BY TIBBY WESTON
8/26/07
The lack of education in financial matters causes far more serious consequences than the lack of general education that was forced upon our people by cynical politicians working hand in hand with an inept educational system. If 30% of our population is effectively illiterate they can still get a job at a living wage, but illiteracy in elementary financial matters created the present credit crunch and will force the federal government to, not-so-reluctantly, enlarge its powers to save millions of homeowners from being evicted from their homes they were tricked into buying by a cabal of builders and money lenders in connivance with politicians.
These sentences are too long to describe the recent fake real estate boom that is now coming to haunt us. Unfortunately the worst is yet to come.
We had a fake technological boom in the 90s resulting in massive losses to investors and the public.
Twenty years ago we had a credit crunch that wiped out the real estate industry, the S&L industry and caused a loss of over $1,600 Billion. It took us over 10 years to recover from that one. The Government and politicians created that credit crunch of the 1980s. The result and goal was to socialize the losses and privatize the profits. Billions were lost by the public and enormous profits were made by insiders and their paid for politicians while they piously blamed a handful of S&L owners for the financial catastrophe politicians had created.
A previous credit crunch created by the federal Government resulted in the Great Depression. It took over 10 years and a World War to recover from that one.
This brings us to the present crisis. Politicians are now faced with a more complex problem. They and their insiders cannot profit from stealing foreclosed homes from millions of misguided borrowers, because those people may vote them out of office. Politicians must find a way to save their buddies who ripped off the public with pie-in-the sky loans, balloon mortgages, ARMs, sub prime lending and other creative financial instruments designed to dupe the financially ignorant.
In California anyone with any common sense should have known that sooner or later that houses had to stop being sold for ever larger amounts. The whole price structure became ridiculous. Eventually it has become difficult to pay millions for houses worth only thousands.
Echoes of the tulip mania and collapse. The term is still used metaphorically to refer to any large economic bubble. The term originally came from the period in the 17th century of the Netherlands during which demand for tulip bulbs reached such a peak that enormous prices were charged for a single bulb.
I predict that our nanny government will now step in and save the poor borrowers by refinancing those Mickey Mouse loans with new government backed FHA loans that will allow 60-100 year amortization schedules so that the minimum payments they were tricked into making could be continued forever. A neat trick! Everybody happy! The homebuilders, the money manipulators, the hedge funds, Wall Street and of course the illiterati. The wolf at the door has been tricked. We moved the door. Unfortunately there will be unintended consequences. The World will not just stand by and watch idly how we destroy the value of the dollar. They’ll stop protecting it and flee to hide behind their own doors to fend off the wolf.
