What started the economy chaos?

Question

I just thought of something; we've always borrowed fuel and paid mortgages. We've always been the nation with the most credit debt, and we've been in Iraq for years. What exactly started this spiral of mortgage chaos, stock sinks, gas hikes, what went wrong?! And why is it such a domino effect?!

Answer 1

What starts a bank run? Lack of confidence that the financial institution will be able to fulfill its commitments.

Answer 2

Great question, I've wondered about that too.

=/

Answer 3

Speculation, that word, and that word only. I ask you this, how is it that oil/gas prices change daily? On a simple supply and demand curve the amount of oil available isn't decreasing significantly enough in a day to warrant the daily changes we've been seeing.

Another large factor in the recent turmoil is our heightened standard of living and "Green" issues. Food shortages can largely be attributed to the widespread replacement of crops to create "Bio-fuels", thus decreasing supply and shifting prices up. As for standards of living, I know in the UK we have massive campaigns for all foods supplied to be "organic" however this simply isnt economically viable for lower income families, I saw 2 small organic chicken b*****s yesterday on sale for £12, how is a low income family going to be able to afford such prices when feeding a large family?

Thats only a few of the issues, if you want to discuss it just message me!

Answer 4

The USgov got rid of Glass Steagall and eliminated the economic firewalls between conservative bankers and the credit predators! It was put in place after the credit crooks caused the Great Depression.

"Senator Glass, co-sponsor of the bill that became the Glass-Steagall Act, and Senator Robinson: Mr. Glass: Here [section 21] we prohibit the large private banks whose chief business is investment business, from receiving deposits. We separate them from the deposit banking business. Mr. Robinson of Arkansas: That means if they wish to receive deposits they must have separate institutions for that purpose? Mr. Glass: Yes. The Court also rejected the argument that a bank and its holding company should be treated as a single entity for the purposes of sections 16 and 21, stating that the structure of the Glass-Steagall Act itself indicates the contrary. Id. at n. 24.

Although the Supreme Court in Board of Governors v. ICI did not consider section 21 in the context of a bank and its subsidiary, we are of the opinion that the Court's conclusion regarding section 21 and holding company affiliates is equally applicable in this instance. Thus, the FDIC does not believe that it would be warranted in extending the reach of the prohibitions of section 21 of the Glass-Steagall Act to bona fide subsidiaries of insured nonmember banks. The FDIC intends, however, to continue to monitor closely developments related to the securities activities of bank subsidiaries.[2]

Two separate United States laws are known as the Glass-Steagall Act. The Acts (Glass & Steagall) were both reactions of the U.S. government to cope with the economic problems which followed the Stock Market Crash of 1929.

Both bills were sponsored by Democratic Senator Carter Glass of Lynchburg, Virginia, a former Secretary of the Treasury, and Democratic Congressman Henry B. Steagall of Alabama, Chairman of the House Committee on Banking and Currency.

[edit] First Glass-Steagall Act

The first Glass-Steagall Act was the first time currency (non-specie, paper currency etc.) was permitted to be allocated for the federal reserve. In addition, the G.S.A. separated investment banking from commercial banking, in effect curbing speculation. The resulting FDIC (Federal Deposit Insurance Corporation) insured all bank deposits up to $5000.

The Glass Steagall Act, as well as FDIC, CCC (Civilian Conservation Corps), Emergency Banking Act, and the TVA (Tennessee Valley Authority) were all products of Roosevelts 'Hundred Days', Roosevelt's first one hundred in office.[3]

[edit] Second Glass-Steagall Act

The second Glass-Steagall Act, passed on 16 June 1933, and officially named the Banking Act of 1935, introduced the separation of bank types according to their business (commercial and investment banking), and it founded the Federal Deposit Insurance Company for insuring bank deposits.[citation needed]

Literature in economics usually refers to this simply as the Glass-Steagall Act, since it had a stronger impact on US banking regulation.[citation needed]

[edit] Impact on other countries

The Glass-Steagall Act has had influence on the financial systems of other areas such as mainland China which maintains a separation between commercial banking and the securities industries.[4][5]

[edit] Repeal of the Act

On November 12, 1999, President Bill Clinton signed into law the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933. One of the effects of the repeal was to allow commercial and investment banks to consolidate. Several economists and analysts have criticized the repeal of the Glass-Steagall Act as contributing to the 2007 subprime mortgage financial crisis.[6][7]

Losses at financial firms from the mortgage collapse may eventually triple to $600 billion as defaults on home loans grow, says Zurich-based UBS AG. One reason banks are losing money is the repeal nine years ago of the 1933 Glass-Steagall Act, which separated commercial and investment banking after excessive risk- taking contributed to the Great Depression, Eveillard said.

The repeal enabled commercial lenders such as Citigroup, the largest U.S. bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities.

Citigroup, which has fallen 36 percent since reporting in January the biggest quarterly loss in its 196-year history, may have writedowns of $15 billion this quarter, according to New York-based Merrill Lynch & Co. That would add to the $22 billion that Citigroup already lost because of the housing slump.

Citigroup played a major part in the repeal. Then called Citicorp, the company merged with Travelers Insurance company the year before utilizing loopholes in Glass-Steagall the allowed for temporary exemptions. With lobbying led by Roger Levy, the "finance, insurance and real estate industries together are regularly the largest campaign contributors and biggest spenders on lobbying of all business sectors [in 1999]. They laid out more than $200 million for lobbying in 1998, according to the Center for Responsive Politics..." These industries succeeded in their two decades long effort to repeal the act. Also, "The newly formed Citigroup announced only days after the deal that it had hired recently departed Treasurey Secretary Robert Rubin as a member of its three-person office of the chairman".[8]

"Glass-Steagall protected bankers against themselves," Eveillard said. "Bankers are sheep. They don't mind going over the cliff if everyone else goes over the cliff."

Notice Phil Gramm ,the elitest Republican, former Senator from Texas! is mentioned. He is the one that  just called us,paraphrasing,  "all a bunch of mentally depressed whiners!" Yeah Right!

I hope I've answered your Q so you can sift through the lies and popaganda fed to you by the corporate owned newsmedia! Use the net, Watch less TV.

Listen to DemocracyNow.org

Answer 5

The Federal Reserve system, manufacturing inflation through dollar devalutation and the infusion of credit into the economy out of thin air.

Answer 6

We've always had motgages, but in recent years the standards for who could get a loan started to go down.  This caused more people to buy homes which drove housing prices up to unsustainable levels.  Once the housing prices leveled off and started to decline, people couldn't withdraw any more money from their homes eqity and couldn't refinance because in many cases they owed more than the value of the home.  This started leading to forclosures, which caused huge capitol losses to mortgage companies and other financial insitutions that purchased these mortguages without looking at the quality of the underlying loan.

Answer 7

Borrowing isn't an issue when you pay back in a timely matter but when you get a record of not paying back or paying back late it has other effects. The countries the US owe money to need that money for their own use and to pay back their own debts. It also gets worse when said person or country is wasting its money in other areas yet not paying back their debts. We spent hunreds of billions sending aid to specific foreign countries who utterly waste it or on wars that half the world disagrees on to push our countries ideals and wants on another country.

In the end we end up becomming a consuming nation that produces far less then we consume and that coupled with being a super power on the world market makes it difficult globally because of our bad practices. Just like domino's when 1 domino starts to tip to far it falls and starts a chain reaction that gets to be to big to control anymore.

Answer 8

the media is causing consumer confidence to weaken, leading people to believe we are in the next great depression.  We haven't even hit a recession yet.

People are blowing things out of proportion.  Keep your cool and pay your bills, you'll be fine.