Ad Majorem Dei Gloriam

Essential thinking for reading Catholics.

Friday, September 19, 2008

What's going on.

In an email volley with the lovely and gracious Karen, I explained "in crayon" what is going on on Wall Street and what it could all mean.

She suggested I ought blog this and seeing as how her orders are like commands to me, here 'tis.

The dirty little secret is that all the people who gave us this mess are Democrats. The Community [Something Something] Initiative that compelled banks to issue loans to people who otherwise would not qualify for them was Bill Clinton's. Places like Lehman and MBNA (which invested in those banks) and AIG (which issued rather creative insurances on those risky loans) were h-u-g-e donors to the Democrat Party and candidates and even better, the guy who drove Freddie Mac (or was it Fannie Mae?) off the cliff -- having been compensated to the tune of $100M -- is now B.O.'s leading economic advisor.

The fact the Usual Suspects have been talking down the economy (especially gazillionaire George Soros, who stands to profit immensely) only makes things worse.

What really happened is actually related to OIL, and how we're addicted to it. After 9/11, the interest rate drops to prevent an economic crisis. This leads to a housing boom. Those people who couldn't previously afford a home can now, barely, do so with the help of ultra-low adjustable rate mortgages. Banks issue tons of these loans. But then oil goes up in price, the Fed gets it into their head this is inflationary; food starts being diverted to biofuel which drives up food costs, and the Fed (thinking this is even more infaltionary) starts jacking up rates.

Only that all those people who could BARELY afford their mortgage as it was start seeing their monthly payments -- they had adjustables, 'member? -- spike. They default. The insurance companies who covered these risky loans have to start shooting off checks to cover the defaults. The banks have to declare these assets as WORTHLESS (instead of at a reduced value, as would be the normal case before Sarbanes-Oxley) because the new accounting rules say you have to declare your assets at market price. Which, when there is no market (like in home mortgages) is zero. So the banks have their ratings downgraded, the brokers who invested in the banks have THEIR ratings downgraded and eventually some companies, that are perfectly healthy, go under. Not because they are broke, but because they couldn't get access to cash. This is like having your car repo'ed because your ATM card wouldn't work.

OK, that's it in a very simpified nutshell.