The current financial crisis has been a long time coming. The country is now reaping the results of decades of effort to evade economic cause and effect. Some government debt is understandable and often desirable as a means to accomplish a lofty goal (like borrow money to build a highway and pay it back through transportation tax income).
But the U.S. Federal government took things to a whole new level in the 1990’s by demanding that banks make loans to unqualified low and no income persons. Freddie Mac and Fannie Mae supposedly would buy all these loans off the banks until one day they couldn’t!
With the government backed Freddie and Fannie distorting the market, Wall St. and in turn banks around the world, created distorted and outrageous financial derivatives around all these millions of mortgages, offering ‘great returns’ and great ratings, even though those ratings were not based on reality.
Well, the house of cards fell, bringing down not only the major investment banking scoundrels, but also many large and small banks that went along for the ride, caught up in the “well if they’re doing it I guess I need to be doing it too, to compete!”
The U.S. government created near INFINITE COMPETITION in banking and financial markets which is why NO ONE can understand the extent of what has happened.
The resulting mess and scrambling by governments and banks is a desperate attempt to stop the holes in financial dams everywhere. Meanwhile, the general public has lost trillions, even those who played by the rules perfectly, and paid their bills, put money down, held a job, and did what their financial planners told them to do.
What a mess. It will leave the U.S. economy broken for a long time, and the solutions just leave the U.S. government in even more debt.