This story is what happened all over the united states, and especially here.
The whole get rich quick scheming catapulted would be real estate tycoons and the Builder's Association into positions of remarkable power and public indulgence.
What did we get out of it in the end, despite the tax rebates and special treatments?
Well look around.
What would we have done if we had really looked at the underpinnings of our economy and focused instead on production?
QuoteBy now everyone knows the sad tale of Bernard Madoff’s duped investors. They looked at their statements and thought they were rich. But then, one day, they discovered to their horror that their supposed wealth was a figment of someone else’s imagination.
Paul Krugman
Unfortunately, that’s a pretty good metaphor for what happened to America as a whole in the first decade of the 21st century.
Last week the Federal Reserve released the results of the latest Survey of Consumer Finances, a triennial report on the assets and liabilities of American households. The bottom line is that there has been basically no wealth creation at all since the turn of the millennium: the net worth of the average American household, adjusted for inflation, is lower now than it was in 2001.
At one level this should come as no surprise. For most of the last decade America was a nation of borrowers and spenders, not savers. The personal savings rate dropped from 9 percent in the 1980s to 5 percent in the 1990s, to just 0.6 percent from 2005 to 2007, and household debt grew much faster than personal income. Why should we have expected our net worth to go up?
Yet until very recently Americans believed they were getting richer, because they received statements saying that their houses and stock portfolios were appreciating in value faster than their debts were increasing. And if the belief of many Americans that they could count on capital gains forever sounds naïve, it’s worth remembering just how many influential voices â€" notably in right-leaning publications like The Wall Street Journal, Forbes and National Review â€" promoted that belief, and ridiculed those who worried about low savings and high levels of debt.
Then reality struck, and it turned out that the worriers had been right all along. The surge in asset values had been an illusion â€" but the surge in debt had been all too real.
So now we’re in trouble â€" deeper trouble, I think, than most people realize even now. And I’m not just talking about the dwindling band of forecasters who still insist that the economy will snap back any day now.
For this is a broad-based mess. Everyone talks about the problems of the banks, which are indeed in even worse shape than the rest of the system. But the banks aren’t the only players with too much debt and too few assets; the same description applies to the private sector as a whole.
And as the great American economist Irving Fisher pointed out in the 1930s, the things people and companies do when they realize they have too much debt tend to be self-defeating when everyone tries to do them at the same time. Attempts to sell assets and pay off debt deepen the plunge in asset prices, further reducing net worth. Attempts to save more translate into a collapse of consumer demand, deepening the economic slump.
Are policy makers ready to do what it takes to break this vicious circle? In principle, yes. Government officials understand the issue: we need to “contain what is a very damaging and potentially deflationary spiral,†says Lawrence Summers, a top Obama economic adviser.
In practice, however, the policies currently on offer don’t look adequate to the challenge. The fiscal stimulus plan, while it will certainly help, probably won’t do more than mitigate the economic side effects of debt deflation. And the much-awaited announcement of the bank rescue plan left everyone confused rather than reassured.
There’s hope that the bank rescue will eventually turn into something stronger. It has been interesting to watch the idea of temporary bank nationalization move from the fringe to mainstream acceptance, with even Republicans like Senator Lindsey Graham conceding that it may be necessary. But even if we eventually do what’s needed on the bank front, that will solve only part of the problem.
If you want to see what it really takes to boot the economy out of a debt trap, look at the large public works program, otherwise known as World War II, that ended the Great Depression. The war didn’t just lead to full employment. It also led to rapidly rising incomes and substantial inflation, all with virtually no borrowing by the private sector. By 1945 the government’s debt had soared, but the ratio of private-sector debt to G.D.P. was only half what it had been in 1940. And this low level of private debt helped set the stage for the great postwar boom.
Since nothing like that is on the table, or seems likely to get on the table any time soon, it will take years for families and firms to work off the debt they ran up so blithely. The odds are that the legacy of our time of illusion â€" our decade at Bernie’s â€" will be a long, painful slump.
President Clinton said today that the Repubs doubled the deficit in the past 8 years and didn't create any new jobs. I guess that's at least the path not to follow. Clinton said he would be doing exactly what Obama is doing.
QuoteClinton said he would be doing exactly what Obama is doing.
Is that what he really said? ;)
As of today, the Obama administration has incurred more debt in one month than the USG did in the previous twelve months. And many more promises to keep.
bt, luckily I'm a former tolerance center board member. So, I'm going to ignore that last remark.
Jacksonville has a large insurance industry presence you'd think they'd be asking for bailout money to develop the systems to streamline the medical insurance industry.
Quote from: NotNow on February 17, 2009, 08:21:38 AM
As of today, the Obama administration has incurred more debt in one month than the USG did in the previous twelve months. And many more promises to keep.
The stimulus money was originally approved under the Bush administration he should get some of the credit and or blame.
But this is not a "governmental" problem. The article clearly puts the blame for lack of wealth creation on the public... the consumers. WE as Americans have been living above our means for two decades now. We blame the government for deficit spending yet we do it every day... the governments spending habits are but a reflection of our own. It is a viscous cycle of monkey see... monkey do... and we are both monkeys... :)
QuoteFor most of the last decade America was a nation of borrowers and spenders, not savers. The personal savings rate dropped from 9 percent in the 1980s to 5 percent in the 1990s, to just 0.6 percent from 2005 to 2007, and household debt grew much faster than personal income.
QuoteConsumers owe $971 billion, which is $3,184 of credit card debt per person, or $8,299 per household. (Source: Federal Reserve, G.19 Release, November 7, 2008)
QuoteYet until very recently Americans believed they were getting richer, because they received statements saying that their houses and stock portfolios were appreciating in value faster than their debts were increasing. And if the belief of many Americans that they could count on capital gains forever sounds naive
How did I contribute to doubling the federal deficit last 8 years?
Please reread the article...
I paid my taxes, I paid rent, I paid off 2 houses, 3 cars, I gave gifts, I saved money, I took nothing from the government, I gave to my church...I was a giver during that time.
The mindset is what needs to be fixed. Easy money, look at gangstas popping caps in each other's asses. It's all about get now, screw the future. Current times has brought us the following...
Credit cards
Easy financing
20+" rims
Bling
We keep with the Joneses... saving is a thing of the past. Good luck to all of us that did. It will be useless b/c we will share the wealth. You may as well buy now, otherwise you'll be robbed for it later.
It is a toxic mindset... and worse yet... we are now going to look to the government to fix our problems rather than point the finger at ourselves.
I need to clarify my statement... "saving is a thing of the past. Good luck to all of us that did."
Anyone that looks at their 401k statement will probably agree that saving has been a thing of the past for quite some time now. I'm really considering pulling all of my money out and investing half in a CD and half in some of these foreclosed properties.
BTW Stephen, what happens if a meteor destroys the Hare Krishna? Is all debt forgiven?
A fish can begin rotting from any source... the article you posted stated...
QuoteThe personal savings rate dropped from 9 percent in the 1980s to 5 percent in the 1990s, to just 0.6 percent from 2005 to 2007, and household debt grew much faster than personal income.
And I found this tidbit to add...
QuoteConsumers owe $971 billion, which is $3,184 of credit card debt per person, or $8,299 per household. (Source: Federal Reserve, G.19 Release, November 7, 2008)
These are not minor things. This is a toxic american mindset from Mommy and Daddy all the way to the Presidency and Wall Street. We approve of this!! Deficit spending?? Why not? Every one of us do it. Blaming Tom Delay is soooo easy Stephen. We will not get better until we look inward as a country...
QuoteMom and Pop didnt take out the bulk of the high interest loans.
Oh yes they did... look at your credit card statement. 18-20% interest is high in anybodys book. Moving from a savings rate of nearly 9%(which is still pathetic) to almost nothing... is disastrous. In addition it seems many were convinced that the "American Dream" of home ownership was a right rather than an obligation... and took on even more debt... not to mention the two car loans and the home equity loan.
Mom and Pop have been living with this debt for so long it became normal. It was not so long ago that this was absolutely ABNORMAL behavior for the family unit.
It is too easy to blame some faceless Halliburton or Blackwater... the truth is probably in the mirror.
I am simply agreeing with the article you posted... I bet those who have money saved... and are not in debt are doing pretty well in this downturn... :)
Sure it does Stephen... but you are downplaying mom and pops contribution and it is not small. In credit card debt alone mom and pop are living above their means by nearly a
TRILLION dollars!! Does that number sound familiar? Add to that the money we have not saved... a couple more trillion...
Your article ends with...
QuoteIf you want to see what it really takes to boot the economy out of a debt trap, look at the large public works program, otherwise known as World War II, that ended the Great Depression. The war didn’t just lead to full employment. It also led to rapidly rising incomes and substantial inflation, all with virtually no borrowing by the private sector. By 1945 the government’s debt had soared, but the ratio of private-sector debt to G.D.P. was only half what it had been in 1940. And this low level of private debt helped set the stage for the great postwar boom.
Since nothing like that is on the table, or seems likely to get on the table any time soon, it will take years for families and firms to work off the debt they ran up so blithely. The odds are that the legacy of our time of illusion â€" our decade at Bernie’s â€" will be a long, painful slump.
Quote from: stephendare on February 17, 2009, 03:15:35 PM
And I don't keep a credit card, never have. Neither John Allen or I ever used a credit card for the past 8 years.
The bankruptcy practice made a very conservative person out of me, and I learned the hard lessons of others very well.
I am glad for you... perhaps you underestimate the hold this piece of plastic has on some people and families. The monthly bill for this debt meets or exceeds their mortgage payments for many people!! Worse yet... they consider this normal...
Quote from: stephendare on February 17, 2009, 03:21:32 PM
So you are saying that we need another government program as massive as the new deal and ww2 combined?
No... but as sure as the sun will rise tommorrow we will get one. I fear however until mom and pop american decide to pay off debt and live within their means again ... and do this as a lifestyle change... we are in for ever bigger problems.
Stephen,
Where did you find this quote?
I am not "blaming" anyone... and apparently the author Paul Krugman feels as I do. What sacred cows are you accusing me of siding with? They most assuredly play a large role in this crisis. All I am saying(and Paul K.) is we are leaving ourselves conveniently off the hook... how nice... :)
It is all... Their Fault...
This is why hindsight is always dead on balls accurate. I did put my money in remodeling my home and it made me a lot of money. I think a lot of other home owners did the same thing.
Oops... look who is keeping a low profile. When is the last time you saw one of these? What is the message here?? Cash is bad... slows everything down... gums up the process. Plastic debit and credit cards get you what you want... quicker... no pain... worry about it later... :o
http://www.youtube.com/v/9hXmyD9a4zg
Do they know about pawn shops? I heard they were now giving .50 for each CD or DVD.
QuoteThe nation’s real tab, on the other hand, amounted to $53 trillion as of the end of the last fiscal year. That was the sum of our public debt; accrued civilian and military retirement benefits; unfunded, promised Social Security and Medicare benefits; and other financial obligations â€" all according to the government’s most recent financial statement of September 30, 2007.
Could it be Stephen... this is the way it is... because... in our OWN lives and families... we are doing the same thing? We shrug our shoulders at the debt because... so freeking what. I have debt... you have debt... we all have debt.
Why should the government be any different? We want a war? Put it on the card... Welfare? On the card... Social security? Break out that card!! Why pay cash?... I got the freeking CARD!! :D
Mom and Dad got their first card when they retired at 65. They pay it off each month. I think a lot of people use cards that way. I was never that way. I got my first card as a freshmen at UF. Been addicted ever since.
QuoteMom and Dad got their first card when they retired at 65.
You have made my point. Your mom and dad come from a generation where it was nearly unthinkable to owe more than you could pay. My parents were the same as were their parents. It is only recent generations that see revolving and ever increasing personal debt as the norm.
Regulations will only go so far though, no? You can regulate or de-regulate things all you want, but that will only work to a certain degree.
At the end of the day, it's about living at your below your means and being fiscally responsible. It's a way of life that's lost on this generation. Because the Great Depression was 2-4 generations ago (depending on which guage you use), the lessons learned there have been mostly lost on our generation and the one that's come after us. The Boomers and Gen X'ers have seen to that by not passing that lesson on to their kids - namely Gen Y and Gen i/the Millennials.
That same attitude should go double, triple, and even quadruple for the government. But the government has the power to create fake wealth out of thin air (and the printing presses) via the Federal Reserve and the US Mint. No such limitations or attitudes exist there.
I need to give a shout out...
Fannie Mae! Freddy Mac! You the bomb dogs!
Just a bit confused Stephen. You posted an article... I agreed with 90% of it and you spend all day disagreeing with me and the article you posted. Does it not say what you thought it said? Am I dyslexic and have somehow misconstrued the main points of the article? Perhaps if I say "white" you will say "black" just so we can add to our post count...
Quote from: JeffreyS on February 17, 2009, 09:06:29 AM
Quote from: NotNow on February 17, 2009, 08:21:38 AM
As of today, the Obama administration has incurred more debt in one month than the USG did in the previous twelve months. And many more promises to keep.
The stimulus money was originally approved under the Bush administration he should get some of the credit and or blame.
Actually, Obama owns the stimulus package completely. This is a Democratic show all the way. Bush is responsible for his own messes though, the bank bailout for example, and the Republicans who spent like there was no tomorrow are just as responsible for their actions.
Quote from: stephendare on February 17, 2009, 03:33:29 PM
which one is that, NN?
In the original post, where did you find it? If you remember now. I know it has been a while ago now.
Quote from: NotNow on February 17, 2009, 08:13:53 PM
Quote from: JeffreyS on February 17, 2009, 09:06:29 AM
Quote from: NotNow on February 17, 2009, 08:21:38 AM
As of today, the Obama administration has incurred more debt in one month than the USG did in the previous twelve months. And many more promises to keep.
The stimulus money was originally approved under the Bush administration he should get some of the credit and or blame.
Actually, Obama owns the stimulus package completely. This is a Democratic show all the way. Bush is responsible for his own messes though, the bank bailout for example, and the Republicans who spent like there was no tomorrow are just as responsible for their actions.
Yep the Republicans screwed up big time on the spending. But what bothers me about this stimulus package is that it was so hands off by "the one". He basically put his political fate in the hands of Pelosi and Reid, Pork filled through and through. No doubt this package is all his now. God knows that the bank bailout was screwed up to a level of a+++++. Plus the guy bails on the white house after two weeks, with the wife smiling and saying they finally let us out. 2 weeks! what are they going to look like after two years.
Quote from: BridgeTroll on February 17, 2009, 07:19:00 PM
Just a bit confused Stephen. You posted an article... I agreed with 90% of it and you spend all day disagreeing with me and the article you posted. Does it not say what you thought it said? Am I dyslexic and have somehow misconstrued the main points of the article? Perhaps if I say "white" you will say "black" just so we can add to our post count...
Yeah I think thats basically it
Quote from: NotNow on February 17, 2009, 08:15:12 PM
Quote from: stephendare on February 17, 2009, 03:33:29 PM
which one is that, NN?
In the original post, where did you find it? If you remember now. I know it has been a while ago now.
Here it is...
http://www.nytimes.com/2009/02/16/opinion/16krugman.html
Watched the PBS produced Frontline last night. This episode was titled "Meltdown". Very informative. If you wish to learn a bit more about what happened, why it happened, and how it happened... this is a good start.
The Meltdown page...
http://www.pbs.org/wgbh/pages/frontline/meltdown/
Here is the entire one hour show...
http://www.pbs.org/wgbh/pages/frontline/meltdown/view/
Fannie & Freddie, really? I agree they are not 100% responsible, just as this article states, but...
"Fannie and Freddie were government sponsored entities (GSE's). This meant that they had to be competitive, like a private company, and maintain their stock price. On the other hand, the value of the mortgages that they sold was guaranteed by the government. This caused them to hold less capital to support their mortgages in case of loss. As a result, they had pressure to take on risk to be profitable but knew they wouldn't suffer the consequences if things turned south."
and
"Government regulations preclude Fannie and Freddie from buying mortgages that don't meet down payment and credit requirements. However, as the mortgage market changed, so did their business. Between 2005-2007, few of the mortgages acquired were conventional fixed-interest loans with 20% down. Fannie Mae's loan acquisitions were:
62% negative amortization
84% interest only
58% subprime
62% required less than 10% downpayment.
Freddie Mac's loans were even more risky, consisting of:
72% negative amortization
97% interest only
67% subprime
68% required less than 10% downpayment."
http://useconomy.about.com/od/criticalssues/a/Fannie_Cause.htm
This subject may have been broached before but what happened to the PMI requirements for mortgages. If I remember correctly from my first mortgage you had to have the coverage if you put down less than 20 percent. Were these requirements changed or does it depend on the type of mortgage?
Cool... hey check out that Frontline show. They are always well produced.
Quote from: stephendare on February 17, 2009, 06:22:45 PM
The FMs certainly are, and considering that their combined bad debts comprise almost .7% of the mortgage crisis, They are truly the amazing ones to think about.
On the other hand, Wachovia and Lehman Bros.....
Doctor K. Regulation got us only so far as it was in place. No great Depressions from 1938 until they were lifted, and then magically the same greed that precipitated the great crash sets in and suddenly the markets crash again.
Fair point, Stephen, and all true. However, in any 401(k) or similar account, there were always disclaimers that said "no guarantee of rate-of-return," or whatever the saying was. I was smart enough to understand that. I also was able to contribute regularly to my 401(k) as well as an online savings account offering higher-than-usual interest rates simultaneously. In my opinion, that puts me way ahead of the game compared to a lot of people who did one or neither of those.
People who only shunted money into retirement accounts are now in a much worse situation than I am. I also have the advantage of being relatively young and will be able to continue to contribute to both Savings and Retirement for the rest of my (hopefully long and healthy) working life. The markets will come back. They always do. If it takes 2 years or 20. Or more. They always have.
If that means I'm still "drinking the kool-aid," as it were, then so be it. If that means I'm opening myself up for another disaster like this one in the future, then so be it. It's a risk I'm still willing to take. And more importantly, it's my decision to make; and I make it fully coherent of the risks involved.
Thanks BT. I'm watching it now.