOD

this (mal)admin has done nothing but expand the corporate theocracy. :grr:

[CHIMO]

4. I.O.U.S.A.

A private-equity billionaire, a former federal government official and a Baltimore newsletter editor have made a documentary film that they hope can do what an endless parade of policy papers has not: Persuade Americans that debt has created a looming economic crisis that would make the Great Depression look like a market correction.

The movie I.O.U.S.A., debuting Aug. 21 at 400 U.S. theatres, is an 87-minute alarum on what it calls the tsunami of debt bearing down on the United States' future, caused by the rising national deficit, the trade imbalance and the pending costs of baby boomers cashing in on entitlements.

Early reviewers have dubbed the film an inconvenient truth for the economy, meaning it's not exactly the feel-good movie of late summer 2008.

Except for budget wonks in love, it hardly counts as a date movie. The film's thrilling action sequence has a guy going to a refrigerator for a Tab. There are no car chases and nothing blows up.

http://www.thestar.com/Business/article/475098#

And from across the pond.

It's worse than we thought, admits CBI

Leading employers' organisation the CBI will this week perform a significant U-turn and warn its members that the economy is deteriorating at a faster rate than it had predicted.

As recently as June, Richard Lambert, the CBI's director-general, took a relatively optimistic view, saying we should avoid talking ourselves into recession. But in a letter to mark the first anniversary of the credit crunch, he writes: 'There is no doubt that the mood has darkened in the last two or three months,' and warns that growth prospects for next year and 2010 'look no better than anaemic'. It is the most pessimistic assessment of Britain's economic prospects that Lambert has delivered.

The CBI's change of heart is notable because, although it downgraded its growth forecast for 2009, reducing it from 1 per cent to 0.4 per cent in June, it has been comparatively bullish about the British economy until now. Lambert also warns the government against levying an 'arbitrary and unfair' windfall tax on energy companies, saying this would stop them investing in infrastructure.

He concedes that: 'The CBI, along with most other forecasters, has been consistently over-optimistic about the economic outlook over the past 12 months.' He blamed the volte-face on a surge in inflation that 'took us by surprise' and the prolonged credit crunch, which has been 'bigger and broader than at first appeared likely. A year ago, it seemed reasonable to hope that the worst would by over by now. That has not turned out to be the case.'

http://www.guardian.co.uk/business/2008/aug/10/economicgrowth.creditcrunch

With more negative economic news on the pages.
http://www.guardian.co.uk/business

[caseymoz]

7. I hate the say, it's a little too late to warn people now.

Americans really thought, or were led to believe, that buying and spending prevented economic downturns. You remember after 9/11, Bush suggested that people go shopping? We have been addicted to credit that has become easier and easier to get.

I hate to say that finance business also had the same idea. We've reached the end of our rope, and it's a noose.

President Obama is going to be walking into a firestorm.

[safeinOhio]

10. If this IS true

'arbitrary and unfair' windfall tax on energy companies, saying this would stop them investing in infrastructure.


Then lets ban the use of those profits to buy back stock, advertise and give bonuses to CEOs. Either reinvest in drilling or new energy sources or hand it over. Simple, put up or shut up.

[Old Codger]

12. investment

In infrastructure is TAX DEDUCTIBLE why would higher taxes make them stop doing things to cut their tax liability ??? Also any expenses they come up with, including taxes , would just be passed on to the consumer in the form of higher prices ... Any legislation such as a windfall tax is nothing more than window dressing with no real effect on the energy (read big oil) companies involved.

[slipslidingaway]

25. Thanks, movie trailer link...

I.O.U.S.A. Movie Trailer
http://www.youtube.com/watch?v=HBo2xQIWHiM

[fasttense]

11. These are the same kind of people who want to run

nuclear reactors for energy in the US (with the help of McSame). Would you trust these bozos with 24/7 monitoring of a nuclear reactor? I wouldn't.

[JerseygirlCT]

16. Nope. nt

[mbperrin]

29. Absolutely nope.

I live within 50 miles of a brand new nuclear dump that sits right on top of the water aquifer for this part of Texas.

I can't say more without attracting authorities, I'm sure.

[fascisthunter]

18. Republicans: Socialism for the Wealthy, but Not for the Common Man

they seem to inherit their attitude from the very Toris who sucked up to the King of England. Nothing American about that attitude, in fact it flies in the face of everything this country was founded upon. Revolt from tyrranny of the rich and powerful.... Republicans today make me think of sycophantic beggars feeding on scraps of food that fall from the King's dinner table.... "Trickle Down Economics"

[mwb970]

20. It comes down to Americans vs. Republicans.

Right now it looks like the Republicans are winning. Of course, they have all the money and power - maybe that has something to do with it.

BTW, your "Tories" comparison is dead on. Other antecedents to today's conservatives include the Confederacy, which didn't want America to even exist any more, and those big-business types who did business with Hitler (like the chimp's grandfather).

[DemoTex]

21. Pounds and pounds to prop up financial firms both large and small ..

But barely a farthing for the whiners caught up in those predators' Gramm-backed schemes. Their pain is in their head.

:sarcasm:

[WhiteTara]

22. looting of the American home

they couldn't steal SS last year, so this year...hopefully on the way out the door...they are stealing our homes and make us pay for it! With ethanol, they want to take the food out of our mouths so they can drive around some more too. IF we can't make them go away, there will be nothing left for them to steal.

[Connonym]

27. Can't say that I'm shocked

Didn't you pretty much figure they'd bail out business and leave those of us who were foreclosed on twisting in the wind? I'm old enough now that I'll probably never be able to recover from my foreclosure. My stupid financial decision was no more stupid than the financial companies stupid financial decisions (well maybe that's not true if the govt is bailing THEM out).

I'm currently reading Barbara Ehrenreich's "This Land is THEIR Land" as with Nickled and Dimed, she's hit another home run in describing the serial dismantling of the American middle class.