French President Nicholas Sarkozy has said that there needs to be an investigation into the world economic crisis and those responsible punished.
Nice idea, and I would love to see Congress try to wriggle off the hook as the blame for creating the environment that allowed the foundation to exist is pointed squarely at them. It is the US congress that mandated banks lend money to people who were bad risks. The banks were encouraged to give loans for upwards of 100% of the (hyper-inflated) values of the houses by Congress. The banks were instructed that they needed to get aggressive in creating financial instruments that would put people into houses, so they dreamed up the interest only mortgage and the zero down mortgage.
Even the fed stepped in with one of Alan Greenspan's last official acts (aside from his resignation) being a statement saying that adjustable rate mortgages were great investments for people buying houses. With mortgages at near record low prices why anyone in their right mind would consider an ARM totally flew in the face of reality. But if "The Oracle" Greenspan said it was true, well then it must be true, after all he IS the financial genius.
Now remember what I have been saying long before it became popular with the financial pundits trying to explain things to the lay people... the economy is, generally speaking, a house of cards. The base, the table the house is built on, is confidence in the market. No matter how carefully you build the house, it doesn't matter how solid they are stacked, regardless of how high it goes, it is only as stable as the base it is built upon. Until about 11 months ago it appeared the house of cards was built on a solid slab of marble. Nothing seemed to rock it and it was growing despite the first signs of trouble. People who understood the economy were amazed but up until last November the economy had one thing that economists and other financial experts will never understand; confidence. People had an unwavering confidence in the market, and foreign investors were enamored as well.
Then suddenly, out of nowhere, it appeared the house of cards we call an economy was built not on a solid slab, but rather a three legged stool, and one leg was a foot shorter than the others.
And if one is to look at the reasons why it crashed, and it was sudden and harsh. One has to look not in the US, but overseas... at France in particular. A large French banking institution had a rogue trader who potentially bankrupted the company and would have been a financial disaster not just in France but one the rippled throughout Europe and could have devastated the Euro compared to the dollar. Remember Iran and Russia had recently started accepting Euros for oil and gas instead of the standard US dollars.
But the bank discovered these rogue trades themselves and quietly "undid" the trades that their employee had conducted. Cautiously slipping the stocks back onto the market so as not to create a run and instigate a margin call by the world's markets. As rumors of the rogue trader leaked out into the French financial system they looked at their own holding and what would happen when the news was officially released. They banks were all holding one very speculative, high risk investment instrument and one bank in particular decided that if things were going to get ugly it didn't want to be holding these junk mortgages, so it dumped them all in one night.
That one French investment house's actions created the worldwide dumping of the sub-prime mortgage industry investments was the first action that lead to the worldwide economic crisis that Sarkozy wants investigated. One small/medium investment house knew the news about the rogue trader at a larger house was about to break and wanted to shore up it's portfolio by dumping a large percentage of the high risk sub-prime investments stated the avalanche that would cause the US economy to lose 10% of its value, and the European and Asian markets to lose almost 15% of their value, over the next six months.
But if one excludes the policies that not only established, but encouraged, the sub-prime mortgage market, and one wants to find the reason behind the world's economies devaluating so precipitously, one must decide if it was the actions of the rogue trader, or the investment house he worked for that undid the trades to avoid their collapse due to their out malfeasance.
There are other factors that contributed, not the least of which is the Democrats in congress talking down the economy with their public relations division, the main stream media helping. And the regulators not enforcing the rules regarding short selling, the markets themselves for allowing not just naked short selling, but naked trading in all markets, the stocks and commodities, also contributed. Congress not just mandating bad loans be issued, but guaranteeing those loans with money they didn't have is also partially to blame.
But if Sarkozy wants to punish those at fault he would have to look in the mirror at his own country, because that is where is started.
Parting shot: there is another reason the economy is all jacked up but the media won't talk about it... an additional reason the US economy is out of kilter is because investors are afraid of a Democrat president being in the White House. Every time Obama and/or Biden talk about paying more taxes, raising taxes, new taxes, etc, the economy shakes again. It is no coincidence.
(I will post links to my previous blog naming the French bank as the prime instigator of the crisis later when I have more time, I forget when I posted it, but it is there somewhere.)
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