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View Full Version : THE ROOT CAUSE: of the Financial Collapse




ionlyknowy
10-05-2008, 09:32 PM
The following video illuminates the root causes as to why the world economy is experiencing hardship. It also shows that this is only the beginning of the problem unless these type of investments are classified as either insurance or securities...
It further shows that the bailout will not help in the slightest.. maybe with short term confidence.. when I say short, I mean really really short term.

http://www.cbsnews.com/video/watch/?id=4502673n

eric_cartman
10-05-2008, 10:08 PM
i watched this tonight and i thought they totally missed the point.

they are trying to blame free market capitalism and wall st. for the problem. the problem was caused by the federal reserve, the debt monetary system, and other forms of government interference with the free market (like fannie and freddie, community reinvestment act, tax laws, etc.). as peter schiff said "wall st. was just playing the hand that government dealt them".

their solutions are more government control of financial institutions though regulation, when we should actually be regulating the federal reserve and the plunge protection team like ron paul has said.... and removing regulations on the free market.

i hate it when they blame capitalism for this mess. but when you lower interest rates to 1%... what did they think was going to happen? when you have interest rates at such an artificially low level, that guarantees that there will be malinvestment. so when the Fed inflates like it has been... we can't be surprised when capital is not allocated properly.

but the free market is sorting this problem out. all the wall st. firms are going bankrupt, as they rightfully should. i find it kind of funny how everyone blames wall st. yet now they are upset when they go bankrupt. that's a good thing that they go bankrupt.... the free market bankrupted those greedy bastards, and they deserve it. why would we want to bail them out and continue to prop up this system? let it all crash down and we would all be better off without them. we should be thanking the free market for purging our economy of companies like Bear Sterns and Lehman brothers who have caused a lot of people to lose money.

60 minutes totally missed the boat in the years leading up to the financial crisis. they didn't warn anyone until it was too late. and even now, they still don't understand the true roots of the problem and they let the government and the fed off the hook, and put the blame on wall st. which is an easy scapegoat.

ionlyknowy
10-05-2008, 11:49 PM
i watched this tonight and i thought they totally missed the point.

they are trying to blame free market capitalism and wall st. for the problem. the problem was caused by the federal reserve, the debt monetary system, and other forms of government interference with the free market (like fannie and freddie, community reinvestment act, tax laws, etc.). as peter schiff said "wall st. was just playing the hand that government dealt them".

their solutions are more government control of financial institutions though regulation, when we should actually be regulating the federal reserve and the plunge protection team like ron paul has said.... and removing regulations on the free market.

i hate it when they blame capitalism for this mess. but when you lower interest rates to 1%... what did they think was going to happen? when you have interest rates at such an artificially low level, that guarantees that there will be malinvestment. so when the Fed inflates like it has been... we can't be surprised when capital is not allocated properly.

but the free market is sorting this problem out. all the wall st. firms are going bankrupt, as they rightfully should. i find it kind of funny how everyone blames wall st. yet now they are upset when they go bankrupt. that's a good thing that they go bankrupt.... the free market bankrupted those greedy bastards, and they deserve it. why would we want to bail them out and continue to prop up this system? let it all crash down and we would all be better off without them. we should be thanking the free market for purging our economy of companies like Bear Sterns and Lehman brothers who have caused a lot of people to lose money.

60 minutes totally missed the boat in the years leading up to the financial crisis. they didn't warn anyone until it was too late. and even now, they still don't understand the true roots of the problem and they let the government and the fed off the hook, and put the blame on wall st. which is an easy scapegoat.

I agree with everything that you have said... BUT none of them were the root cause. Everything you said above didnt help the problem though...

Do you know what a derivative is? Do you know what a credit default swap is?
These are private contracts linked to a certain entity such as the sub prime mortgages... These instruments are not considered securities and are not regulated, so the market exploded to $60 TRILLION dollars in recent times.. that is 6 times the GDP for the US. But because they are private contracts, no one knows for sure how many of them there are...

A credit default swap (CDS) is a credit derivative contract between two counterparties, whereby the "buyer" pays periodic payments to the "seller" in exchange for the right to a payoff if there is a default[2] or "credit event"[citation needed] in respect of a third party or "reference entity".

In the event of default in the reference entity:

* the buyer typically delivers the defaulted asset to the seller for a payment of the par value. This is known as "physical settlement".
* Or the seller pays the buyer the difference between the par value and the market price of a specified debt obligation. This is known as "cash settlement".


Credit default swaps are the most widely traded credit derivative product[3]. The Bank for International Settlements reported the notional amount on outstanding OTC credit default swaps to be $42.6 trillion[5] in June 2007, up from $28.9 trillion in December 2006 ($13.9 trillion in December 2005). By the end of 2007 there were an estimated USD 45[4] to 62.2[5] trillion worth of Credit Default Swap contracts.

In the US alone, the Office of the Comptroller of the Currency reported the notional amount on outstanding credit derivatives from reporting banks to be $16.4 trillion at the end of March, 2008. (To put these numbers in perspective, the CIA World Fact Book estimated the US GDP for 2007 was $13 trillion.)



What has happened is there was a group of subprime mortgages (lets say for example, $1 Trillion worth), and various companies created these credit default swaps linked to these subprime mortgages, total worth being 20 times the worth of the actual sub prime mortgages). Once people started to default on the subprime mortgages (which some were to be expected due to the low credit ratings), and exacerbated by high gas prices. The credit default swaps fell with them... as foreclosures mounted, so did the losses on these credit default swaps... so 1 trillion in mortgage fails, causing $20 trillion to be lost... if just the mortgages had been defaulted and not the credit default swaps, then it wouldnt have been this bad.

Believe it or not, Ron Paul doesnt know everything... he is a doctor that studies economics, and a good politician. He never was an investment banker... the man that they interviewed that was a law prof. at univ. of san diego used to be an investment banker with morgan stanley. He was in the derivatives group and experienced all of the deceit and sometimes fraud being pushed on investors such as insurance companies, mutual funds and other banks... He wrote a book 10 years ago, outing the derivatives trade , I read it and it was very illuminating.. http://www.amazon.com/Fiasco-Inside-Story-Street-Trader/dp/0140278796

silus
10-29-2008, 05:46 PM
Believe it or not, Ron Paul doesnt know everything... he is a doctor that studies economics, and a good politician. He never was an investment banker... the man that they interviewed that was a law prof. at univ. of san diego used to be an investment banker with morgan stanley.
I'm sorry, but I have to object to this ridiculous point. What the hell type of evaluation do you expect to make at that superficial of a level?? Yes, Ron Paul is a doctor by profession. Does that inherently limit his knowledge in investment because he took it up more as a personal devotion, rather than a profession?? I'm sorry, you trying to make a comparison from the point of view of a simpleton.

dannno
10-29-2008, 06:06 PM
People (or their money managers) only bought into those crazy investment vehicles BECAUSE of the Federal Reserve. That is the root of the problem. If people were "savers" and invested their "wealth" into investment vehicles, they would pay more attention to what they were investing in because there would be no such thing as bubbles, busts, business cycles, etc.. which is all caused by credit expansion, which inherently causes speculation. It's a vicious cycle.

enjerth
10-29-2008, 06:23 PM
I don't think this is the root cause. I think it is as President Taft (as a candidate) warned of. Insurance. Insurance created a sense of security. Security that risky and fraudulent investors can take advantage of. Taft was only speaking of depositor's insurance, but the same principle applies to all kinds of insurance.

Group B (a subset of group A) is covered by group A, who pay fees/taxes for the cost of what group B is liable for. When immoral people from group B figure out that they can get more out of group A, that they can act recklessly with little or no additional cost, they take full advantage of the arrangement. This leads to the destruction of the market, no matter what that market is.

Fundamentally, this is the same as the redistribution of wealth. Call it poverty insurance. All you have to do is quit trying to be successful and you can collect the insurance benefits.

In short, insurance is socialism.

ArrestPoliticians
10-29-2008, 08:20 PM
the FED did it, end of story.

jave27
10-29-2008, 10:29 PM
I wrote a short piece on some of this recently, just after Germany announced its own $675 billion bailout plan: Germany approves bailout plan - how did we get here? (http://endthebailouts.com/2008/10/18/germany-approves-675-billion-bailout-plan-how-did-we-get-here/).

It definitely leaves out some stuff, but I think it was a good synopsis for the uninitiated (though, I'm biased).

Brian4Liberty
10-29-2008, 10:36 PM
In short, insurance is socialism.

Amen brother!

ps. Good video

Aratus
10-30-2008, 11:07 AM
have we ever fumigated mercantilism from our economic system? lets get historic! lets go pre-greenspan!:)

max
10-30-2008, 12:08 PM
The following video illuminates the root causes as to why the world economy is experiencing hardship. It also shows that this is only the beginning of the problem unless these type of investments are classified as either insurance or securities...
It further shows that the bailout will not help in the slightest.. maybe with short term confidence.. when I say short, I mean really really short term.

http://www.cbsnews.com/video/watch/?id=4502673n

default swaps..derivatives..sub prime..ARM loans...etc are SYMPTOMS.....

the root cause...the great enabler of these scams , is the FED and its artificial expansion of bubble creating money supply..

even if the aforementioned schems been "regualted" (and they should have been illegal)....the excess liquidity would have manifested somewhere else

linusPAULing
10-30-2008, 12:08 PM
In short, insurance is socialism.

This is just crazy. Let me guess, you do NOT own a home. Anyone with a home who would deride the notion of home-owners insurance is crazy.

The notion of insurance can be a perfectly free-market solution to very real risks. As long as there is healthy competition, with government playing it's constitutional role of preventing monopolies and upholding contracts between insurers and insured, insurance is a net benefit to society... in spades!

There is absolutely nothing un-libertarian about people freely pooling their resources in a fare manner in order to protect against risks such as fire, etc. The key is that the insurance market is free, vibrant, and upholds its end of the bargain.

As an aside, in my opinion we need to be weary of these collectivist terms such as socialism, fascism, communism, corporatism. As far as I can tell, they all boil down to a nations resources being controlled by small groups, and enforced through tyrannical means. Separating people into left/right paradigms simply divides the middle/working classes, which is exactly what we don't want. Division of the middle/working classes makes tyrannical rule more likely, not less.

The fundamental tension in socieity is wealthy vs non-wealthy, control vs. controlled.

linusPAULing
10-30-2008, 12:20 PM
default swaps..derivatives..sub prime..ARM loans...etc are SYMPTOMS.....

the root cause...the great enabler of these scams , is the FED and its artificial expansion of bubble creating money supply..

even if the aforementioned schems been "regualted" (and they should have been illegal)....the excess liquidity would have manifested somewhere else

Exactly, it was the FED that set interest rates so ridiculously low that the mortgage industry had to invent new ways of lending the vast amount of credit available. It couldn't have been more clear that sudden "invented" demand for housing was driving prices through the roof. This became painfully clear in my neighborhood as soon January 2002, as home prices began to rise at unprecedented rates, merely because INTRODUCTORY interest rates were so low. The situation made absolutely no sense unless you suspected that they were actually initiating a crash... even back then. Lew Rockwell btw did an excellent job of documenting issues during the entire ramp up.

It is so painfully obvious that the new flux of variable rate loans increased home values at dangerous rates that it is equally obvious that Greenspan lied the other day about his surprise that this happened. You simply cannot trust the FED. They are a private money cartel that has the ability to cause booms and busts and benefit from them. One can argue that they have a legal obligation to their share holders to cause booms and busts in order to maximize profits. Control of the money supply must be removed from this cartel.

enjerth
10-30-2008, 02:28 PM
This is just crazy. Let me guess, you do NOT own a home. Anyone with a home who would deride the notion of home-owners insurance is crazy.

The notion of insurance can be a perfectly free-market solution to very real risks. As long as there is healthy competition, with government playing it's constitutional role of preventing monopolies and upholding contracts between insurers and insured, insurance is a net benefit to society... in spades!

There is absolutely nothing un-libertarian about people freely pooling their resources in a fare manner in order to protect against risks such as fire, etc. The key is that the insurance market is free, vibrant, and upholds its end of the bargain.

As an aside, in my opinion we need to be weary of these collectivist terms such as socialism, fascism, communism, corporatism. As far as I can tell, they all boil down to a nations resources being controlled by small groups, and enforced through tyrannical means. Separating people into left/right paradigms simply divides the middle/working classes, which is exactly what we don't want. Division of the middle/working classes makes tyrannical rule more likely, not less.

The fundamental tension in socieity is wealthy vs non-wealthy, control vs. controlled.

That's free market socialism, neatly packaged in industry. It's still socialistic in nature, and corrupt people can take advantage to their own gain and the cost covered by the collective. I never said it was at odds with libertarianism, as long as we have the freedom to choose or not to choose to be a part of such associations.

When we are compelled to participate, then it creates a class of prey, captured and contained for easy feeding. When the predators grow in numbers, they can destroy the market and drain the insurance company's accounts.

This is, in a real sense, robbery. It is perpetuated by dulling the senses of the masses by promising security, while that promise of security is the very weakness in the system. A promise can be taken advantage of, and it has. The promise that the government will support Fannie and Freddie gave them power to abuse, and the promise of the FDIC to reimburse depositors should a bank fail lulls the depositors to allow the bank to do whatever risky business that the bank thinks may be profitable.

The next big bubble to burst may be in medicine.

linusPAULing
10-30-2008, 02:42 PM
That's free market socialism, neatly packaged in industry.

Can you please tell me exactly what the definition of free market socialism is?



This is, in a real sense, robbery. It is perpetuated by dulling the senses of the masses by promising security, while that promise of security is the very weakness in the system. A promise can be taken advantage of, and it has. The promise that the government will support Fannie and Freddie gave them power to abuse, and the promise of the FDIC to reimburse depositors should a bank fail lulls the depositors to allow the bank to do whatever risky business that the bank thinks may be profitable.

The next big bubble to burst may be in medicine.

I don't support the tax payers being forced into paying for FDIC insurance, and I agree that FDIC can lull folks into a false sense of security.

Deeming all insurance as socialistic is still, in my opinion, ridiculous. And I'll tell you what a false sense of security is... not insuring my home against fire because some guy on the web tells me insurance is socialistic.

enjerth
10-30-2008, 03:11 PM
Can you please tell me exactly what the definition of free market socialism is?




I don't support the tax payers being forced into paying for FDIC insurance, and I agree that FDIC can lull folks into a false sense of security.

Deeming all insurance as socialistic is still, in my opinion, ridiculous. And I'll tell you what a false sense of security is... not insuring my home against fire because some guy on the web tells me insurance is socialistic.

The only difference between insurance and classic socialism is whether or not participation is voluntary. Should we call it something else when it's voluntary?

The false sense of security is that you believe that the insurance will pay you, should anything happen. In a market like homeowners insurance, where there's not a lot of opportunity for predatory behavior, the risk of the insurance failing is quite low and they're not really subject to mass manipulation. That and auto insurance. Any others?

It's still, in a manner of speaking, the redistribution wealth.

Brian4Liberty
10-30-2008, 03:34 PM
The only difference between insurance and classic socialism is whether or not participation is voluntary. Should we call it something else when it's voluntary?

The false sense of security is that you believe that the insurance will pay you, should anything happen. In a market like homeowners insurance, where there's not a lot of opportunity for predatory behavior, the risk of the insurance failing is quite low and they're not really subject to mass manipulation. That and auto insurance. Any others?

It's still, in a manner of speaking, the redistribution wealth.

In terms of housing insurance, when there are large scale disasters, many people have trouble getting paid by their insurers. If the losses are high enough, expect more insurance bankruptcies...there goes your "safety". But expect a government pay out in the end. Insurance companies are good at collecting the loot, and then letting the losses fall on the government. In other words, you get to pay twice, once to the insurance companies, and once to the government in taxes.

Many types of insurance are mandatory. Auto insurance effects almost everyone, but that is nothing compared to the many types of business insurance that is mandatory. Liability, errors and ommissions, loss insurance, a variety of insurance for your employees, the list goes on. A lucrative industry driven by fear, and made mandatory through the government and legal system. All for the benefit of lawyers and insurers.

linusPAULing
10-30-2008, 04:35 PM
It's still, in a manner of speaking, the redistribution wealth.

99 people decide for themselves to put money in the stock market, and 1 person shorts the market. The stock market crashes, 99 people lose money and 1 person wins. This is a redistribution of wealth. Is this socialism?

100 people decide for themselves to buy homeowners insurance. 1 person's home burns down and he gets reimbursed. 99 people lose money and 1 person wins. This is a redistribution of wealth. How is this different from the stock market situation?

And when you think about it, the person who has their house burn down isn't exactly a BIG winner here.

Regarding abuses in the industry, this is hardly an indictment of insurance as a notion. This is the bullshit that happens in any secotor of any economy. This is also where truly free markets come in. In a free market society there will be many insurance companies competing for your business. The better companies will gain a reputation and stable client base and they will attract more customers.

In a socialist society you'll get one or two policy options from the government and they'll likely suck. In a fascist society you'll have one or two private monopolies providing policy options and they'll likely suck.

Regarding forced insurance, again, that's an indictment of the government, not the notion of insurance.

DISCLAIMER: I am not , have never been, and hereby solemnly promise never to participate in the insurance industry. I have far more trouble with insurance companies than otherwise, but realize these problems have been more of a function of f'd up government policy than the concept of insurance itself.

God help us all if father Obama get's government health care through. He'll likely have a house and fillibuster-proof senate, so it's probably coming :(

HOLLYWOOD
10-30-2008, 06:28 PM
I agree with everything that you have said... BUT none of them were the root cause. Everything you said above didnt help the problem though...

Do you know what a derivative is? Do you know what a credit default swap is?
These are private contracts linked to a certain entity such as the sub prime mortgages... These instruments are not considered securities and are not regulated, so the market exploded to $60 TRILLION dollars in recent times.. that is 6 times the GDP for the US. But because they are private contracts, no one knows for sure how many of them there are...

A credit default swap (CDS) is a credit derivative contract between two counterparties, whereby the "buyer" pays periodic payments to the "seller" in exchange for the right to a payoff if there is a default[2] or "credit event"[citation needed] in respect of a third party or "reference entity".

In the event of default in the reference entity:

* the buyer typically delivers the defaulted asset to the seller for a payment of the par value. This is known as "physical settlement".
* Or the seller pays the buyer the difference between the par value and the market price of a specified debt obligation. This is known as "cash settlement".


Credit default swaps are the most widely traded credit derivative product[3]. The Bank for International Settlements reported the notional amount on outstanding OTC credit default swaps to be $42.6 trillion[5] in June 2007, up from $28.9 trillion in December 2006 ($13.9 trillion in December 2005). By the end of 2007 there were an estimated USD 45[4] to 62.2[5] trillion worth of Credit Default Swap contracts.

In the US alone, the Office of the Comptroller of the Currency reported the notional amount on outstanding credit derivatives from reporting banks to be $16.4 trillion at the end of March, 2008. (To put these numbers in perspective, the CIA World Fact Book estimated the US GDP for 2007 was $13 trillion.)

What has happened is there was a group of subprime mortgages (lets say for example, $1 Trillion worth), and various companies created these credit default swaps linked to these subprime mortgages, total worth being 20 times the worth of the actual sub prime mortgages). Once people started to default on the subprime mortgages (which some were to be expected due to the low credit ratings), and exacerbated by high gas prices. The credit default swaps fell with them... as foreclosures mounted, so did the losses on these credit default swaps... so 1 trillion in mortgage fails, causing $20 trillion to be lost... if just the mortgages had been defaulted and not the credit default swaps, then it wouldnt have been this bad.

Guess What?

Illegal Pyramid Schemes / Ponzi Schemes / Recruitment Scams are Illegal

What is a Pyramid Scheme?
Pyramid schemes, also referred to as "chain referral", "binary compensation" or "matrix marketing" schemes, are marketing and investment frauds which reward participants for inducing other people to join the program. Ponzi schemes, by contrast, operate strictly by paying earlier investors with money deposited by later investors without the emphasis on recruitment or awareness of participation structure.

How are Pyramid Schemes Disguised?
These illegal money-making ventures are modified and adapted to suit the victims. They may be disguised as games, chain letters, buying clubs, motivational companies, mail order operations, or investment organizations.

http://www.crimes-of-persuasion.com/Crimes/Delivered/pyramids.htm (http://www.crimes-of-persuasion.com/Crimes/Delivered/pyramids.htm)

http://en.wikipedia.org/wiki/Pyramid_scheme (http://en.wikipedia.org/wiki/Pyramid_scheme)

I don't know about you, but ALL these Investment Houses, Financials, Banks, & Mortgage Cos... do EXACTLY these SCHEMES!

Brian4Liberty
10-31-2008, 11:03 AM
Guess What?

Illegal Pyramid Schemes / Ponzi Schemes / Recruitment Scams are Illegal

What is a Pyramid Scheme?
Pyramid schemes, also referred to as "chain referral", "binary compensation" or "matrix marketing" schemes, are marketing and investment frauds which reward participants for inducing other people to join the program. Ponzi schemes, by contrast, operate strictly by paying earlier investors with money deposited by later investors without the emphasis on recruitment or awareness of participation structure.

How are Pyramid Schemes Disguised?
These illegal money-making ventures are modified and adapted to suit the victims. They may be disguised as games, chain letters, buying clubs, motivational companies, mail order operations, or investment organizations.

http://www.crimes-of-persuasion.com/Crimes/Delivered/pyramids.htm (http://www.crimes-of-persuasion.com/Crimes/Delivered/pyramids.htm)

http://en.wikipedia.org/wiki/Pyramid_scheme (http://en.wikipedia.org/wiki/Pyramid_scheme)

I don't know about you, but ALL these Investment Houses, Financials, Banks, & Mortgage Cos... do EXACTLY these SCHEMES!

Good points.

Brian4Liberty
10-31-2008, 11:17 AM
On insurance in general:

How has humanity survived for tens of thousands of years without insurance?

My grandfather tells me that medical insurance did not exist when he was young.
My father tells me dental insurance did not exist when he was young.

They both say that the introduction of those insurances resulted in almost immeadiate doubling of costs.

Sorry, insurance seems like nothing more than a parasite on the economy.

Now, medical insurance is one of the average persons big expenses, even the biggest for old folks. It has become accepted as essential. "Voters" say it is their biggest concern. Next it will be a "right", and the government (taxpayers) will foot the bill.

This all sounds like the best marketing (insurance) in the history of the world. So good it could be called brainwashing. Sounds like a big scam to me.