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Old August 24th, 2010, 11:49 AM   #1 (permalink)
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As of this morning the national association of realtors reports the lowest sale rate in 15 years. Unemployment is at 9.5% nation wide. Taxes are up, wages ( compensated for inflation) are down.

The stimulus packages failed to fix the housing bubble and unemployment. Guess the economists were right?

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Old August 24th, 2010, 12:48 PM   #2 (permalink)
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Well, the stimulus packages might not have helped to the extent that most hoped they would (not much of a surprise there), but at the same time one has to wonder how much worse the effect would have been had the government done nothing and allowed the ensure banking system to collapse, as well as several major industries. Sure everyone likes to blame the decissions made, but you rarely hear much by way of thought out replies regarding the alternatives.

On the plus side, those with income in these bad times, are in a unique opportunity to find some serious bargains. home buyers are seeing a major buyers market with relatively depressed prices and cheap financing, while commercial buyers have a tone of available opportunities, just not much of a market to make a go of all the available businesses for sale out there.
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Old August 24th, 2010, 01:10 PM   #3 (permalink)
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Imagine how much better the stimulus could have been if we didn't waste a trillion dollars on a useless war in Iraq.

As the old saying goes, a trillion dollars saved is a trillion dollars earned...

-Mike
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Old August 24th, 2010, 01:33 PM   #4 (permalink)
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Imagine how much better the stimulus could have been if we didn't waste a trillion dollars on a useless war in Iraq.

As the old saying goes, a trillion dollars saved is a trillion dollars earned...

-Mike
If at least we would ave admitted that the war was for oil and secured preferential rights to exploit it and discounted prices to buy it, but we didn't even do that.
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Old August 24th, 2010, 02:34 PM   #5 (permalink)
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I don't recall anyone saying it was going to be easy recovering from the Great Bush Recession.
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Old August 24th, 2010, 02:36 PM   #6 (permalink)
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If at least we would ave admitted that the war was for oil and secured preferential rights to exploit it and discounted prices to buy it, but we didn't even do that.
Exactly, what did a trillion dollars buy us. Nothing.

-Mike
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Old August 24th, 2010, 03:12 PM   #7 (permalink)
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Exactly, what did a trillion dollars buy us. Nothing.

-Mike
What do you mean? It enriched defense contractors.
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Old August 24th, 2010, 05:32 PM   #8 (permalink)
 
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http://blogs.suntimes.com/sweet/Obama%202008.jpg

He'll save us.
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Old August 24th, 2010, 07:41 PM   #9 (permalink)
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even 'he' knows not to post HUGE pictures in a forum
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Old August 24th, 2010, 09:37 PM   #10 (permalink)
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The Bush recession, please. Bush atleast knew small business is what drives employment in this country. Obama is the only man naive enough to think he can tax this country out of debt, and not choke the economy while doing it
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Old August 24th, 2010, 09:42 PM   #11 (permalink)
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Taxes have ALWAYS hurt economies and tax cuts have always helped.....that is a fact. The great thing about this is that me and %40 of America knew this the day Obama was elected yet he was still voted in. At that point I knew America has a huge issue...and it wasn't Obama.
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Old August 24th, 2010, 11:05 PM   #12 (permalink)
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Sometimes I wonder, are we just numbers to the government, like, do we owe them or do they owe us. Cause I thought they served the people, I guess thats just to make us feel better now.

And its sad that soldiers are expendable to the damn government these days. They need to start serving the people, not their own benefits. The war In Iraq was total BS.
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Old August 25th, 2010, 01:25 AM   #13 (permalink)
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oh, yeah. I almost forgot he promised to bring us out of the war in Iraq and look! Here we are knee deep in Afghanistan. Guess what America and France have in common? We both tried to conquer a state that others failed at taking. Lets hope we have a different outcome then Napoleon had.
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Old August 25th, 2010, 08:06 AM   #14 (permalink)
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What might have happened without the stimulus

If you think the current situation is bad........
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Old August 25th, 2010, 09:12 AM   #15 (permalink)
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I have a question on the tax debate. I'm as much for lower taxes as the next guy, but at what point does a tax break make sense? Are we talking about a true tax break, like eliminating income taxes, estate taxes and/or property taxes? or are we talking about a one or two percentage drop worth a few hundred bucks, that doesn't really impact anyone individual in any true fashion? Are we talking about programs designed to encourage specific types of behavior (such as tax breaks designed to encourage home ownership, or local enterpeneurship)?

My point is that we can't have our collective cake and eat it too. government has to exist and has to provide certain services. Regardless of your views on what government should or should not do, I'm pretty sure most would agree that the government does a decent job of maintaining roads and infrastructure through out the country. yes, I know they could be doing a lot better and that a long list of projects are in dire need of maintenance. still, by comparison to most of the world, we are doing a pretty damn good job. To do all this the government needs the money so taxes of some sort are unavoidable.

I think the real issue that most folks have is not taxes per se, but rather the degree of taxation and what that money should be used for. Personally I think that there are times that it is in the best interest of a country for its governments to become actively involved in promoting certain types of industries and behaviors at the expense of others. there are other times in which government is better off staying out or playing referee.

Personally I think that the tax cuts that we experienced during the bush years, didn't really benefit anyone. they were financed largely through borrowed money that we are now having to pay back. yes we had a great time going on an 8 year spending binge, but it was not financially sustainable. While I might not agree with the current administration's policies, one thing is true, they were handed a plate full of crap and left to fix it or get the blame. As much as we all like tax breaks, The real issue here has been first, trying to keep the economy and entire industries from collapsing, and second stabilizing the economy before we can consider reducing government's involvement in certain obvious areas. I'm a big champion of a market economy, but every now and then it needs to be tempered and redirected, and IMHO this is just one of those times.

As a disclaimer, I work in finance and I experienced a jump to a higher tax bracket under the new tax regulations. I don't like it, but I like the alternatives even less.
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Old August 25th, 2010, 01:53 PM   #16 (permalink)
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What might have happened without the stimulus

If you think the current situation is bad........
Nah, it's going to get worse. Our tax to loan ration is about to go up side down. Throwing money at the problem is a bandaid and once the effect is gone AND the money is gone it will start again. It's a viscous cycle and we are in it. Look at the housing market as a microcosm of what's going on. It failed so we lowered rates and it picked up briefly. Then it started to tank again and so we started the giving people money to buy a house. Take the money away and it's tanked again. The logical next step it to through more money at it.

Reaganomics worked....why not do it again?
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Old August 25th, 2010, 02:13 PM   #17 (permalink)
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Reaganomics worked
It did? We got budget busting deficits from Reaganomics.
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Old August 25th, 2010, 02:26 PM   #18 (permalink)
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was gonna avoid this discussion as these always go the same route.......... blame bush blame bush blame bush...... despite us being 18 months into a new presidency which has alread made bush's spending look like a kids allowance.........

but I did have to point out my ire whenever I see someone referring to a tax cut as borrowed money.......... cutting taxes on can not be borrowed money....I get so sick of people trying to say that......... even the notable Alan Greenspan who is supposed to be such a master of economics cant seem to wrap his mind around this simple fact.......

taxes have nothing to do with borrowing money........ spending is the reason we borrow money........ if you dont want to borrow money you cut spending not raise taxes

people like to associate lower taxes with borrowing simply because its usually the end result....... inevitably when we lower taxes its going to lead to borrowing with the idiots in our govt...... but this isnt because the taxes are lower its because they waste so much money on senseless crap

it seems nobody actually learned any lesson at all from the housing collapse....... one of the major factors involved was people buying too much house.......... you dont buy a $800K house if you make $10/hr......... this goes the same for govt......... you dont waste money on foreign studies to find out why drunk hookers contract more diseases than sober ones, etc etc.........

the govt can lower taxes all they want and not worry about borrowing if they stopped treating our money like a kid in a candy store
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Old August 25th, 2010, 02:39 PM   #19 (permalink)
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was gonna avoid this discussion as these always go the same route.......... blame bush blame bush blame bush......
The bush economic policies got us into the mess we are in...seems reasonably to blame him as we try to fight to a comeback.
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Old August 25th, 2010, 02:50 PM   #20 (permalink)
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The bush economic policies got us into the mess we are in...seems reasonably to blame him as we try to fight to a comeback.
bush had very little to do with this current nonsense... it started a long time ago and has alot more to do with the FED and other unscrupulous organizations...
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Old August 25th, 2010, 03:03 PM   #21 (permalink)
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The bush economic policies got us into the mess we are in...seems reasonably to blame him as we try to fight to a comeback.

The roots of this mess has to do with misguided affordable housing policies that far predates the Bush years. Blaming Bush is the smokescreen to cover that up.
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Old August 25th, 2010, 03:11 PM   #22 (permalink)
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The roots of this mess has to do with misguided affordable housing policies that far predates the Bush years. Blaming Bush is the smokescreen to cover that up.
partially... the vast majority are in the mid upper ranges... people that are smart enough to realize the moral hazard and say screw it.

it has do to most with the cheap credit available and low to no down payments.
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Old August 25th, 2010, 04:00 PM   #23 (permalink)
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Old August 25th, 2010, 06:57 PM   #24 (permalink)
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It did? We got budget busting deficits from Reaganomics.

But we recovered right? Here we are with record increases to the deficit and NO recovery...I rest my case.
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Old August 25th, 2010, 06:58 PM   #25 (permalink)
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Click and save, nice.
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Old August 25th, 2010, 08:51 PM   #26 (permalink)
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But we recovered right? Here we are with record increases to the deficit and NO recovery...I rest my case.

You might want to rest your case on facts rather than fiction. The current recession is probably more than twice as bad as what Reagan had to deal with, and recent revisions to the numbers have suggested it is much worse than was reported at the time. And Reagan didn't have to deal with a banking system that was collapsing. Reagan's deficits hit 6% of GDP, while the current deficit is a bit over 10% of GDP.

In other words, if we followed Reagan's example, we should be spending much more than we have so far.

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The roots of this mess has to do with misguided affordable housing policies that far predates the Bush years. Blaming Bush is the smokescreen to cover that up.
The roots of the mess have much, much more to do with the Wall Street inventions of packaging mortgages into CDOs and insurance firms like AIG issuing CDS on those. The CDOs were created in such a manner so that nobody, including the people issuing them and insuring them, understood the risk. Of course the ratings firms were essentially bribed into giving high marks to what should have been junk.

If Wall Street had behaved itself, a push for affordable housing never would have caused this mess. Instead their unmitigated greed amplified the debt over and over and misled themselves and their investors. Of course the regulators who should have been following this were nowhere to be found since years of Republican "all regulations are bad" had pretty much rendered them inert.
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Old August 26th, 2010, 01:49 AM   #27 (permalink)
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As of this morning the national association of realtors reports the lowest sale rate in 15 years. Unemployment is at 9.5% nation wide. Taxes are up, wages ( compensated for inflation) are down.

The stimulus packages failed to fix the housing bubble and unemployment. Guess the economists were right?
Who's taxes are up?
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Old August 26th, 2010, 01:52 AM   #28 (permalink)
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But we recovered right? Here we are with record increases to the deficit and NO recovery...I rest my case.
It took several years for a recovery under Reagan... and that was a much smaller recession.

And reagan did it by.... spending.
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Old August 26th, 2010, 09:23 AM   #29 (permalink)
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The roots of the mess have much, much more to do with the Wall Street inventions of packaging mortgages into CDOs and insurance firms like AIG issuing CDS on those. The CDOs were created in such a manner so that nobody, including the people issuing them and insuring them, understood the risk. Of course the ratings firms were essentially bribed into giving high marks to what should have been junk.
Funny you should say this. you are completely correct, though I would add that the problems stems more form wall street looking for an industry to park in that would yield high returns. After the collapse of the 90's speculative tech boom and the subsequent early 2000's recession, real estate became the only industry offering relatively high returns on investment. couple to that historically low mortgages and the emergence of CDO's and CMBS, and commercial banks had a HUGE incentive to relax lending standards and just get money out the door. They understood the risk perfectly, but their incentive was to get paid because they knew that they would not hold the risk for long. Most banks joked openly about not needing to hold large cmbs and cdo pools on their books and being able to dump them in 1-3 months. Even if a sizeable percentage of the pool was full of duds, they sold the investement on the performance of the entire pool and the structure of the payment waterfall, which would have protected investment grade bond holders to a fairly high degree of loss.

The problem is that the cheap money created a self reinforcing circle in which cheap costs lead to bigger loans, which lead to a willingness to pay more, which lead to higher prices. As prices grew cap rates compressed and banks offset this by increasing their loan programs, lowering lending costs, looking the other way in bad underwritting, making even bigger pools, and "encouraging" rating agencies to play ball.

I remember being in a meeting with representatives of most major CMBS & CDO issuers and the rating agencies about a year before the bubble burst. I clearly remember all the issuers joking about how the gravy train was never going to dry up, that they could do no wrong, and how even if they loosened their standards, it didn't matter to them since they didn't hold the risk for long. I remember the reps from the rating agencies (and in particular the woman from S&P) challenging them on that and mentioning her fears that the entire system was moving in far to exuberant a direction, and that she didn't see it as sustainable. The bankers basically laughed at her and alluded that she was being a wet blanket.

Today, from what I understand the woman at S&P id not only still working, but got a promotion, while many of the bankers in the room have had to restructure. Go figure.
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Old August 26th, 2010, 11:56 AM   #30 (permalink)
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They understood the risk perfectly, but their incentive was to get paid because they knew that they would not hold the risk for long.
'

Thanks for pointing out the incentives these guys had to push the loans through. When you get monstrous bonuses depending on your quarterly/yearly performance, you get thinking that makes sense in that time frame but is absolutely batshit insane over a longer time period. However, I'm still not sure that they really understood the risk. Maybe a few people did in the various firms, but companies like Bear Stearns had tons of this crap on their books when the real estate market collapsed. That suggests to me that a lot of people didn't have a clue as to what they were getting into. Certainly AIG didn't have a clue about what it was issuing CDSs against.

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I remember the reps from the rating agencies (and in particular the woman from S&P) challenging them on that and mentioning her fears that the entire system was moving in far to exuberant a direction, and that she didn't see it as sustainable. The bankers basically laughed at her and alluded that she was being a wet blanket.
I've heard similar stories and it always REALLY pisses me off. If the ratings agencies hadn't put their fees first, a lot of this would have been rated as junk and alarm bells probably would have gone off a lot sooner. If nothing else, people would have known they were buying a higher level of risk and probably would have cut back on the amount they bought. But because Moody's and S&P were so worried about losing fees, they gave prime ratings to absolute trash. This is an area where I'm really, really disappointed in the current administration. It was a clear breakdown of the duty of the ratings companies and nothing was really done about it.
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Old August 26th, 2010, 01:53 PM   #31 (permalink)
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The Bush recession, please. Bush atleast knew small business is what drives employment in this country. Obama is the only man naive enough to think he can tax this country out of debt, and not choke the economy while doing it
200 Billion of the stimulas was small business tax cuts.

That's on top of a ton of tax credits to all businesses.

Very few businesses are paying taxes right now.

The credits are retroactive so they are getting refunds for past taxes paid.

Where do you people think the current defecits are coming from? Only about 200 Billion of the Stimulas was direct government spending.

330 Billion was tax cuts. The rest ~ 250 billion was to the states.

Why do I keep hearing about tax hikes when all that has happened is tax cuts?
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Old August 26th, 2010, 02:04 PM   #32 (permalink)
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200 Billion of the stimulas was small business tax cuts.

That's on top of a ton of tax credits to all businesses.

Very few businesses are paying taxes right now.

The credits are retroactive so they are getting refunds for past taxes paid.

Where do you people think the current defecits are coming from? Only about 200 Billion of the Stimulas was direct government spending.

330 Billion was tax cuts. The rest ~ 250 billion was to the states.

Why do I keep hearing about tax hikes when all that has happened is tax cuts?
i received the biggest tax increase in history over here in CA...

other than that i don't know what they're talking about besides maybe the healthcare bill.

also note that the stim bill has barely even been spent. Also the money to the states just went to go pay for the overpaid .gov workers...
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Old August 26th, 2010, 02:34 PM   #33 (permalink)
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The roots of the mess have much, much more to do with the Wall Street inventions of packaging mortgages into CDOs and insurance firms like AIG issuing CDS on those.
From Frank's fingerprints are all over the financial fiasco - The Boston Globe:

"The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism and "redlining" because urban blacks were being denied mortgages at a higher rate than suburban whites.

The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to "meet the credit needs" of "low-income, minority, and distressed neighborhoods." Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this "subprime" lending by authorizing ever more "flexible" criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued."

The government created the playground that the banks played in.
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Old August 26th, 2010, 02:35 PM   #34 (permalink)
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Unfortunately politics have invaded our economic system at an alarming level. Some of these companies should have failed - there is no such thing as too big to fail. Average Americans are struggling, yet GM is preparing for an IPO because taxpayers absorbed GM's failures and debt via gov't-provided loans? That's criminal. Too many programs, and now everyone's crying for gov't funding. There's no such thing as gov't funding - only taxpayer funding. It's ironic that gov't agencies and politicians call insurance companies evil middlemen when so many of the agencies, bureaus, commissions, and politicians themselves are playing the same middleman role. The biggest difference though is the gov't middleman gets to simply take money from taxpayers to increase presence. At least insurance companies simply fail and go out of business if they can't grow their business and profitability.

It will take 4 things to fix this economy. 1) Time - it's going to take a few years to recover from massive losses because our entire economic recovery relies on the consumer, not business, and especially not big businesses. 2) Gov't returning to only financial oversight and regulation, not participation. Our gov't should not be backing loans or acting as major stockholder in companies. 3) Massive adjustments to Healthcare Reform. HR is works under a free market system, but it cannot be overly legislated or held back. Tort reform has to be tied into any healthcare reform. 4) Reducing taxes to most Americans and shrinking the size and cost of gov't. We cannot afford everything that's in play.

Blaming one party or another isn't going to help either. I'd rather see elimination of all parties and all politicians become independents who have to answer to their voting records and legislative performance without party backing.

Our politicians need to work smarter and harder at getting things done for us. They don't understand what it's like for average taxpayers because they're not treated as average.

How about suspending interest payments owed by consumers for all institutions that aren't putting stimulus money into the hands of taxpayers - wouldn't that make it more of a stimulus? How about requiring GM to introduce cars at no more than a few % above cost until GM can fully pay off it's own debts and loans? How about directing stimulus money to people who struggle to keep up with reasonable mortgages but fall a little short each month. Doesn't it make sense to give people interest-free stimulus loans so they can stay in their homes rather than continue to see home after home go into default and foreclosure because the homeowners can't keep up with the interest payments on their mortgages? The institutions who backed these mortgages but are now living off stimulus funding don't deserve to collect original 30-year interest rates.

Our politicians are worried about keeping their jobs - not the economy, not you, not me.

Perhaps the best thing we can do is oust the entire encumbent clan and give new people a shot.

And for all the complaints about US involvement in conflicts, I'd rather not see us involved if we don't have to be. But we are involved, and I believe the world and our country is better, more stable, and safer because of US action. I only wish that the Middle East conflict was a reason for our struggling economy. I wish I could direct all my taxes be spent on the ME and national security and let some of these other crazy cash pits simply dry up.
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Old August 26th, 2010, 03:02 PM   #35 (permalink)
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From Frank's fingerprints are all over the financial fiasco - The Boston Globe:

"The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism and "redlining" because urban blacks were being denied mortgages at a higher rate than suburban whites.

The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to "meet the credit needs" of "low-income, minority, and distressed neighborhoods." Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this "subprime" lending by authorizing ever more "flexible" criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued."

The government created the playground that the banks played in.
I can remember it like it was yesterday...... even though I wasnt even old enough to vote yet at the time, I already knew more about economics than the administration of the period........ it was the day the headlines on the news said "redlining" has become illegal...... loaners would no longer be allowed to give loans only to those capable of paying them back..... I remember very clearly at the time my thoughts were...... theres gonna be a day in the not too distant future where millions of people who could never afford to pay a mortgage will be defaulting on loans......

this all occurred long before "W" thought about running for President.... the groundwork was laid before many on these forums were even born...... the end result however....... BLAME BUSH BLAME BUSH BLAME BUSH........ couldnt they even find a way to say Haliburton in there?

YAWN!!!
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Old August 26th, 2010, 03:09 PM   #36 (permalink)
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From Frank's fingerprints are all over the financial fiasco - The Boston Globe:

"The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism and "redlining" because urban blacks were being denied mortgages at a higher rate than suburban whites.

The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to "meet the credit needs" of "low-income, minority, and distressed neighborhoods." Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this "subprime" lending by authorizing ever more "flexible" criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued."

The government created the playground that the banks played in.
Redlining for minorities did not cause the problems we're experiencing now. Extending loans to people who should not have gotten them was the problem. Redlining actually was meant to highlight situations when a minority was not able to get a mortgage while a similarly-qualified non-minority did get approved. In fact the term redlining comes from the 1960's when a sociologist showed by drawing on a map in red outline where banks, insurance companies, and other financial institutions were making life MORE difficult for minorities, particularly in metropolitan areas. In the '60s, it was very common to deny insurance coverage, mortgage approvals, funding, or charge exhorbitantly high charges to areas that were considered too heavily populated by minorities. And minorities DID have a higher unemployment and credit history at that time because institutional racism was still very common.

It's not possible to discuss redlining today without knowing how it actually began. In the '70s, Congress tried to break through the redlines by forcing companies to hold the same standards across all geographies without regard to company-created redline territories.

To be clear, loans to unqualified have been the problem. Not loans to minorities. All loans have some risks, and the risks to minorities has long been tied to not having the same financial history as non-minorities. That does not make minorities less qualified, especially considering minorities do not represent a significant % of overstretched loans on overvalued properties.

As of 2008, all minorities combined represented a total of 34% of the US population of 304,000,000. Given normal age distribution trend of 80% being working age or older and mortgage possible, loans to minorities alone could not possibly have accounted for the size of problems in the mortgage business. So don't characterize it as minority-driven.

The blame is squarely on loans approved to people who had no chance at paying them off. How many people were talked into interest-only loans that have now been defaulted after the interest-only period has expired? How many loans were given to people who traded up in housing time and time again, but are now caught short by falling home values and/or job loss?

Redlining, even if done for all minorities, could not have cause problems at this scale. The same people who "felt the pressure to redline" didn't feel the pressure to loan to similarly situated non-minorities?

And to be clear, much of the reasoning for government involvement was due to minorities being denied when non-minorities weren't. The simple answer would have been to be more strict and simply not let any unqualified loans to go through. Ahh, but that would mean it would be difficult to take risk. And it's always been a safe bet for banks and mortgage backers when the value of homes was rising and inventory could not keep up with demand.

Redlining exists in other places but nothing's done about it. It's proven that people in large cities pay more for medications at drugstores than those in suburbs. Are they charged more because they're a risk to not paying? No, they're charged more because the drugstores are often more commonly independents who cannot get the same wholesale prices that megachains do. And even worse, megachains simply charge whatever they think is the highest competitive rate that they can. So a megachain drugstore will charge more for prescriptions in urban (which tend to have more minorities) locations than they do in the suburbs. Yet we don't have Congress to blame for that because it's done at a much smaller cost scale than home purchases.
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Old August 26th, 2010, 03:46 PM   #37 (permalink)
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From Frank's fingerprints are all over the financial fiasco - The Boston Globe:

"The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism and "redlining" because urban blacks were being denied mortgages at a higher rate than suburban whites.

The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to "meet the credit needs" of "low-income, minority, and distressed neighborhoods." Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this "subprime" lending by authorizing ever more "flexible" criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued."

The government created the playground that the banks played in.
Good grief, not this old dog. Did Congress mandate no-interest loans? Did Congress mandate liars loans? Did Congress mandate that mortgages be extended to people who couldn't pay them? Did Congress mandate that ratings agencies lie about the risk of the subprime mortgages in some CDOs? Heck, CDOs weren't even invented until the late 80s! The fact is that Wall Street took a fairly straight-forward idea (and Rigmaster has the history spot on) and turned it into the biggest destructive force our economy has seen in ages. That is so NOT what was intended by the Community Reinvestment Act. If subprime loans had been consistently identified as subprime loans, and priced accordingly, none of this would have happened. All of this destruction can be laid squarely at the feet of Wall Street banks.


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Unfortunately politics have invaded our economic system at an alarming level. Some of these companies should have failed - there is no such thing as too big to fail. Average Americans are struggling, yet GM is preparing for an IPO because taxpayers absorbed GM's failures and debt via gov't-provided loans? That's criminal. Too many programs, and now everyone's crying for gov't funding. There's no such thing as gov't funding - only taxpayer funding. It's ironic that gov't agencies and politicians call insurance companies evil middlemen when so many of the agencies, bureaus, commissions, and politicians themselves are playing the same middleman role. The biggest difference though is the gov't middleman gets to simply take money from taxpayers to increase presence. At least insurance companies simply fail and go out of business if they can't grow their business and profitability.
While I understand the sentiment, the problem is that if we had let AIG, GM and other big Wall Street firms fail, our economy would have been utterly destroyed. The fact of the matter is that AIG WAS too big to fail. If it failed, it obliterated the credit market, both here and in Europe. If GM had been allowed to fail, the auto supply industry would have gone with it and Ford would have gone under as well. If the government had not intervened with taxpayer dollars, we would likely be looking at 20%-30% unemployment and a GDP probably about another 10% below where it is now. That wouldn't just hurt a little bit, that would have ruined the country for a generation or more. It would have been a second Great Depression. Does bailing out these clowns suck? Yeah, big time. But not doing so would have been orders of magnitude worse. The task ahead is to make sure that this kind of situation can never occur again.
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Old August 26th, 2010, 04:12 PM   #38 (permalink)
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Good grief, not this old dog. Did Congress mandate no-interest loans? Did Congress mandate liars loans? Did Congress mandate that mortgages be extended to people who couldn't pay them?
And these are examples of further loosening of underwriting standards that began when and under what regulations good intentioned or not? See my post above.
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Old August 27th, 2010, 08:04 AM   #39 (permalink)
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And these are examples of further loosening of underwriting standards that began when and under what regulations good intentioned or not? See my post above.
I did see your post above, and you might return the favor by reading mine. Loosening standards, all by itself, did not cause this. And nowhere does "loosening standards" mean eliminating them altogether. As Rigmaster pointed out, redlining was being used to prevent people from getting loans, even if they qualified and THAT is what the legislation was aimed at.

Face it, banks got greedy and stupid. They invented a way to make money and pass the risk on to people who didn't understand it. They had no skin in the games and wouldn't be hurt if the loan they just made went bad. That is an ENTIRELY new aspect of the mortgage industry that didn't exist when the Community Reinvestment Act was passed. In those days, the bank making the loan held onto it and if it went bad, it hit their bottom line. That made them more cautious. But once CDOs appeared and they could make money without risk, the went after it whole hog. And then they started bribing ratings agencies so that people buying the risk had absolutely zero chance of discovering they were buying risk. To be honest, CDOs aren't a bad idea if they are properly rated. And sub-prime loans aren't a bad idea either, provided they aren't abused. If you've got bad credit, you should pay a higher interest rate, but under no circumstances should anyone be allowed to put you in a loan you can't afford. And thanks to the way banks and mortgage companies were behaving, that is exactly what happened.
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Old August 27th, 2010, 08:36 AM   #40 (permalink)
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'

Thanks for pointing out the incentives these guys had to push the loans through. When you get monstrous bonuses depending on your quarterly/yearly performance, you get thinking that makes sense in that time frame but is absolutely batshit insane over a longer time period. However, I'm still not sure that they really understood the risk. Maybe a few people did in the various firms, but companies like Bear Stearns had tons of this crap on their books when the real estate market collapsed. That suggests to me that a lot of people didn't have a clue as to what they were getting into. Certainly AIG didn't have a clue about what it was issuing CDSs against.



I've heard similar stories and it always REALLY pisses me off. If the ratings agencies hadn't put their fees first, a lot of this would have been rated as junk and alarm bells probably would have gone off a lot sooner. If nothing else, people would have known they were buying a higher level of risk and probably would have cut back on the amount they bought. But because Moody's and S&P were so worried about losing fees, they gave prime ratings to absolute trash. This is an area where I'm really, really disappointed in the current administration. It was a clear breakdown of the duty of the ratings companies and nothing was really done about it.
In all fairness the stuff isn't trash. the way CDO's are structured allows for a very large rate of default before the investment grade pieces of the waterfall are affected (usually upwards of 70%). The real issue here wasn't the basic structure of CDO's, that is still sound. the problem was the emphasis on getting the money out the door and the extreme relaxing of underwritting standards. As was pointed out, that led to lending to a lot of people who could not afford the loans they were being given, and a lot of properties whose valuations were only a reflection of the lending practices of the time and not their true value. As with anything, once defaults began in earnest and non-investment grade bond holders (who were largely speculating) began to get wiped out, people started walking away from CDO's and CMBS. It doesn't mean that the stuff was inherently bad, though, but as non-investment grade buyers walked away, investment grade bond buyers were left holding their bonds without being able to trade them without taking a loss. As a result the market essentially dried up.

Something similar happened in other types of investment vehicles, such as Real Estate Mezzanine loans.
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Old August 27th, 2010, 10:45 AM   #41 (permalink)
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I don't recall anyone saying it was going to be easy recovering from the Great Carter/Reagan/Bush1/Clinton/Bush2 Recession.
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Old August 27th, 2010, 11:05 AM   #42 (permalink)
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In all fairness the stuff isn't trash. the way CDO's are structured allows for a very large rate of default before the investment grade pieces of the waterfall are affected (usually upwards of 70%).
CDOs are meant to spread and reduce risk. In reality they were hiding the risk from investors.

One of the reasons for that was because banks were allowed to both originate the loans and securitize them. Countrywide knew the CMOs/MBSs they were selling were junk because they wrote the rules on the loans.

The ratings agencies absoulutely fell down on the job. AAA ratings on subprime securities is a joke.

Greed trumping ethics. We've always had subprime loans. They just carried a higher interest rate. But they were fixed.... if the borrower could make the 1st payment they were likely to be able to make the others. But too many people could not make that 1st payment. So back load the interest rate so they can. It's almost guarrenteed they cannot make all the payments once they go up. But who cares... the goal is to get the loan made... not paid off.

Three things that would never happen but would prevent this from happening again.

1) Put the wall back up between commerical banks and investment banks.

2) Fixed rate loans only.

3) Make the originators of the loan guarentee it for a certain amount of time. No more selling junk loans they know will go bad.

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Old August 27th, 2010, 11:15 AM   #43 (permalink)
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Three things that would never happen but would prevent this from happening again.

1) Put the wall back up between commerical banks and investment banks.

2) Fixed rate loans only.

3) Make the originators of the loan guarentee it for a certain amount of time. No more selling junk loans they know will go bad.

Andy
I agree with #1.

#2 I disagree with. lending options should remain available. however disclosure should be detailed and explained to regular borrowers, and , no one should be allowed to make an ARM if they cannot provide proof of ability to pay once the rate adjusts or the balloon is demanded

#3 there has been talk about that, but rather than a guarantee, there's been talk about having them retain a good chunk of what they are selling in their own books.

Personally I think the issue is more of removing the ability of banks to trade for their own accounts on investments they sell to outside clients (Investment banks are notorious for throwing clients under the bus in order to look after their own investments); and removing the incentives that banks had to offload or securitize bad debt (such as huge performance bonuses based on volume instead of actual investment performance).
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Old August 27th, 2010, 03:21 PM   #44 (permalink)
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Good grief, not this old dog. Did Congress mandate no-interest loans? Did Congress mandate liars loans? Did Congress mandate that mortgages be extended to people who couldn't pay them? Did Congress mandate that ratings agencies lie about the risk of the subprime mortgages in some CDOs? Heck, CDOs weren't even invented until the late 80s! The fact is that Wall Street took a fairly straight-forward idea (and Rigmaster has the history spot on) and turned it into the biggest destructive force our economy has seen in ages. That is so NOT what was intended by the Community Reinvestment Act. If subprime loans had been consistently identified as subprime loans, and priced accordingly, none of this would have happened. All of this destruction can be laid squarely at the feet of Wall Street banks.




While I understand the sentiment, the problem is that if we had let AIG, GM and other big Wall Street firms fail, our economy would have been utterly destroyed. The fact of the matter is that AIG WAS too big to fail. If it failed, it obliterated the credit market, both here and in Europe. If GM had been allowed to fail, the auto supply industry would have gone with it and Ford would have gone under as well. If the government had not intervened with taxpayer dollars, we would likely be looking at 20%-30% unemployment and a GDP probably about another 10% below where it is now. That wouldn't just hurt a little bit, that would have ruined the country for a generation or more. It would have been a second Great Depression. Does bailing out these clowns suck? Yeah, big time. But not doing so would have been orders of magnitude worse. The task ahead is to make sure that this kind of situation can never occur again.
Companies fail all the time, and it would have been ok for some to simply fail. What we have done is extended the pain because a lot of that credit is simply sitting somewhere else with someone else hoping to get a payout on it. Default clears things up even if it's a painful process.

I don't like to see anyone lose a job. It does hurt and for a long time. That said, there's no reason why GM and Chrysler shouldn't have been allowed to fail. To this day, they still haven't radically changed the way they operate, and they're still struggling with how to maintain labor relations that don't sink their profitability. They will fail again. Chrysler has been bailed out twice in my lifetime. After the first bailout and not even counting the fact the Daimler tried to make it profitable, they should have had a sink or swim business plan. Undoubtedly, GM and Chrysler should have gone out of business without protection. GM sold more cars than ever but couldn't pay off it's operating costs and retirement debts. All we did through bailout is reset the table for somewhere a few years down the road. For the past several years, GM has paid more for it's worker and retiree benefits than it has for steel to make cars - and I don't think they've changed that despite bailout money backing. Really, the largest automaker in the world was losing more than $1B per month. They haven't done what it takes to reverse that, and it's evidently clear. Introducing the Chevy Volt at $40k+ - that's a colossal bad decision!

As for AIG and others fail, nothing's too big to fail. Bear Stearns, WorldCom, Merrill-Lynch, Enron, WaMu, savings and loans, Pan Am, were all thought to be too big to fail. They did, and yet we live without them.

More perverse is the fact that places like Goldman Sachs, a key player in the entire financial meltdown, not only survived but continue to operate freely and profitably without really ever having to realize any of the risks taken.

What's too big to fail in our economy? Consumer spending. It's the fuel of business and stock markets. But guess what's at a standstill - consumer spending. When bad companies are exposed and allowed to faulter, consumers facilitate the natural demise by taking their money elsewhere. Sometimes quickly, sometimes slowly.

What we have not been able to see is that our market has been built on credit for so long that sometimes the only way to shake out the weeds is to let things run their natural courses.

It's painful, but it's true.

Nice dialogue though.
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Old August 27th, 2010, 04:39 PM   #45 (permalink)
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I don't like to see anyone lose a job. It does hurt and for a long time. That said, there's no reason why GM and Chrysler shouldn't have been allowed to fail.
I've seen a number of people here, and elsewhere, advocate this position, and I honestly don't get it. You say you don't like to see anyone lose a job, yet your advocating standing aside while an entire industry evaporates, and hundreds of thousands of jobs would have been lost. GM itself doesn't make a whole lot, but what they do is contract out to loads of much smaller supplier companies. Those companies would have gone under as well if GM sank.
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To this day, they still haven't radically changed the way they operate, and they're still struggling with how to maintain labor relations that don't sink their profitability. They will fail again. Chrysler has been bailed out twice in my lifetime. After the first bailout and not even counting the fact the Daimler tried to make it profitable, they should have had a sink or swim business plan.
Actually I would argue that the GM that emerged from bankruptcy is vastly improved over the old GM. They sold or shut down a number of brands that should have been gone a long time ago. And they were able to at least start to trim their labor costs. While existing employees maintained their salary, new hires are coming in at a much lower level, more in line with what foreign manufacturers pay. Chapter 11 didn't go far enough, but I believe it was better than liquidating the company.

As for Chrysler, it probably should have been allowed to die. Daimler actually gutted the thing by moving all car design from the US to Germany. Not only did Chrysler not have any decent cars, they had no capability to develop them because they had no designers left. Chrysler was really just a shell of a company outside of Jeep.

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GM sold more cars than ever but couldn't pay off it's operating costs and retirement debts. All we did through bailout is reset the table for somewhere a few years down the road.
I guess I don't see that as a bad thing since if GM goes under, PBGC (aka taxypayers) are on the hook for a good portion of the benefits. Bailing out GM is probably cheaper.


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As for AIG and others fail, nothing's too big to fail. Bear Stearns, WorldCom, Merrill-Lynch, Enron, WaMu, savings and loans, Pan Am, were all thought to be too big to fail. They did, and yet we live without them.
Actually if you do some research (this is an interesting series), you'll see that AIG was too big to fail. It was "insuring" the major Wall Street banks, and if it didn't make good on those CDSs, pretty much every Wall Street bank would have been finished. The US and European banking system would simply have seized up. It almost certainly would have triggered a depression. I don't know about you, but a decade or two of 30% unemployment doesn't really float my boat, particularly if it can be avoided.

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More perverse is the fact that places like Goldman Sachs, a key player in the entire financial meltdown, not only survived but continue to operate freely and profitably without really ever having to realize any of the risks taken.
I agree, and this is where I think we need to be smarter about this whole thing. Some companies were allowed to get to be too big to fail, and that has to stop right now. There has to be some regulatory authority to break up companies that threaten the economy if they fail. I think Goldman Sachs would be a good place to start.
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Old October 22nd, 2012, 03:18 AM   #46 (permalink)
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Just people with better "inside" information and those that are dependent on those with "inside" information.
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Old October 29th, 2012, 08:34 PM   #47 (permalink)
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Why did almost everyone here take our economic crisis as an opportunity to spew their blind, political views on Presidents??? The problem is not Obama; the problem is not Bush. The problem is us, and our economic system.

Big business is sucking the money out of us.
America's participation in every major war since WWII is sucking the money out of us.
The fact that doctors charge an arm and a leg to save a finger is sucking the money out of us.
Globalization is sucking the money out of us.
America's industrial dependence on one of the most scarce natural resources in the world is sucking the money out of us.
American universities charging hundreds of thousands of dollars to hand out pieces of paper that do nothing are sucking the money out of us.
Inflation is sucking the money out of us.
Tax for unnecessary government services is sucking the money out of us.

These problems weren't an immediate issue when we were innovators because other nations couldn't figure out what it was that we were doing quickly enough to establish competitive industries and exploit their workers into doing it for cheaper.
Before that, there was no immediate issue because internet and high speed transportation that could make big business and globalization possible didn't exist.
And before that, it wasn't an issue at all because Americans had slaves and indentured servants do labor for almost nothing.

Today we may never see recovery because we know more about Kim Kardashian than we do about science and technology. We don't read. We don't care enough about the next generation of Americans. And we let Washington blind us to all of this by dividing us into two parties that will never get 2/3s vote in Congress and change a damn thing.
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Old October 30th, 2012, 03:37 PM   #48 (permalink)
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Actually, our economy is tumbling down. This is because of several reasons. Our currency has depreciated sharply, and keeps on depreciating. Almost all the investors have left this country and investing abroad. There is almost no federal reserve left in our central bank, State Bank of Pakistan. Besides that no multinational companies are launching their firms in Pakistan anymore. What government need to do is to stop the imports of luxury goods in order to conserve Federal Reserves. They ought to encourage private sector, investors and multinational companies to invest in Pakistan.
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Hello guys what you think about it..??
Damn bots.

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Why did almost everyone here take our economic crisis as an opportunity to spew their blind, political views on Presidents??? The problem is not Obama; the problem is not Bush. The problem is us, and our economic system.
Well I would agree with this.


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Big business is sucking the money out of us.
America's participation in every major war since WWII is sucking the money out of us.
The fact that doctors charge an arm and a leg to save a finger is sucking the money out of us.
Globalization is sucking the money out of us.
America's industrial dependence on one of the most scarce natural resources in the world is sucking the money out of us.
American universities charging hundreds of thousands of dollars to hand out pieces of paper that do nothing are sucking the money out of us.
Inflation is sucking the money out of us.
Tax for unnecessary government services is sucking the money out of us.
Is big business not necessary?
Every major war is debatable, and bar Vietnam and Korea (the latter of which was a big success), wars havent sucked massive amounts of resources from the economy since WWII.
Doctors are not the problem. The system (or lack of it), is. Doctors probably are paid too much but they arent paid 5 times as much as in Europe, so that doesnt for the ridiculous US healthcare spending.
Globalisation has been an economic boon to a great extent. The success of the American and European unions will prove the benefits.
All countries have said dependence on oil, yet the US does not import as much as Europe, and also burns a lot of its own dirty, disgusting coal.
Universities cost lots of money everywhere, its just elsewhere the government covers most of the cost.
Inflation does literally do so I guess Still though, the 2-3% inflation we deal with these days is about right.
Tax rates are too low if you look at the deficits anyway, meh.
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Old October 30th, 2012, 06:25 PM   #49 (permalink)
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The Korean War was a great success. Look at North Korea today...

I consider the Afghanistan and Iraq wars to be a major drain that our great-great grandchildren will still be paying for.

Time banks are an interesting concept. People helping each other directly instead of waiting for a government or corporation to do it for them. I live outside a small town in the west so we help each other without worrying about the accounting but it seems to be useful for city folk.

OpenCourseWare solves the problem of the high cost of education. Most people can afford free.
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Old October 31st, 2012, 06:09 AM   #50 (permalink)
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The Korean War was a great success. Look at North Korea today...
And think about how South Korea could have ended up like the South, but is instead a wealthy stalwart ally of the west!

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I consider the Afghanistan and Iraq wars to be a major drain that our great-great grandchildren will still be paying for.
Well, the the war debt of WWII was paid off fairly fast, I don't see the debt of Iraq and Afghanistan (Maybe 10% of the total debt), extending out 70 years.

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Time banks are an interesting concept. People helping each other directly instead of waiting for a government or corporation to do it for them. I live outside a small town in the west so we help each other without worrying about the accounting but it seems to be useful for city folk.
Unfortunately, for charity to replace government people would have to donate double digit percentages of their income to charities which may not be as efficient as social programs.

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OpenCourseWare solves the problem of the high cost of education. Most people can afford free.
Online third level really isnt a great solution. Not to mention that there is far more to third level than learning.
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