Heritage's JD Foster Explains the Credit Crisis

[AtlasShruggery]

"I don't worry about the deficit" - Ronald Reagan

"Reagan taught us deficits don't matter" - Dick Cheney

[auditthepolls]

Tht economic bust was caused by the Heritage Foundation. The ideas espoused by it and amplified by the corporate press have been running this country since Reagan got here. Unregulated markets allowed wages to plummet, destroyed the middle class, created a materialistic society, and blew most government funds on debt and the military. Perhaps the one silver lining in this mess is that the Heritage Foundation will finally shut up.

[learninglemur]

The economic bust was caused by the Fed -- they forced interest rates below the natural rate of interest, fueling an unsustainable credit expansion boom that resulted in tremendous malinvestment and overconsumption.

Roger W. Garrison explains how the Fed lost its way in this paper: "Interest-Rate Targeting During the Great Moderation: A Reappraisal".

[learninglemur]

One of the best general articles that accurately explains the economic crisis in essential terms is: "The Crisis in 10 Points" by Robert Stewart.

[averageworkinggal]

The root cause is a speculative real estate bubble since 1995 caused by 2 main factors: moral hazard created by governmental 'affordable housing' and 'greater homeownership' ideology coupled with extended governmental loose monetary policy that pumped up a massive real estate bubble. The affordable housing ideology's loose lending standards (subprime) popped the bubble through high default rates. The deflation of the bubble is crushing the holders of the mortgage debt.

[LoneOarman]

He omitted the fact that sub-prime loans were insured in order to get a higher rating to make them marketable; and insured again by speculators that did not even own the investment. Unregulated and perfectly legal insurance fraud (misrepresentation and casino gambing/speculation). Betting is for smalltimers & losers... CREDIT DEFAULT SWAPS are for the real high rollers! The game if often rigged...

[averageworkinggal]

It wasn't CDSs that brought down the I-banks.

It was the fact that they held onto the senior tranches in their CDOs and failed to sell the risk via CDS because they miscalculated risk and thought there would never be enough defaults to put the traches that they held at risk.

They were wrong and that is where they took the losses that killed their balance sheets.

So it wasn't 'casino capitalism' that killed the I-banks.

It was incompetent risk management.

CDSs are the kook left's delusions.

[leebertarian]

But the reason the AAA rated tranches fell apart at Merrill, UBS & Citi is b/c of fraudulent misrepresentation of the actual risk, so Moodys & S&P obligingly rated the tranches all AAA. Wachovia & JP Morgan Chase have been sifting through these CDOs -- the bottom tranches are already full losses, of mezzanine defaults only 5% are recoverable and defaults in the senior tranches are only 35% recoverable. Out of $450b it appears that $300b are lost from all three tranches (around 5/8ths).

[averageworkinggal]

The banks held too many tranches which is where their big losses came from.

Their risk models were not realistic for the conditions of the housing bubble and risky mortgages and the default rates were estimated too low.

[chasna2]

Isn't there anybody at the Heritage Foundation that understands economics? It's call quantitative easing and it targets, not the interbank rate, but the actual quantity of excess reserves held by banks. The object is to force banks to go long on Treasuries and flatten the yield curve. It may work to reduce risk, maybe.

[wdflannery]

Just more 'let's bail out Wall Street' propaganda.

No cause, no effect, just give money to Wall Street.

[getplaning]

This is a good explanation of what is happening, but omits the reasons why. A deregulated U.S. financial market that made it easiest to make money via financial fraud. Investors put their faith in neoliberal deregulation. The accountability was supposed to lie with U.S. accounting firms and credit rating agencies. Investors were so ideologically blinded by free market rhetoric that they believed the fantasies about self-regulation and self-regulating markets tending toward equilibrium.

[isantoso81]

I don't get it these smart alecs, if they knew so much about the credit crisis, why didnt they speak of it earlier? like before the crisis happened? geez

[Tralgit]

Tell me about it

[Tralgit]

Greed is the main source of this mess. Way back when you wanted to buy a house you had to bring money; 10-15% down, and the rest according to your income. Now; 120% mortgage, new car loan, holiday's in exotic places. One day the bill has to be paid!

[giantshadows]

Thomas Jefferson

"If the American people ever allow private banks

to control the issue of their money,

first by inflation and then by deflation,

the banks and corporations that will

grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered."

[giantshadows]

How about posting a list of the owners of the federal reserve here or on your page..?

Explain to all the hard working Americans how these private bankers are destroying and buying their country with their own "money".

Tell them all the truth, forget your masters, when the truth comes home to roost, these globalists will be exposed for what they are-

thieves

[a0123456789z]

Way too complicated of an explanation.

[dtaijo174]

Allow me to quote Andrew Jackson

"You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the eternal God, I will rout you out."