the Sky Falling Yet?
week, I expressed my opinion that the current credit 'crisis' is a
manufactured one. So, what do I think in the wake of the bailout failure
followed by the largest one single-day drop in the Dow Jones Industrial
Average in all of human history?
think the current credit 'crisis' is a manufactured one. That is not the
same thing as saying it isn't serious, or that there isn't a real danger
that the global economy could slide into a recession or depression as a
I am saying is that it was manufactured. This morning's edition of
the Toronto Globe and Mail called this the "worst financial crisis
since the Great Depression." Later in the same story it notes
that both the Dow and the Toronto Stock Exchange lost 6.9% in yesterday's
if yesterday's 6.9% sell off was the 'worst financial crisis since the
Great Depression' when the market lost 40% of its value, then what was the
Crash of 1987 -- when the market lost 25% of its value?
begin to see what I mean. It isn't that I'm arguing its time to break out
the champagne -- this is serious -- but it isn't the Big One
-- at least, not yet. It could easily become the Big One, however, thanks
to breathlessly irresponsible reporting like the one I quoted from the
Globe and Mail.
Today's headline talked about the blame game ongoing in the Congress 'due
to the failure of the bailout'. First off, it assumes the bailout was the
panacea necessary to fix the problem.
watched the vote. The Dow was already down almost 400 points when it still
looked like the bailout would pass. It wasn't necessarily the failure of
the vote that caused the market to tank -- odds are good it would have
according to USAToday: "The financial fallout was of the Armageddon
proportions that some predicted if the $700 billion bill — which was
promoted by the Bush administration as the best way to boost investor
confidence and unclog frozen credit markets that have created a daily bank
death watch on Main Street — failed to pass."
was the equivalent of a Category 5 hurricane," says Scott Black,
president at Delphi Management."
When one looks at percentages instead of numbers, yesterday's losses
weren't actually the worst in history -- indeed, yesterday doesn't even
rank as an official market 'correction'. The combined losses (Dow, S&P
and NASDAQ) for yesterday are estimated at 8.8%.
looked up the web definition for the term "market correction." A
stock market correction is defined as a time when major market indexes drop
between 10 percent and 20 percent.
greater than 20 percent are considered to be bear markets.
the past 10 years, Standard & Poor’s Composite Index of 500 Stocks has
experienced a correction several times, and a bear market early on in the
losses weren't even severe enough to meet the definition of a market correction,
let alone a stock market crash.
here is another place to take a reality check. So far, not one single
banking customer in any of the failed banks has lost money. The 8.8% losses
chalked up yesterday were real -- but they were EIGHT POINT EIGHT PERCENT
-- that's not a Category 5 Hurricane -- its a minimal tropical storm.
is NOT to say that all is well. All is NOT well. But it isn't a financial
Armageddon. It isn't the worst financial crisis since the Great Depression.
Not even close.
isn't a stock market 'crash' and it still has to drop several points to fit
the minimum definition of a stock market 'correction.'
it's a political windfall for the Democrats if the public thinks it is.
Pelosi opened the vote by blaming the entire 'crisis' on the fiscal
policies of the Bush administration and George Bush in particular.
only a part of the cost of the failed Bush economic policies to our
country. Policies that were built on budget recklessness. When President
Bush took office, he inherited President Clinton’s surpluses — four years
in a row, budget surpluses, on a trajectory of $5.6 trillion in surplus.
And with his reckless economic policies, within two years, he had turned
for a reality check. First, 'four years of budget surpluses' caused
the 2000-2001 recession. The recession didn't turn around until after 9/11
forced the US back into deficit spending.
US economy is a DEBIT (debt-based) economy. A balanced budget guarantees
a recession. Despite the Great Depression and the deficit spending caused
by New Deal, by 1937 the US economy was very close to having balanced its
created "a recession within a depression". Roosevelt abandoned
efforts to balance the budget and launched a $5 billion spending program in
1939, the national debt as a proportion of the GDP was at 40% and the
Depression was soon over.
if deficit spending is good for the economy, which of George Bush's
'reckless economic policies' caused the current 'crisis'? The one where he
failed to overturn the Clinton economic policy that caused it.
was Bill Clinton's economic policies that brought about the 1997 Community
Reinvestment Act that required banks and savings and loans to lower
borrowing standards and to offer mortgages to those whose income didn't
meet minimum requirements.
the Act, banks were required to treat welfare payments, unemployment
insurance benefits, alimony and child support payments as 'income' for the
purposes of granting the mortgage.
since those on welfare or unemployment generally can't come up with 20%
down payment, the Act required banks to finance up to 120% of the mortgage.
you bought a house for $100k and financed $120k so you could fix it up.
Then the housing bubble burst and now your house is only worth $80k -- but
you owe $120k.
you're paying 40% more for your mortgage than you would pay to rent the
same house -- and you have NONE of your own money at risk. What's to stop
you from walking away?
nothing. Which is why there are so many failed mortgages right now.
current financial 'crisis' is not quite an official market 'correction'. It
is the entirely the result of wrongheaded liberal thinking that if you give
somebody something for nothing, they'll respect it as if they had earned
after the bailout bill failed, the Democrats have done a pretty creditable
job of blaming the Republicans for not passing it.
do a reality check on that charge requires only that one restate the
obvious: The Democrats have a MAJORITY in Congress.
Democrats could have passed that bill even if not one single Republican
voted for it. That the Republicans could have tanked it is
ludicrous on its face.
in the final analysis, the current credit crisis is NOT a meltdown. It was
caused primarily by Clinton administration's liberal economic policies.
had the Democrats wanted to pass the bailout, they could have done
so -- even in the face of unanimous minority opposition.
ANY of that stack up with what you are hearing on the news?
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