As you can see this is going to be a rant about the U.S economy and why it is never going to change. These are MY OPINIONS, and when i say that, i mean that this might not be how anyone else sees it. And this is also seen from the perspective of a person that has only visited the U.S ones.
Some Facts
So in the beginning when George W. Bush won the election for president in the US in 2001, this would be the start of changing the US economy in to something that is controlled by wall street today. But first some history, in 1998 2 companies did a huge merger. One was called Citicorp and the other was called Travler and they became Citigroup. Citigroup became the largest financial service company in the world after the merger of the 2 companies. The merger violated the ''Glass Steagall Act'' which states that banks with consumers deposits can not be involved in risky banking activities. Then the US government decided that well this is such a good idea that they instead of pressing charges gave them for some reason a exception from the rule for a year and then they changed the law. Which in summers 1999 the US government changed this rule by enforcing the ''Gramm-Leach-Bliley act'' which made it so that this was now allowed. When the banks became these huge monsters in the economy they would no longer stand to go bankrupt because if they did, a lot of people would loose their money in the process, that is why in every economic crises there has been a bale package for the banks. G.W did give a 700 billion dollar one after the Housing bubble collapse. Most of this was taken from tax payers pockets and give to the banks, but also loans from other countries was done to pay for this, adding even more dept to the US government. After the merger of these to cooperation, derivatives was now a 50 trillion dollar market which had no regulations what so ever. In 1998 someone tried to regulate them, the CFTC was founded and they set to work doing the risk assessments of this market. They made a proposal to the treasury department which at the time was under the Clinton administration. The response given back was that they were not to go any further with this, the reason behind this statement was that the banks had seen the value of this market and did not want the government to involve them self in this. So the banks pressed the government at the time to press the CFTC to leave this matter alone. That meant that a already unstable market was left alone to have an effect on other markets. Then in the year of 2000 a bill was passed that made it so that derivatives could not be regulated in any way shape or form.
When G.W took power in 2001 the financial sector was already a lot more powerful then ever before. Dominating this industry was 5 huge banks, Goldman Sachs, Morgan Stanley, Lehman Rothers, Merrill Lynch and Bear Stearns. The old system that was in place when you took a loan from a lender they used to be the ones getting paid back for that money. And sins loans for houses to decades to re-pay, lenders where careful with who they loaned money to. In the new system Lenders sold the Loan to a Investment Bank, the investment bank would then combine thousands of loans in to CDO that could be sold to investors via the stock market. Now when home owners paid their debt the money went to investors from all over the world. But before the investment banks sold the CDO's they got them rated by a investment agency which would give the CDO a security tag. The security tag decides how safe the CDO is, aka what the chance is that the person that took the loan is going to pay back the money. And most of them was given a AAA rating which is the highest possible rating. This made CDO's popular with retirement funds/peoples savings which could only purchase highly rated CDO's.
This system was a ticking time bomb, Lenders did not care anymore whether a borrower could repay their debt because the Lenders didn't have anything to loose sins they made more money the more the borrowed to people. That made it so that more Lenders started making riskier loans, the investment banks didn't care either because the more CDO's they sold the more money they made. And the rating agencies which was paid by the investment banks had no liability if their rating was wrong. From 2000-2003 the amount of loans given out to people was now 4 times higher then it had been in 2000. No one in this system cared because it was not regulated and everyone was making money. There was also a huge increase in risky loans where the risk of the person paying back the loan was low. But when the loans where combined in to CDO's they were still given a AAA rating by the rating agencies.
In 2005 the company Goldman Sachs lobbied to and convinced the US government at the time to make it so that the banks could now borrow even more money to pump in to this system that was a ticking time bomb.
In 2007 the loans started to fall because people could not pay on them, the groups that were hit was the common people that had their savings in the so called secure part of the stock market. The public employees retirement system of mississippi was one of the ones that lost millions to this. And they were now suing Goldman Sachs.
In late 2007 Goldman Sachs were not only selling Toxic CDO's that was going to fail, they were also betting that they would fail on the stock market. Later that year they decided that this was not enough, Goldmans designed a CDO that was specifically made so that the more money their customers lost the more money they would make. They on purpose made it so that their clients believed that they would make money of this deal wile in reality they would loose money wile the banks would cash in on this.
When the time bomb exploded and multiple of the rating agencies took the first hits and went bankrupt, the global market started collapsing because a lot of the industries were now used to sending goods and shipments to the US with luxury items could not do that anymore because the money had been wasted. But that was not the end of it, when the loans defaulted, people started to loose their homes because they couldn't pay back the money they had taken a loan to get. That meant that millions of families had to move out on the streets and live in camps.
In 2007 there were 37,3 million Americans in poverty/under the poverty line. Today that number has risen to 46,7 million Americans. The middle class in the US is almost gone and the 0.1% at the top is still sitting with the same amount of money that the button 90% of the American population owns.
Now about that 700 billion dollar deal that G.W made was a big lie, people lost their money either way sins it had to be funded by taxes/loans. And sins they lost their money from the AAA CDO's that was now worthless. People lost money because of all of this and the reason behind this was a 100% free market that had no laws for how it was supposed to be used. Obama has not made any changes to this market and it is still in action today, this means that this could happen again as long as their is no change in the law. The only ones that did not make a change after this was the US almost all the other countries in the world made a demand that banks had to have a certain amount of money at hand so that they could pay back their customers if they went bankrupt.
My personal opinion
Based on the facts above my opinion is that a 100% free market is death to the normal people, if you want a society where the rich rules and the poor just keeps getting poorer well then this is something good. But in my opinion a 100% free market will be the death of the whole global economy sins it is set on a large scale were the people in control is the people that aren't going to have to live on the streets after the crisis. And yes, this has all to do with the election coming up in the US ;)
Have a nice day :D
PainCakexx1997
