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  1. #1
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    The men who killed the U.S. economy

    The men who killed the U.S. economy

    By Hari Sud
    Column: Abroad View


    Toronto, ON, Canada, — The media these days is unveiling the names of erring executives of Wall Street investment houses responsible for the current financial meltdown, which is almost certain to lead to a recession, or even depression, similar to that of the 1930s. This path to financial breakdown began a decade ago, when Wall Street gained freedom from all regulations, controls and reporting. This was their ticket to get away with anything.

    Wall Street executives cleverly enticed the world to leave their money in the United States in the name of decent returns. They then gave away that money as cheap credit to anyone and everyone who wanted it. U.S. citizens got hooked on purchasing new homes, renovating old homes and buying “goodies” like laptops, iPods, cell phones and LCD TVs, to name a few.

    The list of those responsible should include a “who’s who” of Wall Street. The chairman of AIG, the chairman of Lehman Brothers, the head of the U.S.

    Securities and Exchange Commission, heads of mortgage giants, past and present chairmen of the Federal Reserve, U.S. Treasury officials and politicians who worked on Wall Street’s behalf, collectively undermined the United States’ financial health. Greed motivated them, and in their pursuit of personal enrichment, they forgot the rest of the country and the world.

    Did you know that these “honchos” caused a run on commodities only six months back? Rice, wheat and corn tripled in price over a short period of time, leaving the world wondering why.

    Rains in India and China in 2007-08 were good. These countries did not need extra grain. Africa and the rest of Asia missed a heartbeat when rice-exporting countries like India, unable to solve the mystery, refused to honor customary export contracts. In fact, it was Wall Street bankers with their huge hedge funds and derivatives who caused it, by buying out future contracts and starving the market’s supply, which drove prices up.

    The same thing happened with minerals and metals. Gold prices doubled; copper prices tripled. Oil prices jumped from an average of US$40 a barrel to $147 a barrel in one year. The oil price increase was partly due to overly jealous exporters. Another part was due to hedge-fund managers getting out of control.

    Today, the price of oil is fluctuating at around US$80 per barrel, a far cry from $147 per barrel only two months back. It will fall further as more and more hedge funds are withdrawn from the commodity market. In one way, this financial meltdown is a blessing in disguise for commodities; prices are finally stable and are searching for their natural baseline.

    Over a period of three weeks, from the last week in September until early October, the United States’ total wealth suffered a significant drop exceeding US$2 trillion. Most losses were in very risky hedge funds, derivatives and other risky investments. Real estate had already been suffering for a year. A domino effect led to general losses in the stock values of all companies, which took a 30 percent tumble.

    The crisis came to a head when banks, trapped with overvalued real estate assets, locked down the general credit. These banks were following the established liquidity principle. With huge non-performing assets, they could not borrow cash and hence could not lend to one another. Ultimately, small and large businesses alike began to feel the pinch. Credit-card holders were temporarily spared, but credit on house purchases, car loans and other large purchases was withdrawn. The United States was forced to begin living within its means.

    The United States has no surplus cash. Taxes are not even enough to cover the country’s expenses; hence deficit financing is done through debt. Borrowed money from the rest of the world is incurring a huge debt that currently sits at about US$10 trillion. The export earnings of China, India, Japan, Taiwan and South Korea, among others, are kept in the United States under the pretext of good returns. This easy money is then used to finance the deficit, creating a trap for a rise in debt.

    This extra cash from export earnings appeared a decade ago, when oil prices were stable at US$30 a barrel. Chinese, Japanese, Indian and South Korean exports to the United States were rising, and as per agreement, that money was left behind in the United States.

    This money from export earnings amounts to US$400 to $600 billion per year, a considerably large chunk of cash. Housing in the United States was seen as one way to invest it, and that is when sub-prime loans were born and profitable mortgage-based securities began trading. Only a few bankers and CEOs had full knowledge of this scam. In the process, they pocketed billions of dollars in commissions over the course of a decade.

    The biggest losers are middle-class citizens. With promises of high returns, Wall Street took their hard-earned retirement savings money. Their savings have been halved and some have lost almost all of their money. For someone who is 45 years old, there is time and the possibility of recovery; for retirees who lost half their pension money, it is unlikely they will recover.

    The Wall Street we have known up until three months ago will soon cease to exist. It will no longer be a freewheeling marketplace; new rules and controls will have to be implemented. As closure to this meltdown, some of the millionaire executives will become paupers, teaching a lesson to others. If the United States was a Middle Eastern country or was ruled by the likes of Henry VIII, these CEOs would be charged today and lose their heads tomorrow.

    However, there is a light at the end of the tunnel. The banks will be bailed out by the United States and Europe’s US$2 trillion package. Credit will start flowing again. Some relief on sub-prime loans to homeowners will come in the form of frozen payments. Retirees will have a one-time opportunity to withdraw cash tax-free.

    All these factors will help stabilize the economy. Let us hope that the upcoming recession does not cancel out all the gains of the bailout package.

    In short, banks and investment houses cannot be allowed to run freely as they did before; that would be a great injustice to the middle class, which has lost the most. Rather, it is the CEOs of errant Wall Street companies who should be penalized in the strongest possible way.

    --

    (Hari Sud is a retired vice president of C-I-L Inc., a former investment strategies analyst and international relations manager. A graduate of Punjab University and the University of Missouri, he has lived in Canada for the past 34 years.

    The men who killed the U.S. economy - upiasia.com

  2. #2
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    Quote Originally Posted by gjbkk
    Did you know that these “honchos” caused a run on commodities only six months back? Rice, wheat and corn tripled in price over a short period of time, leaving the world wondering why.
    Smeg didn't know.

  3. #3
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    I love these types of articles - they suggest we should all live in a paternalistic environment. Whatever happened to looking after your own interests? Daily I get "pre-approved" credit card applications. I always chuck them in the bin. Why? Because I don't need or want them.

    And if we are blaming the consumer spending habits of the last 20 years, why the hell not blame the advertisers while we are at it? After all, they're the ones paying a million dollars for a 30 second commerical during the Super Bowl so that we can all go out and buy whatever crap it is they are selling this week.

    Fuck, the one thing I hope that comes out of all this mess is that people realise that if you spend more than you earn, one day YOU, and YOU alone, will have to pay it back. And don't look to me, as a tax-payer, to keep covering your fucking stupidity.

  4. #4
    I am in Jail

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    so its nothing to do easy credit and a boom and bust economy

  5. #5
    Thailand Expat
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    ^of course it is. Take a gambler to a betting shop and the chances are they will have a punt.

    But, the lesson we must all learn from this current situation is that we take responsibility for our action. If you do A+B the likely outcome will be C. And don't let me feel too sorry for you if you didn't realise that.

    An example:

    Go to bank - ask for mortgage- mortgage repayment is $800 per month, monthly salary is $1,200 per month = OK I can do that. "Now, how can I pay for my car?", "Oh, I know, Friendly Bank just sent me a credit card pre-approved at 20% interest per year"

    Two years down the road you realise your fucked. In the meantime I didn't agree to mortgage and I didn't buy the car - but hell, I have to help both you and lender pay for the fuck up.

    And exactly who is getting screwed in this deal?

  6. #6
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    I know that and you know that the banks know that but millions don't and sadly that is the problem

  7. #7
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    ^true And unfortunately our Govts don't know that - because I'm still the one left holding the bill for all this crap

  8. #8
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    Quote Originally Posted by William
    the consumer spending habits of the last 20 years
    Look no further that the recent economic rescue package that saw billions in taxpayer money sent out in cheques to US consumers. At a time of record personal debt, the nation was encouraged by the president to "consume". I wonder how many flat panel tv's were purchased ahead of paying credit cards or mortgage arrears.
    Marc Faber, a pretty outspoken investor described this week the us consumer as " Drunk and alccholic from the excesses of cheap credit and spending sprees, he has to go into rehabilitation so we will not be seeing him for a while"

  9. #9
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    ^and what does the Aus Govt decide to do - give away 10 billion in tax surplus (that I helped pay for), as an Xmas pressie to who - working and lower middle-class income families. Now how many of them will be using that to pay down debt or purchase shares?

    Sorry, I know that is p/c wrong - but...

  10. #10
    I am in Jail

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    Quote Originally Posted by William View Post
    ^true And unfortunately our Govts don't know that - because I'm still the one left holding the bill for all this crap





    yes, I only hope future member of parliaments will possess a brain

  11. #11
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    Quote Originally Posted by William
    Now how many of them will be using that to pay down debt or purchase shares?
    that's why socialism is the only possible solution, people don't know what to do with their money, they spend it on stupid things

    take away everything, just enough to feed, and use the tax money to pay for top of the line public transportation, healthcare, education, pension, and all the things that matter

  12. #12
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    Quote Originally Posted by William View Post
    ^true And unfortunately our Govts don't know that - because I'm still the one left holding the bill for all this crap
    I agree with you William. I have the distinct feeling that banks have now been removed from commercial reality, and can continue paying themselves real bonuses based upon artificial criteria until, once again, the taxpayer stumps up.

    Coming to a town near you, the Thormaturge Bank of Thailand. I feel I need a performance related bonus just for thinking up the name.
    I see fish. They are everywhere. They don't know they are fish.

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