Economy

Ahh the economy, what to think? Boy oh boy these past few weeks have been quite the rollercoaster ride. From Fannie to Freddie, Leigmein to Bear the news has been awash with dismal financial analysis and hail marry passes from the government. But these events are not some new occurrence or some freak accident; this financial “meltdown” is merely the product of de regulation and Wall Streets almost psychotic pursuit of a larger bottom line.

Between 1999-2001 a series of sweeping legislation was passed essentially de regulated much of the banking and investment banking industries, in laymen terms the government basically took a hands off approach assuming the market was sophisticated enough to keep itself in equilibrium. This of course is the tried and true republican mantra, because of course less government is better government. At the same time a bubble in the housing market began to emerge, it is important to realize that in our capitalist free market system bubbles are perfectly normal. As housing prices began to skyrocket various banking instuitions began handing out loans to less and less applicable applicants that did not necessarily have the proper income or savings to back these promises, instead the hedged on the fact that no matter what ever year there house would be worth more, and could always be sold at a higher profit then when it was purchased. On top of this some households received variable rate home lowns, which essentially started at a low rate of interest (the amount paid back to the bank for profit) but were set by market factors.

At this point the market is flush with shaky credit, investment banks such as Bear Stearns lent money out at rates as high as 30 to 1, meaning for every actual dollar they had in the vault they lent out 30 more. So when people began to default on there loans and it became apparent that all this credit that the economy was relying on to sustain its growth was faulty it created a chain reaction sucking all the money out of the market.