WHY THE CRASH?2

WHY THE CRASH2?

WHY THE CRASH?

TIME (2008) 7/29

Serwer and Sloan

Why did Wall Street go bad?

Supply side economics does not circulate income to the middle class as does

Keynesian economics. (this drives what is called overcapacity.) Thus, there is less multiplier or in plain English, money is passed around more often and it generates more activity and growth when the middle and working poor have money. Supply side means tax cuts for the rich and Keynesian means tax cuts to the middle through at this time infrastructure improvements like falling bridges as well as straight tax cuts especially for small businesses. Supply side believes that money trickles down to the masses when it can also trickle out with free trade and globalization Supply side generally means privatization and deregulation. Keynesian believes in regulation and strategic nationalization outside of the main capitalist infrastructure. In other words, the government should not make cars, toasters, and related.

The economy has gone so long with some incredible avenues to make more money and enter the market place. The more money applies to the rich and the second applies to the working poor and middle class. Thus, greed transcends fear. All kinds of intelligent types become fools. Deviance is de-sensitized.. The business cycle reasserts itself. Only a guy like Warren Buffet warned us of such a problem.
The major product this time (the last time it was the computer in the dot.com bubble) is housing. You could buy a house for cheap and then live in it and sell it for a profit so there was not a worry about putting a good 20% down. You could get into a McMansion with an ARM. This meant that the early years of a mortgage are cheap and then the monthly payments balloon into larger payments. The purchaser no longer can afford the house so it is resold again. In the mean time both realtor and bankers make more money in the long run with each new transaction.
As this was happening both seller and buyer believed that Wall Street could back all these crazy schemes. Wall Street can not do so.
Financial arrangements begin to trust computer modeling over market experience. The various econometric models failed and did not take into account a certain variable or that variable did not have enough weighting.
Financial instruments became complicated and corrupt. As an example a CDO is like a dollar. A CDO means collaterized debt obligation. So let’s say that I owe you money. I pay you 75 dollars filled with real money and funny money like CDO’s. They are collection of stocks of not so solid companies and numerous papers that stems from risky ARMs. You buy and accept the CDO because with this funny money you can bundle it with other real and funny money and get rich faster. Now you have become very rich and no one knows for sure, “was it good money and funny money as the two are brought together.”
Trust among lenders becomes rigid and they are likely to raise interest and do a more complete research on your funny money.
Now that you are rich, you begin to think beyond your dreams. So with millions that you have in CDO’s you buy other investments and turn it around in a short time period. You keep doing this. Soon you are a billionaire sitting on top of a house of cards.
Banks begin to “modernize” so that the Glass- Stiegel Act is rescinded. What does that mean? Investment banks mainly do wholesale loans and research. Commercial banks sell money. Glass-Stiegel kept them apart so that banks could be trusted. Investment banks could tell the commercial end which investments would make the most money.
In fits and starts, the whole market begins to smell a rat. Further the federal government in less than a decade became a large debtor nation. Many folks start cashing out to reduce their loses. The feds step in and try to do a number of things:

a) Calm the market b) buy out the bad debt (the funny money) c) provide order and importantly liquidity so that folks will start buying again. Further, hopefully they will

save so that more banks do not have funny money. On the global level, the feds print more money to increase liquidity and yet begin slowly to increase the prime rate. Why would another country buy our shrinking dollars, because through globalization they own a lot of the USA and if Yanks go bust so do other countries Further, they can buy our property and there are lots to sell at great prices. And some day, the country can get back on its feet if we have an innovative product that is sold around the world. Take that product and multiply it by the thousands and you have a vital economy like we were heading toward in 2000.

Why Can’t Obama get mad and fight back?

Grunwald (40-41)

If he gets too mad and too angry, he looks like a Black Militant and scares away voters. He has to use humor when McCain attacks him at their first debate. Even though history appears to be on Obama’s side, in the last two weeks weeks, McCain has completely reinvented himself into a populist Keynesian. Thus, Obama must

keep attaching McCain to Bush. Even thought the first debate is on foreign policy, Obama must keep trying to move the conversation back to the economy. Money is on McCain. Obama is a great if not fantastic orator, but McCain is a debater. He talks fast and can raise his emotions right to the edge of outright anger and yet pull it off.

THE WEEK (2008) 9/26

HEALTH AND SCIENCE/21

There is a fingerprint beneath the regular finger print. You can wipe off finger prints, however if the criminal has touch metallic sources, he can still cause a finger print.

HACKERS (44-45)

Hackers have an annual convention where they trade secrets and new technology.

There and good and bad hackers, but they do exist and they fit the stereotype of very

bright and inward oriented types.

The convention is filled with armed FBI, CIA and other law enforcement to catch the bad hackers. However, there are even more police there that are dressed like hackers.

So what is going on. Yes, they will arrest a few hackers. IN REALITY, THEY WANT TO RECRUIT THEM TO HELP FIGHT OTHER HACKERS AND WILL PAY GOOD MONEY TO GET THEM.