The U.S. economy is now operating more like a ‘centrally planned’ economy such China or Russia. The United State government’s Treasury Department as well as the Federal Reserve are using the taxpayers money to stabilize the failing once gigantic institutions which were deemed too big to collapse. Setting up the doorway to easily trigger a global financial catastrophe.
So going way back to 1931, the uncertain volatility of the US stock markets had the media showing photos and slides of then President Herbert Hoover saying, there’s no fear… “our economy is fundamentally sound,” as the Great Depression raged on and on. Today, President George Bush said just last week eerily almost the exact same thing… “our economic fundamentals are sound”. Bush is the first president of the United States to preside over 2 recessions since Richard Nixon did so in the early 1970s. Nothing to be proud of.
The U.S. and the Bush administration allowed this mess to escalate through poorly regulated banking and credit regulations going back to the 1980s. This situation rapidly deteriorated further when Alan Greenspan, the now former Federal Reserve chairman decided to keep interest rates far too low for much too long. This in a plan to hopefully get people to buy houses in an attempt to inject an already failing economy in recession when the unfortunate 2001, 911 terror attacks occurred.
So traditional banking practices dictates that all financial institutions usually loaned assets they actually owned, and thus assuring them that they are ‘backed’ if the loans can’t be repaid. But during the 1980s, the trend began, spearheaded by the big U.S.banks and huge blue chip corporations to adopt a “mark to market” system of accounting practices that would assigned current market values to assets, whose real actual values would not be determined until some time yet undetermined in the future.
These large institutions also began packaging these ever growing borrower debts and passed them on as securities and started selling them off to other lenders.
Also what contributed to the current economic volatility was an increase in selling of shares (selling short), of failing companies, all in the name of profit for insiders.
While banks in other G7 countries such as Japan and Canada usually practice stronger more stringently regulated lending practices, a lot of these countries however purchased various amounts of the US housing debt securities themselves.
One of the few options a failing asset and cash strapped corporation has is:
Then the credit eventually dried up and the various banks just put a stop to lending to each other. This forced the U.S. Federal Reserve and other government facets as well as the central banks to step in and rescue many of the large firms in trouble.
The U.S. is now forced to completely overhaul and revamp its entire financial system by forcing the central banks, the brokerages as well as the insurance companies to restructure their lending and credit practices, so that they have enough assets and collateral to fully cover outstanding loans. Debt and investment vehicles must be completely transparent to the buyer. Rating agencies has to be monitored for accuracy. Large financial managers and executives has to be held accountable for poor business practices.