Is America Doomed?

[Erwin Fletcher]

Is America Doomed if Barak Obama gets in? Can anyone out there tell me if there has ever been a successfull Black President / Prime Minister of any country? They have a very nasty habit of turning good countries into basket cases very quickly.

 

[Fire]

Addressing your blatantly racist comment, Mandela comes to mind.

Ignoring your blatantly racist comment, I don't know if I would call America doomed. It has changed forever though, it will never be as it was 8 years ago... we are witnessing a new era in that regard. However, they will be utterly ruined if they continue down the garden path. McCain at the moment seems to be the one more likely to do that. People the world over are starting to realise that extreme capitalism is every bit as dangerous and flawed as any extreme ideology. Socialism, communism, totalitarianism, fascism... even extreme democracy is paralysing, which is why we only have elections once every 3-4 years, and only the most major of major issues are brought to a referendum. Why some otherwise intelligent people ever believed that extreme capitalism would work is beyond me.

Did you see how I picked McCain as the one more likely to lead to America’s ‘doom’ by using thought, rather than bigotry? It wasn’t difficult.

 

[stabler]

Location: The Deep South In USA

^That explains a lot.

 

[camsmith]

Fire, I dont think Mandela was successful as president.

People the world over are starting to realise that extreme capitalism is every bit as dangerous and flawed as any extreme ideology.

Straight out of the book of apparent "economic conservative" Kevin Rudd.

 

[Max zero]

Fire, I dont think Mandela was successful as president.



Straight out of the book of apparent "economic conservative" Kevin Rudd.

Its true though.

I have always been (and still am) a strong supporter of free markets but I can't help feeling that 'going all the way' like the US leads to dramas like the current situation.

Australia is a free market economy (though not as free as the US) but it seems that small bit of regulation and restraint seemed to make a big difference.

The gains seem to be outweighed by the losses.

 

[camsmith]

Its true though.

I have always been (and still am) a strong supporter of free markets but I can't help feeling that 'going all the way' like the US leads to dramas like the current situation.

Australia is a free market economy (though not as free as the US) but it seems that small bit of regulation and restraint seemed to make a big difference.

The gains seem to be outweighed by the losses.

We have good regulators. I think thats the difference.

I'm no expert on economic issues but its fair to say the situation in the US wasn't helped by government interference, as I point out here.

 

[Joffaboy]

Blatantly racist claptrap, but for the hell of it.

Mandela - saved a country from civil war

Ghandi - united a country post colonialism and even though the birth was tumultuous and the partition very difficult, has seen his creation becoming one of the emerging powers of the 21 century.

As for America being doomed. Well i think that whomever is president will have to undo much of the damage the extreme right has done to the country both domestically and overseas and that will take years to achieve.

 

[Fire]

Fire, I dont think Mandela was successful as president.

Considering what South Africa was when he rose to power?

Straight out of the book of apparent "economic conservative" Kevin Rudd.

I hate Rudd and do not intend to vote for him again. But what I said is true. extreme capitalism is flawed. All phillosophies have benifits and weaknesses. It's about balance.

I know you don't understand this. Perhaps like modern day western communists, you never will.

 

[camsmith]

I hate Rudd and do not intend to vote for him again. But what I said is true. extreme capitalism is flawed. All phillosophies have benifits and weaknesses. It's about balance.

I know you don't understand this. Perhaps like modern day western communists, you never will.

I dont disagree.

 

[Fire]

I dont disagree.

Then what were you trying to say with the Rudd comment?

 

[Theeighthhamster]

Is America Doomed if Barak Obama gets in? Can anyone out there tell me if there has ever been a successfull Black President / Prime Minister of any country? They have a very nasty habit of turning good countries into basket cases very quickly.

Solid point. I just can't see how anyone can govern with that much pigmentation getting in the way.

 

[Joffaboy]

Is America Doomed if Barak Obama gets in? Can anyone out there tell me if there has ever been a successfull Black President / Prime Minister of any country? They have a very nasty habit of turning good countries into basket cases very quickly.

How would you tell if Obama messed up the country? Stock market crash? Multiple unpopular wars? Cultural hostility? Hated by most of the world? High unemployment? Rampant inflation in consumer staples? At this point I don't think anyone could mess up the country as bad as the last 8 years. They've run the country into a ditch.

 

[sherb]

How would you tell if Obama messed up the country? Stock market crash? Multiple unpopular wars? Cultural hostility? Hated by most of the world? High unemployment? Rampant inflation in consumer staples? At this point I don't think anyone could mess up the country as bad as the last 8 years. They've run the country into a ditch.

True.

Using the logic you have quoted, George W Bush must be African-American.

 

[Max zero]

We have good regulators. I think thats the difference.

I'm no expert on economic issues but its fair to say the situation in the US wasn't helped by government interference, as I point out here.

Thats the thing though, in a pure market economy you shouldn't need regulators the market should take care of everything. Clearly that is not the case.

As for Fannie Mae:

I have read this about this topic a lot on right leaning boards (not a fun place to be at the moment) and here is my take:

The whole idea of giving home owning help to poor people started with Carter back in the 1960s, the 1990s Clinton/Gore were simply an extension.

The thing is though, loans given to poor people through this program only makes up a small amount of the total amount of home loans given. Add to that they have a higher rate of repayment then other sub prime mortgages (don't make me get the graphs and tables-i'm feeling lazy).

http://www.usatoday.com/money/economy/2007-09-24-310537677_x.htm

About 5 percent of all U.S. mortgages are subprime, and only a fifth of those subprime mortgages are in risk of default, she noted.

Overall 94% of Americans are still playing their mortgages. So a quick bit of math shows that subprime mortgage defaults make up 1% of the mortgage market.

So why are they in such a hole? How does 1% of the mortgage market bring down the whole financial sector?

Leverage, derivatives and insurance (but not called insurance).

Leverage

Now I personally am not 100% on this since it makes no sense to me but I'll do my best. Leveraging is basically where you use the same asset in multiple investments at the same time. For example:

If a normal person were to invest $50 they would find a worthwhile investment and put their money in for a return. If there were multiple investments they would choose the best one and invest their money there. Wall Street didn't like having to make a decision like that so they would put the same $50 in both (don't ask me how I don't know). In this case having the same asset invested twice over would be labeled being 'double leveraged'.

Fannie Mae was leveraged 30 times over. Many of the failed Wall Street banks were leveraged 15-18 times over.

How many times a business in leveraged is not regulated and does not have to be divulged to investors or the market.

Derivatives

Now while most people would be happy with their $50 being leveraged 15-30 times over it wasn't enough for Wall Street. They wanted to make money even faster. So they turned to derivatives.

Derivatives are basically...bets. You create derivatives on those investments predicting whether they increase or fall in value. If the investment goes up in value and you make a tonne of money. If they go down...

They basically amplify the effect of an investment. The derivatives market is calculated to be (no one really knows for sure) worth $50-70 Trillion. It's almost completely unregulated.

Insurance

But wait! Wall Street is not dumb! They took out insurance in case these risky investments went bad! There was just a few problems:

1) The same people giving out the investments were also selling insurance. Easier to sell risky investments if they have 'insurance'. Can make more money selling it too.

2) They didn't call them insurance (because insurance is regulated- you need to keep assets aside to cover the liability) they called them Credit Default Swaps. So the 'insurance' was unregulated (seeing a pattern?) and didn't need to be backed up with assets.

Add to the mix that the subprime investments themselves were deliberately made so complicated hardly anyone understood them and that included the Ratings agencies themselves (so they gave these investments 'triple A' ratings.)

End result

1) Market turned down.

2) Initial mortgages lost - small amount of money.

3) Losses amplified by leveraging 15-30 times.

4) Losses amplified by derivative losses 30+ times.

5) 'Insurance' claims on AIG, Fannie Mae, etc. Not only have AIG and such investment in the same worthless investments (so they have already lost money) but they don't have the assets to cover the 'insurance' claims either (since it wasn't insurance).

6) Everybody:

7) Everyone runs to the Reserve Bank to save them.

This whole 'crisis' was generated by insane greed in unregulated markets. Sooner or later is was going to unravel and it has in spectacular fashion.

 

[gandaal]

I don't think anyone in power has ever seriously advocated absolutely pure free market capitalism. You're arguing with nobody.

The Americans have pushed it as far as they could but even they have regulators and legislation in place to protect consumers and financial institutions. Obviously it wasn't quite enough but that happens sometimes. It's just been so long since we've had a downturn that people have forgotten what its like and that this is a normal, if unfortunate, process.

 

[Max zero]

I don't think anyone in power has ever seriously advocated absolutely pure free market capitalism. You're arguing with nobody.

The Americans have pushed it as far as they could but even they have regulators and legislation in place to protect consumers and financial institutions. Obviously it wasn't quite enough but that happens sometimes. It's just been so long since we've had a downturn that people have forgotten what its like and that this is a normal, if unfortunate, process.

While no one in power is there are plenty still pushing for a more free market. Always people asking for less Govt. interference, lower taxes, more free trade etc.

As for the regulation its not that it was 'not quite enough' it was non-existent/removed.

This downturn is anything but normal. Its almost completely manufactured.

 

[gandaal]

While no one in power is there are plenty still pushing for a more free market. Always people asking for less Govt. interference, lower taxes, more free trade etc.

And rightfully so too. The less money that's taken out of the economy the better off everyone will be as long as essential and important services (such as Education, welfare, infrastructure, defense and health) aren't cut accordingly. It's a balancing act between lowering taxes and providing increased government services, and governments who balance it well tend to stay in power and provide a healthy economy (world financial circumstances permitting).

The issue here was the lack of financial restrictions on financial markets, not on a drop in the rate of tax or government spending.

As for the regulation its not that it was 'not quite enough' it was non-existent/removed.

This downturn is anything but normal. Its almost completely manufactured.

Yes it was removed to help those who could afford to buy homes in America. It was a stupid decision by the Democrats to approve the changes, and it was a stupid mistake by the Republicans not to change it back when they had the chance.

Manufactured? I don't think anyone deliberately goes out of their way to lose billions of dollars. Downturns happen, that's just capitalism. It's unfortunate part of the economic cycle but capitalism is a great deal better than the alternative.

 

[Max zero]

Yes it was removed to help those who could afford to buy homes in America. It was a stupid decision by the Democrats to approve the changes, and it was a stupid mistake by the Republicans not to change it back when they had the chance.

Manufactured? I don't think anyone deliberately goes out of their way to lose billions of dollars. Downturns happen, that's just capitalism. It's unfortunate part of the economic cycle but capitalism is a great deal better than the alternative.

As was stated in my link 2 posts previous. Subprime Mortgages make up 5% of the market, those 'at risk' are 20% of that ie 1% of the market.

A Potential of 1% of of overall mortgage failure should not have surprised anyone and it surely should not of had this effect.

There was no economic downturn. This 'crisis' came solely from the fact that Wall Street made huge 'bets' and leveraged themselves to the hilt on investments they didn't even understand.

The Clinton/Gore housing plan had no effect on this.The money lost on that 1% is quite minor. Its the fact that many Wall Street firms well effectively leveraged (leverage +derivatives) anywhere from 30-90 times over is what killed them.

Wall Street destroyed themselves.

 

[medusala]

Mandela - saved a country from civil war

Mandela is seen as a great success for not demanding revenge and for continuing with mainstream economics despite massive pressure on him.

Ghandi - united a country post colonialism and even though the birth was tumultuous and the partition very difficult, has seen his creation becoming one of the emerging powers of the 21 century.

Ghandi wasnt around much afterwards so hard to say much at all re him.

As for America being doomed. Well i think that whomever is president will have to undo much of the damage the extreme right has done to the country both domestically and overseas and that will take years to achieve

Extreme damage os? Thats absurd.

As for current crisis it would have happened regardless of who was in the White House given actions by the Fed.

The one thing you can say for sure is that if Obama carries through with his rhetoric from the primaries and campaign he is every chance to be responsible for more damage than Bush via protectionism, tax and spending policies.

 

[medusala]

The Clinton/Gore housing plan had no effect on this.

Yes it did. There are plenty of stats on this. You need to look at Fannie Mae etc regarding all this as well as the CRA.

this from Fairfax of all rags

http://www.smh.com.au/news/opinion/...s-crisis/2008/11/02/1225560637995.html?page=2

In 1968, to help balance the federal budget, Fannie Mae was converted to a private corporation. To offset this private monopoly, Congress chartered Freddie Mac as a competing private corporation.

The system worked well until 1995, when Freddie Mac began receiving government credit for buying or guaranteeing lower-quality mortgage debt from lower-income borrowers. By 2003, it was obvious bad credit was infecting the system and President George Bush recommended a legislative overhaul. The reform was blocked by the Democrats because it would restrict financing for low-income housing for minorities, a critical part of the Democratic base.

At the same time, another guard rail was being dismantled. The private debt ratings agencies, most notably Moody's, were becoming overwhelmed by the quantity and complexity of financial instruments being issued by the banks.

In 1999 a prominent Democrat, Howell Raines, chairman and chief executive of Fannie Mae, began a program which eased credit requirements for lower-income borrowers, especially "minority" applicants. Raines is African-American. In 2006, the Government filed suit against Raines to recover some of the $US90 million in income he had made at Fannie Mae based on overstated company earnings. The suit was settled this year and Raines fined about $US1 million.

Although he is now regarded as a culprit in the credit scandal, Raines is an adviser to Senator Obama. His predecessor as chief executive at Fannie Mae, James Johnson, is also an adviser to Obama's advisory team. After arriving in Congress, Senator Obama received $US126,349 in campaign contributions from Fannie Mae and Freddie Mac, the second-highest amount given to anyone in Congress

 

[Max zero]

Yes it did. There are plenty of stats on this. You need to look at Fannie Mae etc regarding all this as well as the CRA.

this from Fairfax of all rags

http://www.smh.com.au/news/opinion/...s-crisis/2008/11/02/1225560637995.html?page=2

In 1968, to help balance the federal budget, Fannie Mae was converted to a private corporation. To offset this private monopoly, Congress chartered Freddie Mac as a competing private corporation.

The system worked well until 1995, when Freddie Mac began receiving government credit for buying or guaranteeing lower-quality mortgage debt from lower-income borrowers. By 2003, it was obvious bad credit was infecting the system and President George Bush recommended a legislative overhaul. The reform was blocked by the Democrats because it would restrict financing for low-income housing for minorities, a critical part of the Democratic base.

At the same time, another guard rail was being dismantled. The private debt ratings agencies, most notably Moody's, were becoming overwhelmed by the quantity and complexity of financial instruments being issued by the banks.

In 1999 a prominent Democrat, Howell Raines, chairman and chief executive of Fannie Mae, began a program which eased credit requirements for lower-income borrowers, especially "minority" applicants. Raines is African-American. In 2006, the Government filed suit against Raines to recover some of the $US90 million in income he had made at Fannie Mae based on overstated company earnings. The suit was settled this year and Raines fined about $US1 million.

Although he is now regarded as a culprit in the credit scandal, Raines is an adviser to Senator Obama. His predecessor as chief executive at Fannie Mae, James Johnson, is also an adviser to Obama's advisory team. After arriving in Congress, Senator Obama received $US126,349 in campaign contributions from Fannie Mae and Freddie Mac, the second-highest amount given to anyone in Congress

Still don't get it.

The fact is Subprime mortgages make up 5% of the total mortgage market. Of them 20% are at risk. So overall all this drama has come from less then 1% of the mortgages.

Again 94% of all mortgages are still being paid.

The losses from the actual mortgages were fairly trivial.

If Wall Street had not:

1) Leveraged itself to the hilt with these KNOWN risky mortgages,

2) Buy derivatives on top of the RISKY investments that where often larger then the investments themselves,

then they would of been fine.

The name says it all: SUBprime mortgages. Basing your entire firms financial existence (eg Bear Sterns) on these investments is pure stupidity.

This is the same crap that brought down Bearings Bank in the UK, someone messing around with derivatives on risky investments.

NEWSFLASH: Risky investment is risky!

People already knew the risks, that's why they were selling (worthless) insurance on them.

 

[medusala]

Still don't get it.

The fact is Subprime mortgages make up 5% of the total mortgage market. Of them 20% are at risk. So overall all this drama has come from less then 1% of the mortgages.

You could probably google better figures but the rate of subprime and Alt A is higher than you suggest as is the default rate

Once resets kick in IIRC the predicted probability of default is well over 30%, not sure where the current indexes are at.

BTW your article is way out of date.

 

[Joffaboy]

Extreme damage os? Thats absurd.

OK you are right - the US has had its reputation enhanced and cultivated Overseas in the past 8 years

Fair Dinkum

 

[medusala]

OK you are right - the US has had its reputation enhanced and cultivated Overseas in the past 8 years

Fair Dinkum

This is just wilful blindness.

Reagan had a crack in a number of places.

Clinton got stuck in re Kosovo "illegally"

Kennedy was involved in asassination plots vs two world leaders and the Vietnam War

etc etc

 

[bit_pattern]

This is just wilful blindness.

Reagan had a crack in a number of places.

Clinton got stuck in re Kosovo "illegally"

Kennedy was involved in asassination plots vs two world leaders and the Vietnam War

etc etc

Nice one, Pilger!