How easily we forget those several years of economic stress unless of course the Economic Crisis directly affected you as an individual or within your family. You may recall it was a year or two of grave uncertainty that has legs to the present time and most likely will be with us into the near future. At the working class level, many household providers sat on the edge of their cushions waiting for the next Crisis shoe to drop, and also Wall Street Corporate Bosses became concerned, very concerned, as to just how the economic shock would affect their bonuses, and Heaven forbid, their lucrative high paying executive positions.
The Big Wigs on Wall Street were clearly worried, scared. Would the economy falter, sputter, and fail? Six of the largest Banks and over a hundred other smaller financial institutions were on the verge of going bankrupt as were two major auto companies. It didn’t look good. Giant banks and investment houses, Bank of America, Citibank, Bear Stearns, Morgan Stanley, Goldman Sacks, were on shaky ground, and could go under unless their difficulties be immediately addressed, funds scraped up from somewhere, somehow, possible mergers of the strongest with the weakest institutions and so forth. Lehman Brothers was the most vulnerable. There would be dozens of hot meetings searching for the guilty, the blamable. Soon these ventures would approach the Federal Government for bailouts to ward off a disastrous collapse of the entire American economy, losing potentially trillions of dollars.
Three main social classes, some composed of course of the older workers, had not felt such a shock of uncertainty since 1929, and through the 1930s. The public and the national banking and investment institutions were in a quandary. The entire United States was deeply concerned that there would be a revival, a replay, of the Great Depression. Remember those photos of soup kitchen lines, the Dust Bowl, 26% unemployment in some regions, and a reduction of 60% in the country’s industrial capacity. It was a horrific period for most of the poor and middle class who survive it, but those folks became as they would say a little later, according to Tom Brokaw, “The Greatest Generation.”
My visiting son and daughter-in-law arrived in Hawaii for a visit in the late Autumn of 2007 and within minutes inquired as to my opinion of how long the current period of uncertainty would last, months, years? I assumed they posed this question to me because I was an older experienced person who had lived in the late 1930’s during of the Great Depression. Well, I was only a child at the time and had forgotten those bad years, but was present at the creation of the post war boom years, when the economy rapidly improved practically overnight to the prosperous delight of millions. However, I wagered a guess based on my meager experience and few books I’d read about the possibility of “Bad Economic Times” coming someday. The among the several tomes were author-survivalist Howard Ruff and an ex-Federal Reserve Chairman Paul Volker warning the American dream was about to be pricked. My off the cuff guess was five years, possibly as long as ten years before the economy would recover and would return around to a normal setting, but in the meantime in the first few years there would be plenty of pain and discomfort to go around. That is pain for the masses of unemployed, and a slight discomfort for the wealthy, now referred to as the One, or maybe Two Percent of the population. Fortunately, I was not far off. They may now believe me to be a sage.
The American Financial Crisis of 2007-2008 is frequently referred to as the “Global Financial Crisis of 2008-2012 was undoubtedly the worst economic Crisis since the Great Depression. The event resulted in the serious threat of the total collapses of our largest institutions and culminating in hundreds of billions of dollars in bailout funds provided to banks and financial institutions by the Federal Government. It predisposed severe downturns in stock markets worldwide. In vital areas of the U. S. economy, the housing market suffered substantially resulting in many thousands evicted from their homes, and forebodings of foreclosures that kept owns and renters on edge searching for solutions, and worst of all prolonged unemployment for millions. The crisis was instrumental in the failure of thousands of large and small businesses with a significant, but recoverable decline in consumer spending that is estimated to have been in the trillions of dollars.
The Crisis began with the bursting of the housing bubble in 2006 that caused values of property to plummet, and the values of securities that were tied to real estate prices became drastically reduced in value, ultimately damaging financial institutions. The Crisis was exacerbated by previous policies encouraging home ownership by providing access to easily reduced loans to borrowers for often grossly overvalued property at subprime mortgage rates. The mortgages were then bundled and sold to investors on the assumption property values would rise. It became a questionable practice between buyers and sellers of securities. When short-term loans were called in, payments were not readily forthcoming or not at all and banks and insurance companies were not sufficiently reimbursed. This damaged investor confidence and institutional solvency. The financial moves further reduce confidence as securities investors, domestically and globally, suffered large losses in securities during 2008 and thereafter. Economies slowed around the world as credit tightened and international trade diminished. Other causes, also man-made, were high risk investments lacking transparency by institutions, other private investment groups, and individuals. These were also highly contributory to the economic fall.
Another significant factor in the financial disaster was the wide-spread failure of government regulators and Federal supervisors to monitor financial institutions that did not alert authorities of improper business strategies leaving institutions free to manage investments as they saw fit while not taking into consideration the uncertainty of markets. (in other words gambling with other people’s money) This led financial institution to proceed as they wished no matter what the risk or circumstance for improperly qualified investments. Most of these investment schemes survive and prosper to this day in spite of weak new regulations complete with loopholes: failure to oversee or regulate credit ratings, excessive borrowing against assets, and unapproved risk investment practices. There are many perhaps, hundreds of individual that could be culpable, who affected the decisions and made the uncalled dangerous mistaken strategies affecting tens of millions of people, and who will never see the inside of a court room. Some were knowingly deceptive, and others were silent bystanders, or perhaps supporters of the Wall Street shenanigans. It is upsetting there were no whistleblowers, no Edward Snowden insiders, to alert the Federal Securities and Exchange Commission officials whose hands were tied by careless political legislation, nor was the average citizen investor. I regret not providing here a lengthy accurate in-depth list of guilty perpetrators, but I will narrow the listing to a few that I feel were responsible to a significant degree knowingly or unknowingly, yet who have happily moved on to retirment, Academia and Republican Think Tanks to escape public ridicule and criticism:
Lew Ranieri: With his original good intentions this man devised in the 1970’s mortgage-backed securities to shift bank investors into allowing mortgages more widely available, and unfortunately did not foresee that banks would create risky interactions with the additional incomes and then construct collateral debt obligations. Being one of the founders of the concept of mortgage investing he admitted in later years to creating the problem and taking part and responsibility for the Crisis.
Phil Gramm: As Chairman of the Senate Banking Committee for two years, 1999 to 2001, in that capacity Gramm steered the deregulation bill that allowed bank investment and commercial banks to merge and become risk taking investment institutions. Banks thereafter become investment houses with mortgage assets. Presently the Dodd-Frank bill is attempting to undo previous harmful Gramm legislation and is trying to rein in risky bank investments. Mr. Grahn is currently a visiting scholar at the American Enterprise Institute and fully retired from the Senate.
Alan Greenspan: The Fed Chairman kept interest rates too low feeding the real estate bubble. Greenspan believes free markets are self-regulating and has been a firm supporter of deregulation his whole career. (A bad Actor whom Wall Street loved) He told the Congressional Banking Committee last year he had put too much faith in the self-regulation of free markets. Wast his was merely an after thought for the ex Fed Chairman? Greenspan is currently semi-retired and is an author and engagement speaker.
Chris Cox: Once Chief of the Securities and Exchange Commission until 2009, Cox was cited f as a symbol of the agency’s lax enforcement and failure to hold Wall Street’s feet to the fire allowing it to continue to invest in risky investment schemes. Currently with the law firm Bingham McCutchen and heads the Bingham Consulting Unit as a government contracting adviser for the organization.
Jimmy Cayne: The leverage loving Cayne ran Bear Stearn from 1993 until 2008 when unable to find financing the firm filed for bankruptcy early in the game warning Wall Street in advance of the coming Crisis. Mishandled by Cayne, Bear Stearns made bad unbelievably bad decisions and lost one billion dollars late in his tenure. Presently retired with investments and was a bridge-playing champion in 2010 and 2011.
Dick Fuld: Then under Fuld Lehman Brothers became highly leveraged and vastly overexposed to the subprime mortgage market. Lehman’s collapse in 2008 triggered the Global Economic Crises. After Lehman’s bankruptcy Flud established Matrix advisory in New York City to provide guidance to corporations on raising capital, merger, and acquisitions.
Joe Cassano: He led the group at AIG that sold Credit Default Swaps and insurance for mortgage-backed bonds held by Goldman Sacks and other investment giants. When the housing market crashed so did the guaranteed bond’s value requiring a 182 billion federal loan and bailout. The government realize some gain in a repayment of 22 billion. Mr. Cassano is still around in semi-retirement or else screwing up other financial institutions.
Kathleen Corbet: We could not let the ladies off the culprit identifying hook now could we? She ran the Standard and Poor rating unit until 2009, and was excoriated for conflict of interest and lavishing outlandish AAA+ ratings to firms and CDO, Collateralized Debt obligations, investments that at the time and later tanked in value along with ABAs and MBSs, Asset Backed Securities, Mortgages Backed Securities. The ratings were not only supported by S&P but were often fabricated by her Unit. S & P is being sued for misuse of its rating system and may well have to cough up money’s in fines for their negligence. Corbet is currently with Cross Ridge Capital a venture-capital firm. I may be wrong, but along with others she may be crying all the way to the bank to collect her share of Wall Street good will.
Angelo Moziloc: The founder of Country-Wide Mortgages whose subprime, no documents involved loans set fire to loan-no-risk borrowers. Moziloc admitted NO wrong doing, but agreed to pay a 67.5 millon dollar settlement with the Securities and Exchange Commission. He is banned from serving in any publicly owned company and may by now thinking of retiring with his multi millions.
Should the Reader inform that none of the above named culprits took money or benefits under the table for their malicious part in the Economic Crisis and its mishandling before and after the event struck, I’ve got a bridge to sell you. However, they could not cover up their influence in the deception of the events that nearly collapsed the American Economic System. Their role goes well beyond mere incompetence. None of the above are in Jail and furthermore they never will be.
All the Best.
Note, Final bailout totals, 750 billion to banks and institutions, 200 billion to Fanny Mae and Freddy Mac)