There is no doubt, and all respected economists agree, that we are in a recession that is likely to last for the next several years. The question on my mind is what led up to this recession? The answer comes simply as 9/11 combined with a "sub prime crisis," or a policy of lending money to people with marginal credit. This type of lending became a generally accepted practice because banks believed that home equity would grow according to the historical trends of the late 1990's. Risk was also minimized because the loans were sold off on Wall street and often conspicuously re-packaged in investment funds that small investors owned as part of their stock portfolios.
Mortgage brokers had a banner year due to Alan Greenspan's (Former FED Chief) keeping U.S. interest rates very low, loans were also restructured to allow high "loan to value ratios" and "interest only" payments. This made it possible for Americans with the most limited incomes be able to purchase a home of their own. The real estate market started to tumble after the questionable attacks of 9/11.
This was the first massive loss in real estate due to the free-fall collapse of five Manhattan buildings hit by two planes. The losses paralyzed the economy and sent stocks plummeting on Wall Street. 9/11 resulted in massive increases in all types of insurance, from home owners to car insurance to many other types of insurances netting billions in additional revenue to the insurance industry.
As volunteers at "Ground Zero" were heroically working in an environment full of pulverized concrete and the airborne Asbestos that insulated the lower floors of the World Trade Center Buildings. The Real Estate calamity was already set in motion.
The first warning came a few short years later on February 8, 2007 when HSBC - Europe's biggest bank blamed the U.S. sub prime defaults for its first-ever profit warning.
On April 2, New Century Financial Corp. filed for bankruptcy, their stock plummeted under 35.1 Billion in debt. The company was liquidated with court approval sending a "Red Alert" on Wall Street.
July 30, HSBC loses $6.35 billion due to bad U.S. loans in the first half of the year, up 63 percent from $3.89 billion in the same period last year.
October 15, CITIGROUP, the largest U.S. bank, says Q3 profit fell 57 percent due to sub prime losses. Their income down to a mere $2.38 billion from $5.5 billion the previous year.
October 19, WACHOVIA CORP - The fourth-largest U.S. bank posts a 10 percent decline in Q3 profit, to $1.69 billion from $1.88 billion a year earlier, having suffered $1.3 billion of write downs due to credit market turmoil.
October 24, MERRILL LYNCH stuns Wall Street by writing down $8.4 billion in bad investments related to sub prime lending.
December 19, MORGAN STANLEY posts a $3.59 billion Q4 loss and $9.4 billion of mortgage-related write downs.
January 15, 2008 CITIGROUP - The largest U.S. bank posts its first quarterly loss since Citigroup's creation in 1998, hurt by $18.1 billion of subprime-related write downs.
Jan 17, MERRILL LYNCH reports its worst-ever quarter, revealing around $16 billion in mortgage-related write downs.
February 14, UBS says it is writing down $18 billion in bad loans.
February 19, CREDIT SUISSE marks down the value of asset-backed investments by $2.85 billion.
October 26, U.S. mortgage lender Countrywide Financial Corp posts a $1.2 billion third-quarter loss after writing down $1 billion in sub prime loans.
Jan. 16, JPMorgan Chase boosts its provisions for loan losses by $2.54 billion during the third quarter.The investment bank's profit plunges 88% to $124 million.
March 3, HSBC's investment banking arm takes a $2.1 billion write down on assets tarnished by the sub prime crisis.
March 17, Bear Sterns collapses without warning or provocation. Federal reserve rushes to organize an emergency merger with J.P. Morgan to avoid bankruptcy.
April 1, UBS doubles its write downs to $37.4 billion.
April 8, Washington Mutual Inc, battered by mortgage delinquencies and defaults, obtains a $7 billion capital injection from private equity firm TPG Inc and other investors, but projected a $1.1 billion quarterly loss and set plans to eliminate 3,000 jobs.
April 15, JPMorgan Chase & Co.'s profit fell 50 percent in the first quarter after the bank took a provision of $5.1 billion to strengthen its reserves by $2.5 billion and account for $2.6 billion in losses in its loan portfolio.
April 18, 2008 Citigroup Inc. said it will eliminate about 9,000 more jobs, after poor bets on defaulting loans and the tumultuous credit markets lopped $14 billion in value from its investments during the first quarter.
So far the Federal reserve has created an estimated three Trillion in new currency to bail out the global economy. This creation of money is called M3 and is the worst economic indicator for inflation and the devaluation of the dollar uder the simple premise of "supply and Demand."
These losses also do not take into consideration those incurred by banks overseas, nor due they reflect the true nature of derivative losses, or losses based on real estate assets being worth less than what they are stated as being worth in a big banks portfolio.
The Federal Reserve Chairman Ben Bernake has grappled with the doomed economy by once again following in the footsteps of his predecessor Alan Greenspan and lowering interest rates accelerating the demise of the U.S. dollar.
As of today, the devalued U.S. dollar has created high inflation in food and energy, and quietly taxed the investments of every American whose savings are being depleted by way of its loss in purchasing power.
Tent cities trends of displaced Americans have propped up in Southern California, Florida, Detroit, and many other cities around America as top investors continue to flee the falling dollar.
The situation is becoming increasingly dire, and as the value of the dollar continues to plummet it will eventually set off an "alarm." This will result in more major Dollar holders like China, and Japan to make the dreadful decision of having to divest from it to limit their losses.
In the near future, America could be facing a crisis that combines both the public hardships of high interest rates seen in the 1970's, inflation, and the bank failures and joblessness of the great depression.
In conclusion, it is important to note that the American founders pegged the value of the dollar to gold and silver because they knew central banks, through abuse of their authority, would do exactly this to our economy. When Richard Nixon took America off the gold standard in the 1970's he doomed the entire country to exactly this kind of malaise.
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