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The Great Recession

3/20/2016

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If you don't get around to seeing The Big Short, which is a very entertaining account of how and why the 2008 economic meltdown occurred, complete with the personalities involved, here is a short nonpartisan explanation.  Most people still don't understand it, but it isn't that complicated.
A lot of salesmen sold mortgages that they knew were bad, to people they knew would probably not be able to pay them off.  They did this because they got a commission and fees off every mortgage they sold, but none off those they declined.
Banks both federal and private made the bad loans because they could then sell them to investors, and so would not get stuck holding the loan if it defaulted.
They were able to sell the bad mortgages to investors, first, by bundling them into huge CDOs with thousands of loans, bad and good, so investors had a hard time figuring out that many of them were bad.  They figured bundling them together made the package stronger. Actually it meant that if some of them failed, the whole package would collapse. Second, the banks got the rating agencies to rate the CDOs triple A, so they would look good to investors.
The rating agencies rated them AAA because they got paid to. They were paid, a lot, not to rate or evaluate the investment, but for giving them AAA.  If they did not, the banks could go to another agency which would cooperate.
These were cheap adjustable rate mortgages, so as soon as the rates went up, the home owners, who could barely or not at at all afford them anyway, defaulted.
The banks and investment companies went bankrupt.  Many had bought the CDOs themselves!  A good con artist believes his own con.
The federal government, Republican and Democratic, bailed out the banks, except Bear Stearns.  The other alternative was to let the financial system collapse into another world depression, like in 1930.  The banks were too big to fail, too big to jail,  which was another reason the didn't hesitate to make bad loans.
The banks took the billions from the government and used it partly to award bankers with huge bonuses, in the hundreds of millions.  From the bankers' point of view, they could tell their stockholders that they had gotten billions of free money from the government, saving the bank, so they deserved a big bonus.
The good news now is that the economy finally recovered and the banks paid back the fed, so the taxpayers got their money back.  The bad news is nothing has changed.  Those wonky financial instruments, like CDOs, are still around, the banks are bigger than ever, and not one single person went to jail.  Some investors tried to sue the rating agencies for fraud, but were laughed out of court.

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         This blog is writing.  It has no pictures or video.
         When I was in high school I decided writing was the greatest art, in fact the most memorable contribution a person could make, pace the Lacaune  cave paintings.  I knew film was the growth industry, and in college I had the opportunity to hook up with film makers--New American Film notables had just moved into the college I was attending--but I still thought writing was the greater art.
    Consider these arguments:  
    1. A camera is a fantastic invention, especially when backed by computer capabilities.  But humanity's greatest invention without any doubt is language.
    2. Vision is the most powerful sense, and in film, hearing is added too.  But the imaginations is more powerful yet.  Writing drops into the mind like one of those Japanese clam shells, opens and releases a flower more fabulous than any image from nature. 
    3.  Rhetorical arguments are all very well but we have learned to trust empirical facts more.  So there are many great films.  But do any of them really compare well to Ulysses or Remembrance of Things Past?  The book is always better than the film.  Further, even the best films date severely.  The styles of acting change, the fashions, the technology becomes obsolete. But any educated person can still read Homer and Shakespeare, and changes in mores only make them even more interesting.
          Far from becoming outmoded, writing has entered yet another golden age.  Novels may have become epigones of those past, poetry obscure, but never have more people written more words for more readers.
          Everyone has a phone.  It can transmit voice, images and video, and yet even the marginally literate text and text and text.

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