Bill’s friends know him as affable, intelligent and creative. He had an idea for a small business. Everyone thought it terrific.
Bill received a small loan from a bank and went to work remodeling a building. Things were going well. He went back to the bank for financing on the remainder of the project. “Forget it,” he was told.
Bill’s new business sank before it was floated. He would have employed five and provided the public with gratuitous joy.
A midstate investor told a friend one of his mutual fund holdings was down $22,000. Those IRAs and 401(k)s are growing smaller.
When the market crashed in 1929, it didn’t mean anything to my dad and his small-town buddies. It came to be paramount in their lives for over a decade.
“Banks are viewing the present financial situation with a huge amount of uncertainty,” said Al DePrince, economics and finance professor at MTSU, while answering questions as to what the hell is going on in Wall Street.
“It’s all part of the sub-prime mess.”
Sub-prime?
“Mortgage loans that probably should not have been made.”
Something went wrong.
“Yes. One of three things.”
DePrince lists them like this:
1. The borrower (for his home) did not read the fine print on his house’s mortgage; or
2. Thought that when the interest “adjusted upward” in several years he’d be making enough money to cover it; or
3. Didn’t know; details of the mortgage agreement weren’t clear or were intentionally obscured.
“The upward adjustments began kicking in and many borrowers couldn’t meet the new, increased payments and defaulted.”
These mortgages were “bundled” and sold as marketable securities with reassuring ratings. Turned out the ratings didn’t mean a thing. Firms like Lehman Brothers bought billions of dollars worth of paper that turned out to be worthless. Lehman has been a Wall Street anchor investment banking firm for 150 years. It no longer exists, having sued for bankruptcy on Sept. 15. Adieu, mes amis.
So what do you care if Wall Street continues its plunge into the toilet? Maybe not much. However, if you need a loan, as Bill (see first paragraph above) or if you want to buy a car or home on credit, it means you’ll find the going tougher.
Who’s to blame?
(Hoping you’d ask . . . and the good Dr. DePrince had nothing to do with this response.)
Ever since Reagan the battle cry of the Republicans has been “Free Markets. No regulation. Let the Big Boys play.”
Nothing, it turns out, has needed regulation more than the markets today that are bringing down Wall Street and stock prices.
The present financial crisis more and more is being compared with ’29. That was the Hoover Depression, a bad time, indeed.
Deregulation may sound good, but in fact, the only thing that can destroy our capitalistic system is unfettered capitalism, which once again has proved greed owns the biggest part of its heart.
Your president meanwhile has abdicated and is strangely disengaged. The government is being run by Fed Chairman Ben Bernanke. Bush, two weeks ago, pronounced the economy “strong.” McCain also said the economy is “strong.”
These guys really should read newspapers. |
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