27 September 2008

US Economic Failure

Warning: rant approaching.....

The US financial crisis has been sitting on my mind a lot lately. Probably because we in Canada have a similar economic system so it will be interesting to see how the US deals with this problem.

From what I understand, the banks were giving out mortgages at far below prime. The people receiving the mortgages were told they could afford them when in fact they couldn't. The prices of the houses were inflated as well so the people were buying houses they couldn't afford at interest rates that were ridiculously low on houses that weren't worth the price. The banks then were dealing with foreclosures because the people couldn't afford the mortgage. The banks had so many foreclosures they couldn't sustain themselves as lenders (from what I understand, they must have a specific amount of money on hand in order to create new loans and make money). Now the banks are expecting the US government to bail them out of a situation they created for themselves. The people running the banks received huge profits off of the transactions, but they don't seem to want to put their own money towards repairing the damage they have done.

The banks should have been more regulated by the government in order to avoid this problem entirely. But the US doesn't seem to like the idea of being monitored and in fact, they seem a bit paranoid about it. The biggest difference in the US and Canada seems to be the perception of government. Canada's government is there to protect and serve the people. They take into account (most times) what is best for the citizens. The US government is run by the CEOs of the banks, pharmaceutical companies and health insurance companies. Here, big companies might have some say in lawmaking or decision making, but in the US the government seems to be actually afraid of these huge companies and bends to their every will.

Now what about the financial crisis? It was created by the banks giving out loans in order to make more money so the CEOs would have bigger paycheques and to the detriment of the citizens. The economic system is designed to work the way it's been working and is doomed to fail (and has been since it's creation) without some kind of government intervention or regulation. What will happen if the government doesn't bail out the banks? Is bailing out the banks really the answer to the problem? I don't think so. If the government pays off the banks, then the banks will continue on the same lending path they were on, and the economic failure is only put off for another generation to deal with. If the government doesn't bail them out then the US fully enters a depression that will take years to recover from.

One person I know had the suggestion that if the US government could find 700 billion to pay off the banks, then they should first pay off the mortgages and let people keep their houses. In my mind this just shows the mentality of the US citizens. The idea that they can get whatever they want without regard to cost or consequence. I am genuinely sorry for the people that didn't understand that there was no way they could ever afford their house and that they were hoodwinked into overspending. But it seems to be an epidemic in the US, this idea that they can live the 'American Dream' and not actually pay for it.

It seems like an economic collapse is iminent as long as the US keeps trying to patch the system. It seems to me they need to create a new system (or even modify the old system) that doesn't allow Big Business to continue abusing the General Public, but then it wouldn't be what the US stands for now would it?

...end rant.


The Hyperlexian Aspie said...

can i add to your rant? it pisses me off that the hoodwinked (okay they should've known better, but i have too much debt so i kinda know) citizens will not benefit in any way from the bailout. in fact, in my opinion they will suffer.

their loans won't disappear, their credit ratings won't right themselves, and nobody will be helping them survive; instead, the government money that could have gone to their assistance will instead go to bailing out the rich bankers...

so maybe they will be averting a crisis by bailing out the banks, and fewer people will lose their jobs or go bankrupt. but so many people have already suffered - why are they being neglected?

jeepers, this crisis has me too upset about the usa - i'm so glad i'm canadian! i think i need to do something distinctly canadian, like:

fill a prescription on my cheap benefits,
smoke some weed,
shop around for a new doctor,
attend a gay marriage,
relax on employment insurance,
volunteer for the marxist-leninist party,
leave my door unlocked...

just saying.

Chantelle said...

Can I also add to both of your rants?

It pisses me off that the financial crisis isn't limited to the US. No, banks in other countries have invested in the banks in the US and now they're having problems, too... in fact, banks are collapsing in Europe.

I can't believe that the financial industry thought it would be a good idea to give people mortgages they couldn't afford on over-priced homes!!!!! They did it just to make money without even thinking about the consequences. All of these people thought that they could live this American Dream when in reality, they can't. Not everyone can own a home - that's just the way it is, and it's the way it's been until recently when the financial institutions started handing them out like candy.

And now the people can't spend anything, the banks have too much debt on their hands and aren't lending money, and at some point businesses aren't going to be able to get loans. Students can't get loans right now in the US unless they have a co-signer.

\People in the US are not all used to living on cash - there is soooo much credit debt there. I understand how it happens but I think those people were hoodwinked into believing that it would be ok.

And I seriously pissed at the fact that some of the people who voted against the bill did so because they didn't want to end up a socialist country. WTF????

Then again, I don't think that bailing out some institutions is necessarily a good idea. It's happening anyway, though - there's an agency that is deciding on a case-by-case basis whether to save the institution or not. And it's throwing money at those institutions.

I'm also pissed that this whole thing is happening during a US presidential election. McCain actually stopped campaigning to rush to Washington to look at this mess - how opportunistic! He was just trying to make himself look good. He claimed that he helped broker the deal... until it fell apart. The behaviour of the politicians in this mess speaks volumes about why the mess is there in the first place.

The treasury in the US is printing money so that the banks will end up lending more. It's shoving cash into the financial system. I don't remember that much of macroeconomics but it seems to me that at some point the US dollar could be seriously devalued - and then it'll take a tree's worth of money to buy a chocolate bar.

This whole thing is a mess. The US allowed it to happen because everyone was making money off of it. The institutions were doing nothing more than gambling - half of the investments were just bets that one or another marker would reach a particular level. aaargh. They were gambling with the money from ordinary people and from other countries.

And they think they're good capitalists. But in a true capitalist economy, some businesses will fail. In this case, if the businesses fail, the US economy could collapse and bring down quite a bit of the world economy with it.

Aargh. In a way I'd like to see the US reduced from its superpower status - but I don't want the US to trash the Canadian economy while they go down.

Stupid, stupid US financiers and politicians.