The deleterious effects the mortgage meltdown is causing the economy is a good example of the boom and bust cycles prevalent when markets go unregulated and unrestricted. Capitalism, left to its own devices, isn't a good system. Greed and the quest for profits at any price always leads to economic uncertainty, extremes of income levels and unstable growth. Markets need to be regulated to balance the order of things, protect consumers, workers and the public and provide a steady economic condition.
The entire mortgage mess went mostly unregulated. Republicans don't believe in government regulation and this has been one of their core issues for generations. One of their mantras is to allow unfettered markets to determine their own levels. Now that philosophy is taking down our entire economy, something which always happens from laissez faire government.
George W. Bush appointed industry executives and lobbyists to run every agency doing regulation. Coal miners have died as a result of the lack of rules enforcement for example. No one thought to establish rules reigning in the runaway mortgage bankers who were willing to give loans to anyone with a pulse. Their greed overwhelmed their good sense and huge salaries and bonuses were too much to allow them to let the government save them from themselves. Now, as usual, it's the rest of us who need to be saved from a tanking economy brought down by their greed.
"Greed is good." That was a famous line from a 1980's era movie called "Wall Street." It showed the excesses of the last extended period of Republican control of the White House. Unfortunately the line is false. Greed always forces us to pay a price for its excess. Unfortunately it is the workers, tradespeople and middle class who take the brunt of the fall when greed eventually takes its toll. Wall Street doesn't give a darn about us however.
Here's a basic primer of what happened this time. Once upon a time mortgages were issued by savings and loan banks. Local bankers dealt with local borrowers, held the notes and collected interest. From this money they paid savers a slightly lower rate on their accounts and the difference was their profit. Then the Reagan Revolution deregulated the savings and loan industry. The result of that binge of greed was a $125 billion taxpayer rescue of the industry. One of the culprits of this excess was Neil Bush, the current President's brother.
Mortgages now are bought and sold on open markets. Brokers bundle them together as securities and trade them through hedge funds. These markets have been completely unregulated. Some hedge fund managers were earning a billion dollars per year. Greed is good? Now the banks and financial companies are writing off tens of billions in losses EACH. Companies who have never declared an operating loss are now doing so.
The losses are truly historic. They are the result of Republicans refusing to regulate markets and establish reasonable rules. Mortgage banks and brokers should not have been allowed to hoodwink people, offer exotic loans custom designed to fail and greedy home buyers thinking they could cash in on a rising real estate market.
Nothing goes up forever however. The market bubble burst and lots of people are now caught holding the bag. People bought large McMansions they couldn't normally afford because of their greed and the willingness of bankers to give loans with very creative terms. The buyers thought they could live in the mansions for several years then sell them for a nice profit before the loans reset or really kicked in.
I bet some of these people can't even afford to heat those palaces now.
Unfortunately we're all feeling the effects of everyone's greed and excess. Construction workers are losing their jobs, 24,000 of them last month alone, and housing starts (new construction) is at the lowest level in 16 years. This will reverberate throughout the economy. A roofer without work lays off not just their employees but those at Home Depot who sell them supplies and transport shingles to job sites. The same goes for every tradesman in the construction industry.
No work means no demand for new trucks, hurting the auto industry. Lack of money for mortgages has already resulted in companies closing and laying off thousands of offices around the nation. The glut of homes on the real estate market is further depressing prices while buyers are having trouble getting approved for new mortgages. Companies are also limiting the relocation of employees through transfers because they cannot sell the homes involved. This affects moving companies, storage facilities and the hospitality industry.
Examples of other effects are too numerous to mention but by now you get the idea. All this because the government refused to establish clear, fair, equitable, sensible rules and regulations and then enforce them. Regulation is essential to a good, stable, growth oriented economy and we must begin to realize that free markets enslave workers and consumers to greed.
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