what actually happens in us?

what actually happens in america? probably the worst is yet to come...

1. SEC allowed leveraging to go from 12/1 to 40/1 which means that you could lend out a dollar 40 times, creating a mountain of debt.

2. Credit default swaps allowed you to buy insurance contracts and not be forced to keep much of the money as reserves which helped blow the housing bubble.

3. The federal reserve kept interest rates artificially low which got people to mal-invest because the lending rates were just as low as the rate of inflation so it was almost like free money.

4. Alan Greenspan and Bill Clinton Created CRA which allowed banks to loan money to people who wanted to purchase homes, which had no business owning one. Our government guaranteed that if these people defaulted, that the taxpayer would pay for the defaults, hence the bailouts. In so many words if they won, they privatized the profits, when they lost, they socialized the losses.

5. Because of the change of lending standards, and artificially low interest rates, housing prices went on the rise, and investors realized this and either bought property themselves as speculative buyers, or started building new houses.

6. People that already owned homes started noticing their equities jumping through the roof, refinanced their loans, and started using their homes as ATM machines and started taking on much more debt than they should have thinking that prices would keep getting higher and higher.

7. When the people who were only allowed to lend through CRA started defaulting, all these speculative buyers turned into speculative sellers, and no one could get out of the door fast enough. Many foreclosed and banks started becoming insolvent, and didnt have cash. Because of so many foreclosures, speculative sellers, and new homes built, the supply of houses was much higher than demand, and so prices dropped, and are still dropping considerably. Those people that had refinanced and spent all their equity money on material things are all now living in homes with negative equity.

8. This hit the commercial sector, and since many businesses rely on credit, they could not get that credit any more since many banks are either insolvent or afraid to loan because of bad economic conditions and so they defaulted as well.

9. Because many homeowners have been hit with this negative equity, etc. There is much lower demand for goods other than necessities. Since companies have lower demand for goods, they start laying off people. This in turn lowers demand more because of less people who have disposable incomes, and more companies have to lay off more people. You can see where this could be headed…..

Now to address the stimulus package, it is horrible because we are only going to get a few hundred dollars, but the bill for the stimulus package is over $6700 for every man, woman, and child, and also many of the programs in it are wasteful spending.
(Zenmeister, feb 22, 2009)