Monday, March 17, 2008


Not long ago I posted several blogs on the subject of Austrian Economics, it's basis in the philosophy of Ayn Rand and Objectivism, as well as Alan Greenspan's enthusiasm for this form of economics. Those were pertinent posts if you are following the developments in the mortgage meltdown that is souring the American economy.

A March 23, 2007 article at reportonbusiness.com from the Globe and Mail is headlined "Greenspan blamed for subprime crisis: U.S. bank regulators were advocates of exotic mortgages, senator Dodd says". According to the article:

Members of Congress are pointing angry fingers at Alan Greenspan and other U.S. bank regulators for fostering a mortgage market "on steroids" and failing to thwart a predictable subprime meltdown.

Christopher Dodd, chairman of the U.S. Senate banking committee, complained yesterday Mr. Greenspan, who retired as U.S. Federal Reserve Board chief last year, was an early proponent of the type of exotic mortgages that are now being blamed for an epidemic of foreclosures across the United States.

Mr. Greenspan urged lenders to move away from traditional fixed-rate mortgages in a June, 2004, speech as a way to help U.S. consumers, Mr. Dodd told a hearing probing the subprime mortgage meltdown. "The Federal Reserve seemed to encourage the development and use of adjustable rate mortgages that today are defaulting and going into foreclosure at record rates," Mr. Dodd complained.

The Fed then did little to rein in banks as lending standards deteriorated in a mortgage market that appeared to be "on steroids," said Mr. Dodd, Connecticut Democrat.

Other news sources make the same claim. On December 19, 2007 The Times reported:

Alan Greenspan, the former Chairman of the US Federal Reserve, has come under the most sustained attack to date for his role in America's mortgage meltdown.

When he stepped down from the Fed in February last year after 18 years as Chairman, Mr Greenspan was hailed as one of the best central bankers, who presided over one of the biggest economic booms in history.

But an increasing number of critics are now questioning Mr Greenspan's achievements, arguing that he fuelled the housing bubble by reducing the US interest rate from 3.5 per cent to 1percent in the aftermath of the September 11 terrorist attacks in 2001.

He is criticised for not clamping down on high-risk “sub-prime” mortgage lending, despite warnings that loans were made on terms which borrowers could not afford once the initial “teaser” rate had expired.

Did Greenspan retire because he saw the crisis he fabricated was imminent? How many senior citizens who rely on the interest on their savings were put into a precarious financial situation when that interest income dwindled to practically nothing? Laissez Faire economics cares nothing for those it injures as we are seeing confirmed in news of families finding themselves suddenly homeless. As The Times article states:

Sheila C. Bair, a former senior Treasury official and now chairman of the Federal Deposit Insurance Corporation, an agency created by Congress to insure deposits and supervise financial institutions, told The New York Times: “Hindsight is always 20-20, but it is clear that the Fed should have acted earlier. Financial innovation is great, but you have to have some basic rules. One of the basic rules is that a borrower should have the ability to repay.”

The result of Randian economics is a disaster. My husband recently spoke with a man who mops up after a family who cannot pay the mortgage moves out or is evicted. He said it was heartbreaking. Even the family photos are left behind.

Another article in The Times indicates we are perhaps still being naive in believing that we have seen the worst:

Two of the world’s most influential financiers have given warning that the American economy will deteriorate more than the US Federal Reserve has anticipated and that its housing recession has “a long way to go”.

Speaking in Tokyo, Alan Greenspan, the former Chairman of the Fed, said that the burgeoning inventory of unsold homes represented a significant risk to America’s financial markets and the wider US economy.

He also warned that he did not know how rapidly the glut of property could be reduced. “We have a long way to go,” Mr Greenspan said. “The critical issue on the whole sub-prime, and by extension the whole financial system, rests very narrowly on getting rid of 200,000 to 300,000 excess units in the United States.”

George Soros, the billionaire investor, added to the gloom at a speech at New York University on Monday evening. He said that the US economy was on the verge of a serious correction and that the Fed may have underestimated its severity.

It's a fair bet that those with capital reserves of the magnitude of Soros and Greenspan are in a position to gobble up many of those mortgages at a cheap price. It must be nice to be able to create your own real estate bargain. It takes a black heart to do it, and Greenspan knew what he was doing according to The New York Times:

Until the boom in subprime mortgages turned into a national nightmare this summer, the few people who tried to warn federal banking officials might as well have been talking to themselves.

Edward M. Gramlich, a Federal Reserve governor who died in September, warned nearly seven years ago that a fast-growing new breed of lenders was luring many people into risky mortgages they could not afford.

But when Mr. Gramlich privately urged Fed examiners to investigate mortgage lenders affiliated with national banks, he was rebuffed by Alan Greenspan, the Fed chairman.

There is even a hint in the headlines--"Fed Shrugged as Subprime Crisis Spread"--of who we ultimately have to blame for the current growth in homelessness. Every man for himself will ultimately leave some men with nothing and other men with all of it.

Over the last decade I spoke with many people who simply could not understand how so many families were able to buy such luxurious houses on what appeared at least to be an average income. It's a lot clearer now. The article contends:

An examination of regulatory decisions shows that the Federal Reserve and other agencies waited until it was too late before trying to tame the industry’s excesses. Both the Fed and the Bush administration placed a higher priority on promoting “financial innovation” and what President Bush has called the “ownership society.”

On top of that, many Fed officials counted on the housing boom to prop up the economy after the stock market collapsed in 2000.

Mr. Greenspan, in an interview, vigorously defended his actions, saying the Fed was poorly equipped to investigate deceptive lending and that it was not to blame for the housing bubble and bust.

We should keep in mind that a credit bubble such as this one was the cause of the Great Depression. Are we in the beginning of a repeat? Spending money you don't have is seldom a good idea.

According to The Times the bailout will once again target seniors and those on fixed incomes as once again the interest rate falls in an effort to keep the leaky boat afloat:

Ben S. Bernanke, who succeeded Mr. Greenspan as Fed chairman, is now scrambling to head off a recession. Last week, the Fed lowered its benchmark interest rate for the third time since August, and officials now worry that the subprime crisis has inflicted deep damage on credit markets that could in turn derail the entire economy.

That, folks, would appear to be a good example of chaos magick. Not surprisingly the chaos magicians and occultists promote Ayn Rand material in their websites.

Here, and here, and here.

Our Lady of Fatima, pray for us!

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