Unemployment at 9.8%. Damn you Obama & Democrats, for causing all our agony!

[JohnWxy]

Conversation with a M$M disabled citizen:


Damn you Obama, damn you Democrats look at what a mess you've caused. Obama's stimulus was too small to do any good!,,,,uh, but it might cause inflation? OR, it will peter out too soon,,,,uh, but they complained it had too much spending too late, in 2010,,, does that mean it WON'T peter out too soon?? GOSH, I listen to the Republicans in one ear and the M$M howlers in the other. It's like stereo! Obama's causing all this agony. He's not fixing the problem fast enough. .... What is the problem, anyway?

Well, the economy, that was shattered by the Credit Catasrophe. We were headed for a complete collapse of the financial system and a Great Depression II.

Did OBAMA cause THAT TOO?

Well, no. That was the Republicans deregulating the financial services industry. You see, they said the "market would regulate itself.". Alan Greenspan didn't even think it was necessary to enforce laws against fraud.

Was he friends with Bernie Madoff?

And you know there was the all that trading of Credit Default Swaps (CDS) - made legal AND UNREGULATED by the http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=114&topic_id=46775">Commodities Futures Modernization Act(CFMA) 2000.

The Whaaaat?

Just call it he CFMA. THat's the bill that couldn't get out of committee for two years so PHIL GRAMM, Republican Deregulator Extraordinaire SLIPPED IT INTO THE OMNIBUS SPENDING BILL 2000. That was an 11,000 page document needed to keep the Government funded and operating, passed by Congress in the last few days of the Clinton administration. Phil Gramm slipped the CFMA in as a RIDER (like an ear-mark on steroids) to the spending bill and virtually NOBODY KNEW IT WAS IN THERE. So the CFMA, which made trading in CDSs legal and unregulated was enacted into law WITHOUT ANY DEBATE OR DISCUSSION!

Obama did that, didn't he?

Nooo, Phil Gramm did it. (but it was written by Wall Street Lawyers and Lobbyists)

And since the CFMA made trading in CDSs legal and unregulated the sales of CDSs shot up after the CFMA was passed. The banks were buying and selling CDSs and selling them with Mortgage Backed Securities(MBS) to institutional investors (who previously would not invest in risky securities) because the CDSs would pay off if the MBSs went bust (into default). So the institutional investors loved MBSs (if sold with CDSs) because there was NO RISK OF LOSS (so the banks said). This created a huge demand for Subprime Mortgages (which paid higher rates) for sale to investors. So Predatory lenders started making loans to anybody who walk and talk. They filled out the loan applications for the suckers and said "trust me" this is such a deal! The Predatory lenders didn't care if the suckers could pay the loans off because they quickly 'flipped' the mortgage loans selling them to Wall Street banks.

Actually, the banks needed to sell these CDSs with the MBSs because they didn't really know how much risk there was to the MBSs. So they bought CDSs from AIG because they didn't know the risk they had in all the MBSs they held themselves. They knew though that the CDSs they bought from AIG would bail them out if the MBSs they owned went into default. (this is known as the Moral Hazard...hazard: That is, thinking you have no risk of loss so you manage your business like an idiot.). And that's why the Wallstreet banks (lead by Hank Paulson) told the SEC chairman in 2004 that it was rediculous for banks to have to hold so much money in reserve (in case some investments went belly up) because they all bought CDSs and so their risk was nearly zero and they didn't have to be held to 12:1 Debt to Equity ratio but could go to 30:1 - meaning they could assume about three times more risk. (of course what they didn't tell the SEC was they were really going to go out to 50:1 Debt to Equity. They knew the SEC wasn't going to audit them for real anyway, so what the hell, go for it!).

So, I guess the banks made a lot of money, huh?

Well, they did...for a while (three years). But not just banks. The CFMA I told you about? .. it also had a provision for unregulated trading in energy futures... as long as it was done electronicly. This would later be known as THE ENRON LOOP-HOLE. This was a special gift to ENRON from PHIL GRAMM's wife. A few months after the CFMA was passed she was appointed to teh ENRON board of directors. THis enabled ENRON to screw Californians out of a couple BILLION dollars. They created an artificial shortage of electricity that ran up the price of electricity and then sold electricity to California utilities at grossly inflated prices.

WOW, I guess this ENRON was a big success, huh?

Well, not exactly. They eventually went bust, lost billions, went out of business and thousands of employees lost their jobs and all their pension money.

Gee, that's tough.

And, the banks? Their investments in Mortgage Backed Securities turned out to be worthless and their Credit Default Swaps weren't worth anything either because all the banks ran to AIG for payment on the bad assets (covered by CDSs the banks bought froom AIG) and AIG couldn't pay off on ALL those CDSs. AIG, Special Products Division went bust. It was sortof a Financial System Meltdown.

You mean the market didn't regulate itself?

No, the marketplace was as good a regulator as the SEC was. THat is to say it was worthless as a regulator.

So then, the Bush administration had to bail out wall street to prevent a collapse of the banking industry.

So then it was fixed, huh?

Well, no. Things kept getting worse. Obama was elected, Bush beat it for Texas and Obama had to continue the Wall Street bailout so we wouldn't have a complete collapse of the banking system.

When the banks almost collapsed, even though they were loaned lot's of money by the Government, they stopped lending to everybody. Even good customers and for very short term (low risk) loans - like for businesses to pay employees their pay - loans for just few weeks. Banks which formerly were gamblers were now tight fisted grandmas, afraid of a reasonable amount of risk. When the companies couldn't get loans they had trouble continuing operations. They found it very hard to buy raw materials and components cause all businesses operate with borrowed money. 'Cause it makes more sense than to keep a whole lot of money sitting in the bank all the time. Businesses started laying off people. People who were laid off stopped buying everything but food and condoms (if you can't afford to go see a movie..well, you just have to find cheaper entertainment.). So the whole economy went into a downward slide. And we were headed for the Great Depression II.

So then Obama asked Congress to pass a stimulus bill so the Government could fund projects to put some people who were losing their jobs to work. Republicans demanded the stimulus be not as large as the Democrats wanted because the Republicans were worried about the national debt. (after almost doubling the national debt for Cheney's War to Liberate Iraqi oil, the Republicans found a new appreciation for fiscal restraint - even in the face of a looming depression.) But the stimulus was passed and after the funds were approved and given to the states for various public works projects, they began to be spent about June-July timeframe.


So, how'd it turn out?

Well, you can see for yourself: unemployment kept going up. Now it's at 9.8%. At least the increase in unemployment has slowed. We could see 10% unemployment early next year. But most economists think the unemployment rate will level off soon and start to slowly go down. But it could be a two years before the unemployment rate gets to something more acceptable. If we had had a Depression we would be talking about 17% unemployment heading for 20% by now.

So did we avoid the Great Depression II?

Well, people are afraid to say that just yet... they don't want to jinx it. So we'll have to hold our breath and see if the employment picture gets better. Hopefully, over the next couple of years, we can repair the damage to the economy and get people back to work again. Our economy will be not so healthy for a few years while we rebuild the damage wrought by the Deregulation Disaster. .... That's what letting the Market police itself get's you. This is what we call the Republican Dystopia.

Yeah, and all because of the damn socialist, Obama.

Right. Where'd I put my hammer?

[emulatorloo]

1. Kick and Rec n/t

[Sinistrous]

2. MegaKudos! Great work.

[Ruby the Liberal]

3. CMFA - Bill Clinton, "I don't care if you call it the Warren Harding Calvin Coolidge Herbert

Hoover Bill. Just pass it".

Credit to Michael Moore, Capitalism clip.

[JohnWxy]

8. Republicans contolled the Legislature in latter halfof Clinton admin. The CFMA was sponsored by GOP

Clinton was not the GOP whip (the one lines up the votes for a bill).

The CFMA was in a number of committees for two years. Democrats were suspicious of it. It could not get out of committee.:

GOVTRACK.US

H.R. 5660: Commodity Futures Modernization Act of 2000 <106th Congress1999-2000>

Sponsor: Rep. Thomas Ewing show cosponsors (4)

Cosponsors:Tom Bliley Larry Combest John LaFalce James Leach

Text: Summary | Full Text

Status: Introduced Dec 14, 2000
Referred to Committee View Committee Assignments
Reported by Committee------ (did not occur)
House Vote ----------------(did not occur)
Senate Vote ---------------(did not occur)
Signed by President -------(did not occur)

This bill never became law. This bill was proposed in a previous session of Congress. Sessions of Congress last two years, and at the end of each session all proposed bills and resolutions that haven't passed are cleared from the books. Members often reintroduce bills that did not come up for debate under a new number in the next session.

Who Wrecked the Economy: Foreclosure Phil
But Gramm's most cunning coup on behalf of his friends in the financial services industry—friends who gave him millions over his 24-year congressional career—came on December 15, 2000. It was an especially tense time in Washington. Only two days earlier, the Supreme Court had issued its decision on Bush v. Gore. President Bill Clinton and the Republican-controlled Congress were locked in a budget showdown. It was the perfect moment for a wily senator to game the system. As Congress and the White House were hurriedly hammering out a $384-billion omnibus spending bill, Gramm slipped in a 262-page measure called the Commodity Futures Modernization Act. Written with the help of financial industry lobbyists and cosponsored by Senator Richard Lugar (R-Ind.), the chairman of the agriculture committee, the measure had been considered dead — even by Gramm. Few lawmakers had either the opportunity or inclination to read the version of the bill Gramm inserted. "Nobody in either chamber had any knowledge of what was going on or what was in it," says a congressional aide familiar with the bill's history.]
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In June 2000, Senator Gramm co-sponsored the Commodity Futures Modernization Act, a measure aimed at deregulating certain kinds of futures trading, but not energy futures. That bill never made it to the floor, and thus quietly died. Six months later, on December 15, Gramm curiously turned up as co-sponsor of a bill with the same name, the Commodity Futures Modernization Act, which did deregulate energy futures and which, without undergoing the usual committee hearings and preliminary votes, was immediately attached as a rider to an 11,000-page appropriations bill. It passed and was signed into law by President Bill Clinton six days later. Few lawmakers had likely perused the rider carefully, if they even knew it was there.
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Note that the Omnibus Spending Bill 2000 up for a vote a few days before the close of the session, was necessary to keep the Government funded and operating. It was veto proof.


Note that at the time, many in and out of Government were concerned about a couple developments. There was growing competition with Wall street coming from ever larger Japanese banks and rapidly modernizing London financial markets (particularly with regard to electronic trading). Its true, the administration was concerned that Wall street banks might lose a competitive advantage vis-a-vis either of these competitor markets.

But most Democrats were suspicious of moving too rapidly to change laws or of loosening regulations governing financial institutions (especially for these new derivitve instruments which nobody seemed to fully understand). Of course, Alan Greenspan didn't believe we needed any controls at all on business. He thought everybody would be honest players, even when hundreds of millions of dollars were in play. Usually by the time people reach the age of eleven or twelve they realize that people have their weaknesses and cannot ALWAYS be counted on to 'play fair' (that is, given the opportunity, some people will cheat in order to win). I guess you could say when you start to realize this you begin to lose the naivete of childhood and start to become a grownup (I wonder if Greespan believes Peter Pan can fly?).

Deregulation has for decades been a Republican religion. During the Cheney Regime they took to dismantling the regulatory structures and functions of Government everywhere they could. This along with the cheap money policy pushed by Cheney Regime (to keep the economy looking as if it was healthy when it actually wasn't) caused the greatest economic disaster this country has seen since the first Great Depression.

[snake in the grass]

4. Excellent summary. n/t

[ms liberty]

5. KR&B n/t

[democracy1st]

6. Bravo K & R

[BREMPRO]

7. excellent analysis and perspective- thank you.

most on the right and some on the left have attempted to reframe and distort events to fit their particular political point of view. Here you've brought it back to reality check with well researched historical facts and perspective, a clear eyed view of how we got here, and where blame and credit is due. Refreshing!!