What Cooked the World's Economy? It wasn't your overdue mortgage.

[GliderGuider]

A long, excellent investigative story:

What Cooked the World's Economy? It wasn't your overdue mortgage.

It's 2009. You're laid off, furloughed, foreclosed on, or you know someone who is. You wonder where you'll fit into the grim new semi-socialistic post-post-industrial economy colloquially known as "this mess."

You're astonished and possibly ashamed that mutant financial instruments dreamed up in your great country have spawned worldwide misery. You can't comprehend, much less trim, the amount of bailout money parachuting into the laps of incompetents, hoarders, and miscreants. It's been a tough century so far: 9/11, Iraq, and now this. At least we have a bright new president. He'll give you a job painting a bridge. You may need it to keep body and soul together.

The basic story line so far is that we are all to blame, including homeowners who bit off more than they could chew, lenders who wrote absurd adjustable-rate mortgages, and greedy investment bankers.

Credit derivatives also figure heavily in the plot. Apologists say that these became so complicated that even Wall Street couldn't understand them and that they created "an unacceptable level of risk." Then these blowhards tell us that the bailout will pump hundreds of billions of dollars into the credit arteries and save the patient, which is the world's financial system. It will take time—maybe a year or so—but if everyone hangs in there, we'll be all right. No structural damage has been done, and all's well that ends well.

Sorry, but that's drivel. In fact, what we are living through is the worst financial scandal in history. It dwarfs 1929, Ponzi's scheme, Teapot Dome, the South Sea Bubble, tulip bulbs, you name it. Bernie Madoff? He's peanuts.

Credit derivatives—those securities that few have ever seen—are one reason why this crisis is so different from 1929.

Much, much more at the link. Funny how the names of Millken, Boesky and crew keep popping up...

[FreakinDJ]

1. We had to export some thing to pay our debts

So we exported our debt.

Greenspan must have ejaculated on himself he was so happy when he cooked up this scheme.

Since America relatively manufactures nothing any more to export. Since all our manufacturing jobs and industries have been out sourced, whole factories packaged up and shipped off to China, we came to a financial delima - what to export.

Yet these "Cork-Soakers" scream "Protectionist" should we so much as ask for a level playing field with which to conduct international trade

[Warpy]

6. That's pretty much it, but don't give too much credit to Greenscam

Most of this stuff was cooked up by worker bees in hedge funds and investment banks who, deprived of the bubble profits of the 90s and under pressure to keep that level of return on investment coming in, had to turn to pumping up what was there with plain air and convoluted language to keep the illusion of those profits alive. It was a collaborative effort.

Protectionism is what the countries that grabbed our industry when multinationals were trying to fatten their own bottom lines by chasing cheap labor are already doing. We must follow suit as we rebuild our own industry. Our lives depend on it.

If we manage to rebuild our country based on renewable energy instead of oil, we will be competitive with cheap labor countries for a while. Protectionism will keep it permanent.

[Joanne98]

2. MUST READ!

[juno jones]

3. Damn,

And here I was feeling all guilty-like for single-handedly bringing down the American economy.

No matter, I'll find guilt in some other personal fault.

[nannah]

4. thanks for posting this

It is worth reading as it helps make understandable a very complex and devious process.

and the thieves are laughing all the way to their undisclosed hideouts.

[Hugin]

5. Hear! Hear!

Terrific and clear explanation of "this mess"!

Proud to K&R!

[Joe Chi Minh]

7. Very informative, as others have been. But this is right up-to-the-minute,

and states the likely situtation in terms of the options open to the government and law enforcement, for recouping some of the ill-gotten gains, the plunder, from the Republicans' domestic "privateers" of the banking sector. For "rich merchantment", read "ponderous IRS galleons".

[leveymg]

8. The Repo Market tanked, killed Lehmann. Read this re: Trading in federal debt derivatives

http://www.euromoney.com/Article/2054070/The-US-treasury-market-reaches-breaking-point.html

November 25, 2008
US treasury market reaches breaking point

by Helen Avery

As attention focuses on the treasury market's ability to cope with the US's growing funding needs, Euromoney reveals the structural issue that could cause the world's market of last resort to grind to a halt in its hour of greatest need.

SNIP

[Bigmack]

9. REALLY informative post!

Thanks so much for this one - had to print it out, and am still "reviewing" it, but it's a great explanation of the current conundrum Alas, it IS a touch depressing too, in that the article makes it painfully clear that too many guilty fingers are still IN the cookie jar, and/or overseeing the oversight of the jar. So much for the faint hope that Obama might actually re-direct policy toward REAL change. Hope USED to spring eternal, but despair has pretty much routed it. Ms Bigmack

[Rydz777]

10. Important post. I hope it is widely read.

[mia]

11. A must-read.

:kick: