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It started with Democratic legislation which forced banks to give unreasonable loans to unqualified suppliants for mortgage (CRA reorganizations, 1995, among others) or else face serious consequences from the government. FMnFM was formed, primarily by Democrats, to buy the loans off the banks to take the burden off them (all in order to liberalize the housing market and to reward constituents), and so a lot of people end up taking adjustable interest mortgages for houses they can't afford on the assumption that the house they're buying with it will rise in value, and they'll be able to sell it for a profit before the debt becomes too much for them to manage. Banks, of course, know that these lower class men can't afford the debts, but since they have to give loans to a certain percentage of each economic group or face serious consequences from the government, they do so anyway. Besides, FMnFM will buy the debts for them! Meanwhile, FMnFM sell the debts to numerous clients all over the world, and because of a lack of transparency in the FMnFM system, very few of those clients actually know what they're buying. For one of the only times in its career, being a unique case, factions composed of ONLY Republican party members push for regulation of FMnFM which would A ) increase its transparency B ) limit its spending. Those who oppose FMnFM are called "racists and bigots" for "using scare tactics to keep houses out of the hands of black lower class men." Barny Frank and Chris Dodd are probably the most notable defender of of these policies, although Obama himself once sued a bank for failing to meet its lower-class quotas and yet expanding beyond what the CRA regulations allowed, and his chief economic adviser is a former FMnFM president.

Well, one day the housing market doesn't rise, and all those people who had been counting on the continuation of the housing boom suddenly find themselves with debts they cannot handle. By this time, even middle and upper class men were involved in buying and selling houses they couldn't afford using the standards set by the above-stated laws and policies. So, now we have all these people who cannot possibly pay debts belonging, in indecipherable packages to people in Taiwan, Germany, Washington etc. Banks, suddenly not being paid what they lent, lose boat-loads of money. This freezes credit in the US, which causes national economic collapse. The stagnation of trade from the US, and the freeze of credit from the US (and several other failing international banks) freezes the economy world-wide. Until certain major international banks are once again confident and able enough to start handing out credit again, that decline will continue. Considering that those banks are on the verge of collapse despite bailouts, we may well be facing a second Great Depression.

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It's Democrats like Barny Frank and Chris Dodd who called the red flags on FMnFM the scare-tactics of racists and and bigots wanting to keep housing out of the hands of lower-income families that would have disagreed with you.

http://strata-sphere.com/blog/index.php/archives/6227

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Update: Let me pull some killer comments from SBD’s latest update all right after the dems took Congress in 2006:

First of all, Fannie Mae Freddie Mac, these are two companies, that have been closely tied to the Democratic Party. I think is the best way to put it. And they’ve been under a regulatory cloud. That may be lifted.

…

REMARKS BY REPRESENTATIVE BARNEY FRANK (D-MA), INCOMING CHAIRMAN OF THE HOUSE FINANCIAL SERVICES COMMITTEE, AT THE OFFICE OF THRIFT SUPERVISION HOUSING FORUM; LOCATION: THE NATIONAL PRESS CLUB, THE NATIONAL PRESS BUILDING, WASHINGTON, D.C. Federal News Service December 11, 2006 Monday

Now let me turn to housing — we have more to do yet in the deregulation. I’m just saying that one of the things that we did was to try and reduce the reporting requirement from the banks to the financial detectives. And far too much has to be reported now, in my judgment, of a routine nature. And the metaphor that I use is that we have told the law enforcement people to find a bunch of needles, and then we have set about building them a very big haystack. And we ought to thin that down so they can do a better job.

One of the things that I want to stress to my liberal friends is that excessive regulation or ineffective regulation is bad for regulation. Regulation is very important. The market does need some corrections, but if you overdo it, then you weaken your case.

http://www.youtube.com/watch?v=PmcGKbvTLSM

Ignore the sensational taglines. Although they exaggerate, the actual congressional film makes my point nicely.

http://www.youtube.com/watch?v=LPSDnGMzIdo...feature=related

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Barny Frank:

The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury, which I do not see. I think we see entities that are fundamentally sound financially and withstand some of the disastrous scenarios. And even if there were a problem, the Federal Government doesn't bail them out. But the more pressure there is there, then the less I think we see in terms of affordable housing.

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http://en.wikipedia.org/wiki/Subprime_mortgage_crisis

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The subprime mortgage crisis is an ongoing financial crisis characterized by contracted liquidity in global credit markets and banking systems. A downturn in the housing market of the United States, risky practices in lending and borrowing, and excessive individual and corporate debt levels have caused multiple adverse effects on the world economy. The crisis, which has roots in the closing years of the 20th century but has become more apparent throughout 2007 and 2008, has passed through various stages exposing pervasive weaknesses in the global financial system and regulatory framework.

http://useconomy.about.com/od/criticalssue...vent_crisis.htm

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In fact, 2007 GDP growth came in at 2%. However, what economy-watchers didn't realize was the sheer magnitude of the subprime mortgage market which had created a "perfect storm" of bad events. First, banks were not as worried about the credit-worthiness of borrowers because they could sell the mortgages on the secondary market. Second, unregulated mortgage brokers made loans to people who weren't qualified. Third, many homeowners took out interest-only loans to get lower monthly payments. As home prices declined and mortgage rates reset at a higher level, these homeowners could neither pay the mortgage nor sell their homes for a profit, and so they defaulted.

Fourth, and probably most importantly, mortgages were repackaged as mortgage-backed securities (MBS). Banks had hired sophisticated "quant jocks" who wrote computer programs that could repackage these MBS into high risk and low risk product bundles. The computer programs were so complicated that no one really understood what exactly was in each product bundle or how much of the bundle had subprime mortgages. When times were good, it didn't matter, and everyone bought the high risk bundles because they gave a higher return. As the housing market declined, however, everyone knew that these products were losing value but, since no one other than the computer programs understood them, the resale value of the products was unclear.

Last but not least, many of the purchasers of these MBS were not just other banks, but individual investors, pension funds and hedge funds. This meant that the risk was spread throughout the economy. Furthermore, since hedge funds are not regulated by the SEC, they could use derivatives to borrow money to make investments. This created higher returns in a good market, and greater losses in a bad one, thus magnifying the impact of any downturn.

I cannot post the original link to the following, as they came from EBSCO databases. However, almost every major university in the country is a member, and if you are able to access it, a simple "Mortgage crisis" under "Points of View" will yield my sources.

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The early twenty-first century subprime mortgage crisis is the result of the burst of the "housing bubble" in the United States. This occurred when housing prices increased dramatically at the same time that the number of new homeowners grew to record numbers. Many of these new homeowners took out loans and mortgages that they could not afford, and subsequently found themselves unable to pay for their new homes after the terms of these loans were adjusted. In addition, many worldwide financial institutions worldwide had invested in the US subprime mortgage market, and when the housing bubble burst, causing homeowners to default on their mortgages, these institutions and banks lost billions of dollars in assets that led to a further economic downturn. Finding a solution to the crisis will be difficult, as the reasons why the subprime market expanded and then crashed when it did are a matter of intense debate among economists.

~~~~

In February 2008, the US government developed an economic stimulus package that offered tax rebates to many Americans, beginning in May of that year. In addition, the Federal Reserve Board reduced the interest rate which banks pay to the government when they borrow money, called the "discount rate," and proposed further plans to help some homeowners facing foreclosure. The US Federal Bureau of Investigation (FBI) also opened a probe at the same time to investigate fraudulent mortgage lenders and real estate agencies.

As of 2008, the subprime mortgage crisis has slowed the US economy to the point of near recession. Housing prices are dropping at a stunning rate while foreclosures have risen dramatically. The full effects of the crisis and subsequent credit crunch have yet to be felt. In the US and Europe, governments have intervened, and it is likely that mortgage lending will be reformed to include extensive government regulation and controls. The British government even took control of one major investment bank in order to handle its losses. It remains to be seen how many homeowners, lending agencies, and hedge funds will be affected, but the outcome seems fairly bleak.

And the New York Times: http://nymag.com/news/intelligencer/51009/

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In the midst of the financial crisis, the country is at least able to reach bi-partisan agreement on where to fix the blame: Wall Street. It is a convenient explanation for voters wanting to be reassured that someone else is at fault, but it is starting to look unconvincing, or at least badly incomplete. Because at the bottom of the muck-filled well of the banking collapse lies something much simpler than the complicated bonds and derivatives that are Wall Street’s stock-in-trade: bad loans. Really, really bad loans.

~~~

So where did Wall Street come in? The investment houses did what their job is in any bubble: They sold it to their clients. The hundreds of billions of dollars of shoddy loans that mortgage underwriters made were packaged off and retailed to investors around the world. Not all the loans: The banks kept plenty on their own books—if they could have gotten rid of them all, Wachovia and Washington Mutual and Countrywide would still be in business. But many, many billions of dollars of them were bundled, cut up into slices to make “mortgage-backed securities” and “CDOs” and an alphabet soup of other bonds.

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First of all, they all address national debt and budget problems, which are not the cause of the current global meltdown. We are facing a liquidity crisis, which has next to nothing to do with American deficits, and everything to do with the collapse of international banks brought about by sub-prime mortgage packages. Short-term credit, a critical part of most business transactions internationally, has all but evaporated because of all the problems these banks face, which, again, has nothing to do with our debt or our budget, but with the collapse brought about by the internationally distributed high-risk mortgage packages.

[url="http://businessfinancemag.com/article/short-term-credit-evaporating-1001"]http://businessfinancemag.com/article/shor...vaporating-1001[/url]

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With all eyes on Congress and round two of the bailout push today, a new treasury survey underlines the need for a speedy resolution. Companies are starting to have trouble getting the short-term credit they need to cover seasonal shortfalls and temporary payment imbalances.

The Association for Financial Professionals (AFP) polled 4,000 of its members in early to mid-September about the availability of short-term credit -- and then, to gauge the impact of the continuing turmoil in the latter part of the month, the association followed up with a supplementary survey that yielded 326 responses, 270 of which were from corporate practitioner members.

In the earlier poll, just under half of respondents said that, despite the credit crunch, they'd seen no significant change in access to short-term credit over the past two years. But fully 40 percent of the finance executives who responded to the later poll said that their organization now has less access to short-term credit than it had at the beginning of September.

What's more, 62 percent of respondents, and more than two-thirds of those from large enterprises, said that their organization has already taken at least one action as a result of the drying up of short-term credit in September. The most popular move, reported by 41 percent, was transferring all or most short-term investments to bank deposits and U.S. Treasuries. Thirty-seven percent have reduced capital spending, and 26 percent say they've frozen or reduced hiring.

If access to short-term credit hasn't eased by the end of the year, more companies will be adopting such defensive measures. Sixty-one percent of the AFP's sample say they'll cut back capital spending, 42 percent will freeze or reduce hiring, and 26 percent will consider staff reductions or layoffs.

"You don't have to read into those numbers too much to see what the impact will be on Main Street," says Jeff Glenzer, managing director with the Association for Financial Professionals. "This is not some speculative conclusion that if we don't address liquidity issues Main Street might suffer -- these are real organizations who are already undertaking meaningful actions that affect their employees and other companies, and it's only going to get worse if Washington doesn't act."

Companies might want to review their investment policies with a view to countering the current crunch and any similar future crises, according to Dan Carmody, managing director of TreaSolution Inc., a Chicago-based consulting and staffing firm. "I think many people would agree that the lack of liquidity would constitute a disaster," he notes. "A new best practice that may have arisen from the current financial environment is the incorporation of liquidity disaster recovery into an organization's investment and/or debt policies."

My second point is that although Bush HAS spent more than I would approve of, this is because he is not a conservative Republican, fiscally speaking. This is something I've been complaining about for some time--that is, that Bush is a fiscal liberal who was elected for social issues first term and national defense issues second term--and I think it should be obvious by now why I did not think that good social values did not vindicate his liberal economic policies. On almost all the major causes of increase in spending, except for the wars, (No Child Left Behind, Medicare Part C, etc. etc.), he was almost uniformly supported by Democrats, and found most of his opposition in the Republican party. I will say it again. [color="red"]Bush is not a conservative president.[/color] High spending is the mark of a liberal administration, economically speaking, and low spending is the mark of a conservative administration, economically speaking. Although Bush was a hard conservative on issues like abortion, gay marriage, and defense, he was very liberal as far as most fiscal issues went. HE IS NOT THE ARCHETYPAL REPUBLICAN. As for the war, as I said before, the military size has actually shrunk across the board since the Clinton administration, and defense spending is a small percent of the GNP (the total wealth of the total, essentially. This is relevant since it is basically the pool the government draws money from. The government currently gets about 20% of the GNP) and federal outlays (government spending).

Third, although the deficit is very large as an absolute number, it's no where near a record as a percentage of the GNP. Saying that we have a record deficit now is like saying that Shrek made more money than Gone With the Wind, and is therefore a better movie. Although this is probably true, it does not take into account inflation, or the higher pool of money in the film industry's larger audience. Similarly, the debt as an absolute figure compared to historical absolute figures does not take into account the greatly increased pool of money available to both the government and individual citizens (The GNP and GDP are also at a record highs), or inflation.

Fourth, We have only suffered economically at the beginning of Bush's administration (brought about by the tech bubble collapse and 9/11, which caused a recession of only about 3 quarters despite, or perhaps because of, responsive tax cuts) and very recently (brought about by the sub-prime mortgage crisis etc). Despite tax cuts (btw, despite these, the US still has the highest corporate taxes of the G8, except for Japan. That's right, our corporate tax rate is higher than those of Canada, France, the UK, Russia, Italy and Germany. [url="http://finance.sympatico.msn.ca/taxes/insight/article.aspx?cp-documentid=5061116"]http://finance.sympatico.msn.ca/taxes/insi...umentid=5061116[/url] ) our GDP has risen steadily, while unemployment has fallen, except for the beginning and tail-end of the Bush administration, which as I said, just happened to coincide with two major economic disasters that had little to do with Bush spending (which I nevertheless disagree with, but because I oppose federal growth, not because statistics show it to be bad economic policy)
[url="http://bp3.blogger.com/_qve2Ds-cMvk/SJVTjfGna0I/AAAAAAAAAOk/wFyyzyEO9DU/s1600-h/Unemployment+rates+July+2008.jpg"]http://bp3.blogger.com/_qve2Ds-cMvk/SJVTjf...s+July+2008.jpg[/url] Just to emphasize the point here, unemployment fell steadily throughout the Bush administration except around the time of the the tech bubble collapse, 9/11, and the mortgage bubble collapse. Also, interestingly enough, the GDP (so far, although this is likely to change next quarter) has risen steadily despite these problems, during the Bush administration. The first three quarters excepted (again, tech bubble) we have not been in a recession throughout the entirety of his administration. [url="http://www.data360.org/dsg.aspx?Data_Set_Group_Id=230"]http://www.data360.org/dsg.aspx?Data_Set_Group_Id=230[/url]



Again, the blip from 1999-2002 represents the tech bubble collapse, and 9/11

So, to summarize, the national debt and the budget have nothing to do with the current international crisis. The international crisis is one of liquidity. Even if it did have to do with the spending of the Bush administration, that spending was largely supported by Bush + Democrats, and opposed by Republicans - Bush. Neither Bush Sr. nor Bush Jr. were true Reagan/thatcherites where privatization is concerned. Despite the increase in spending, our country had done very well economically (except for the tech-bubble and 9/11) until the implosion of FMnFM brought about by the sub-prime mortgage crisis, despite Bush policies, which even I disagree with, as they seem far too LIBERAL for me.

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For bank merging, I would say that yes, it has played a significant role in the current crisis. However, it was not the catalyst that began the crisis, nor was the system inevitably doomed to the current failure. Furthermore, the consolidation of business, and banking business in particular, is a global affair that has gone on under both administrations, and is not unique to the United States. Remember, my primary purpose here is not to say that the entire collapse is the fault of the Democratic Party. The collapse is the result of a long list of complicated issues, and people in every party, on Wall Street, and in other countries are to blame. My main purpose here, rather, is to prove that A ) The Republican Party is not centrally responsible for the collapse, and conservative policy is less responsible, and B ) that the actual precipitate of the crisis, the elephant in the room, was the collapse of FMnFM, which was created and defended by the Democratic Party and, and was attacked only by Republicans.

As for oversight and regulation, I don't think it's as simple as "the corporate world should be regulated." Areas of business are different from each other, and one sector may currently be over-regulated whereas other sectors are under-regulated. As I said earlier, The United States has the second highest corporate tax in the developed world (and it is only second by seven tenths of one percent, whereas it is ahead of, say, England and Russia by a little less or a little more than ten percent), and it is a real hinderance to its competitiveness.

The really obvious area of under-regulation, which became the catalyst of the whole liquidity crisis (FMnFM and other areas involving mortgages), suffered from a lack of oversight because of Democratic opposition to Republicans who foresaw problems associated with the irresponsible practices of FMnFM. If you scroll down here, you will find a letter from John McCain and several other Republican congressmen addressing just that topic in May of 2006. Although the crisis has involved a variety of complex issues, and, again, is the fault of people from across the board, I still would assert that had FMnFM been regulated better, or better yet, had not been created in the first place, ( perhaps along with several CRA reforms), there would have been no sub-prime mortgage crisis, and the current crisis would have been averted.

Also, to respond to Reincarnate from earlier

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And Yvette, in response to your Wall Street Journal graphs, spending in comparison to the GDP isn't the same as spending in comparison to the national treasury. The GDP doesn't fund the war, the treasury does, and they're two very separate entities.

There has to be a way to compare current economic figures to historical figures, whether it's in defense spending, welfare, deficit, or what have you. Absolute numbers are misleading because, again, they do not take into account inflation or the growth in the GNP. You can get a small private jet these days for the cost of the entire Louisiana Purchase.

The government cannot spend more than the GDP, and, in the post-depression era, its spending has been roughly 20% of the GDP, except during the WWII years. If the two numbers are unrelated, why have they followed each other so closely? Because of this correlation, one of the more accurate ways to compare figures from now to figures in, say, 1945, is to compare them as a percentage of the gross domestic product.

To see my point on the relationship between the GDP and federal spending, compare federal (not total government consumption, as that includes the expenditures of State governments) numbers here to the gross GDP at the top.

As for your argument concerning federal outlays, whether the government has been wasteful on the war or not, which I'm not conceding, the simple fact remains that defense, despite the war, is a smaller part of the budget now than it has been historically.

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Okay, I have some thoughts. They're mostly along the lines of "I am NOT reading all of that."

The rest are along the lines of "Are you blaming America for a global ... ahem, crisis?" Pfft. If it's a global problem, it should be treated as such - I think it's a big egocentric to even believe America has any more of a blame than politicians here in the UK. All countries have taken advantage of the good times, they knew this was coming, so I have little to no sympathy at all for those that were ill-prepared.

Give it a year and people will have forgotten this whole thing has even happened.