The Subprime Conspiracy.. Was There a Plan to Blow Up the Economy?

There was a good segment on the ATSLive show #4 on the topic of Goldman Sach's recent stories, and the discussion naturally evolved into the economic mess the US is in at the moment. Some of the very points made in the discussion are expounded upon in this piece by Mike Whitney.

www.counterpunch.org

Many people now believe that the financial crisis was not an accident. They think that the Bush administration and the Fed knew what Wall Street was up to and provided their support. This isn't as far fetched as it sounds. As we will show, it's clear that Bush, Greenspan and many other high-ranking officials understood the problem with subprime mortgages and knew that a huge asset bubble was emerging that threatened the economy. But while the housing bubble was more than just an innocent mistake, it doesn't rise to the level of "conspiracy" which Webster defines as "a secret agreement between two or more people to perform an unlawful act." It's actually worse than that, because bubblemaking is the dominant policy, and it's used to overcome structural problems in capitalism itself, mainly stagnation.

The whole idea of a conspiracy diverts attention from what really happened. It conjures up a comical vision of top-hat business tycoons gathered in a smoke-filled room stealthily mapping out the country's future. It ignores the fact, that the main stakeholders don't need to convene a meeting to know what they want. They already know what they want; they want a process that helps them to maintain profitability even while the "real" economy remains stuck in the mud. Historian Robert Brenner has written extensively on this topic and dispels the mistaken view that the economy is "fundamentally strong". (in the words of former Treasury secretary Henry Paulson) Here's Brenner :

What's the answer, if any, to this continuing manipulation of the economy?

Is there an answer at all?






ed:add show thread link

[edit on 5/3/2010 by JacKatMtn]

God knows anything is possible but I don't buy it. From my POV this was simply bald-faced greed run amok. They pushed the limits, made a ton, pushed a little more, made a ton more, then pushed just a little too far and killed the economy. Greed. Makes even relatively smart people as stupid as a box of hammers.

Well IMO this is partly true. The past administration allowed for this to happen via loose lending practices and regulations.

But I am really doubting our elected rep.'s had anything to do with anything if you were witness to the GS hearings last week. We have some dumb people in congress. None are smart enough to think of anything too nefarious unless they were spoon fed.

But in reality..

1) Residential Housing was overextended

2) Consumers were 10x too over-levered

3) Over-levered + Losing 1 income in a family of four = blow up

So Americans spending over their means + loose regulation of the past regarding lending is a terrible equation to the USA economy.

Once we start to put the blame on ourselves a bit more and realize that most of us contributed to this mess in the first place the quicker we get out of this funk. Although I believe it is historically shown that Americans have about a 10-15 year memory so if we all don't die in 2012 by around 2020 it will be back to the same old thing once again.

reply to post by GreenBicMan


I can agree that the consumers should shoulder some of the blame, however shouldn't more of the blame be placed upon those within the federal government, who were alerted many times to the potential fallout of these predatory practices being used on Wall Street? You know the one's who decided not to take actions?

Maybe that is where the breakdown occurs, too many folks cozy with the bankers end up serving a few years in DC supposedly to protect the interests of the citizens when in fact they are only enabling their own to pursue profit, ethics be damned.

Should there be more stringent measures to prevent this buddy buddy atmosphere between Wall Street and DC?

I think the taxpayers have already taken alot of the blame in the form of the massive bailouts, don't you?

reply to post by JacKatMtn


1. End private campaign contributions. Cap a limit.

2. Never vote Democrat or Republican again

3. Term limits for all elected representatives

Those 3 things should fix 75% of this mess

The other 25% rests upon the shoulders of the citizens of the USA. Unfortunately we all can't drive the late model Beemer, although it would be nice.

reply to post by GreenBicMan


Agreed, and in that context, the blame can be attributed to the citizenry, for the collective apathy on the part of the voters.

We have another opportunity this November to start creating the solution, will the voters step up to the plate this time?

I am one of those that believe it was created, manipulated and executed by the fat rats in the markets.

How can anybody forget that all this fat rats were profiting while the markets were going down the hill along with so many main street citizens dreams.

I believe it was created.

reply to post by marg6043


You forget Marg not everyone has a crystal ball.

95% were losers and everyone that is fully invested no matter what always perform better in bull markets than bear markets. There were very few that sold at highs then shorted at the top. In fact I am guessing there were 0 people that called the top then sold off all their bullish securities then went net short. Think about the statistical anomaly that would represent.

Mathematically IMO this would be impossible. Remember we had a huge bull run going into this, so it would be very hard for me to conceptualize these events happening like you have stated in regards to being long until SP 1500 then shorting everything in sight.

I hope we can still be friends (haha )

reply to post by JacKatMtn


Simple answer my friend is no.

Do you think anyone that watches fox news or any MSM even realizes reality? There is no true reality for 85% of citizens in this country because their reality rests on what the TV tells them is reality.

Almost like living in some quasi Truman show scenario.

Originally posted by JacKatMtn
What's the answer, if any, to this continuing manipulation of the economy?

Is there an answer at all?

All of this was predicted before it even started.

The outcome the bankers seek is the destruction of the U.S. and creation of the North American Union (NAU).

2007: The Fed’s role in the Housing Crash of ‘07 (article was a year early)
www.informationclearinghouse.info...

2006?: America from freedom to fascism
(Banker's goal to create the NAU by 2010)

Google Video Link

[edit on 3-5-2010 by zzombie]

I'd like to contribute to this topic by offering this quote from Jack Guynn, former head of the Atlanta Federal Reserve at a meeting in 2004

The substantial run-up in house prices, which we have followed in Florida and also see in the populous Northeast and West Coast of the United States, may be at least partially attributable to unusually low mortgage rates influenced by our very accommodative policy, which has been in place for some time. Those developments and the risks associated with the run-up in house prices probably deserve further study and thought as we decide how to posture policy.

I continue to be comfortable with the policy path we’re on. And barring some surprise, I judge that we still have a considerable way to go to get back to a more neutral stance. My concern is that, with a real fed funds rate that continues to be near zero, we could unintentionally be encouraging further imbalances in both the inflation environment and in the international sector. I hope we will not try to signal that we may soon pause in our removal of policy accommodation. Thank you, Mr. Chairman.

Source

So we can see that as early as 2004 there was an awareness in the federal reserve of what might happen if they continued their policy. And we can tell from history they did nothing.

Alan Greenspan said it was almost impossible to predict a bubble. But I'd like you guys to look at This graph

Tell me, how hard is it to see a bubble there? How could they possibly miss that?

I think there definitely was a very wide conspiracy involving many people to defraud the people and destroy the American economy.

When Bush first took office, he actually warned of the problem with subprime lending and the potential disaster it could bring.

In 2001, the administration of George W. Bush raised caution flags about lending by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, noting in its '02 budget request that "financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity."

patriotpost.us...


As I mentioned on the show, this was a problem that began several administrations back, I said Reagan but, after reading the above link, I was wrong, it was Carter who started it all. Each president after him made it worse, tweaking the practice of subprime lending, making it even desireable for the banks to make those loans.

Did Bush know there was a problem? Clearly. Did he stop it? No. The question of "How Was It Allowed To Happen?" seems to be a recurring one with his administration.

How did the administration, when they knew this was a problem, when they knew it was leading to calamity, not do a thing until it was too late? The key, I guess, is to look at what went on after he started talking about the potential implosion. His attentions was, obviously, diverted by 9/11. The conspiracy theorist in me raises the question, "what if 9/11 was an act perpetrated to destroy records, take the focus off a cash cow that was about to be shut down, keep the administration from ruining a good thing?"

Do I believe it? No but it's worth asking. Much like it's worth wondering if AIG had a hand in bringing down Spitzer when he was so vocal about all that they were doing that would crush the global economy. He went away, they continued to rake in their money until the bottom fell out, just as Spitzer had warned.

reply to post by Crakeur


Some analyst believe that the government created the crisis also.

I was reading a time line blackguards of how the crisis had its roots in the creation by the government of the entities call Fannie Mae and Freddie Mac, for the expansion of mortgage fund, knowing very well that this funds and credit extensions were beyond been financially backed.

With the creation of Fanny Mae in 1938 under Roosevelt in what it was call a socialist deal, after this the Fanny Mae started another secondary venture using tax payer dollars to buy mortgages and then selling them into the international markets..

Then in 1968 Lindon Johnson sold Fanny Mae to finance the Vietnam war deficit, ( I had not clue that this happen) I though Fanny Mae was still government owned.

Still it had full government backing even when it was not longer a Government owned company.

Since 1995 Congress authorized the secularization of subprime loans and since then that is when fanny Mae and Freddy Mac bought most of the government backed mortgages securities and made the ponzi scheme of reselling them, because they kenw that they will become so big that the government will not let them fail while enjoying full backing.

So in other words the government helped create this mess and the backing policies made possible for the government to used the tax payer money to save the companies.

Now i could be wrong. . . and all this is nothing but speculation.

[edit on 3-5-2010 by marg6043]

Found another opinion piece on the topic, this author refers to it as a conspiracy, the Goldman Conspiracy, and gives us some more points to ponder. He seems to be wanting reform as in financial reforms, in his opinion, Goldman will work behind the scenes to prevent any reforms from seeing the light of day...

www.marketwatch.com

Remember Nietzsche? "God is dead." Let's translate that 19th century Germanic philosophy into modern economics. In Adam Smith's 1776 capitalism, God was the Invisible Hand, a mysterious force running the economy from the shadows.

Flash forward to 2010: Capitalism is dead. The economy has a new Invisible Hand, the Goldman Conspiracy of Wall Street bankers.

This transfer of power happened suddenly. As recently as late 2008 the Invisible Hand was on life support, near death. Suddenly, miraculously the Treasury secretary, Goldman's former CEO, transferred the power into a new Invisible Hand of God, the free-market ideology of Reaganomics ... a power absolutely essential to the survival of Wall Street's mega-bonus culture.

Yes, that's why the Goldman Conspiracy must kill financial reforms ... why they will kill effective reform with the backroom support of Obama and Dodd. This was predicted back in late 2008, even before the bailouts, back when we thought Reaganomics dead. "Shock Doctrine" author Naomi Klein warned:

"Free market ideology has always been a servant to the interests of capital ... During boom times it's profitable to preach laissez faire, because an absentee government allows speculative bubbles ... When those bubbles burst, the ideology becomes a hindrance and goes dormant while big government rides to the rescue," then a neo-Reaganomics "ideology will come roaring back when the bailouts are done. The massive debts the public is accumulating to bail out the speculators will then become part of a global budget crisis," setting up a new bubble, bigger meltdown, and the Great Depression 2 the world narrowly avoided in 2008.

here's the 6 reasons the author gives on why Goldman Sachs must kill reform"

The 6 reasons Obama/Dodd helping Wall Street kill financial reforms

In this context, the Goldman Conspiracy's goals are very simple as they manipulate Congress and the president to protect their warped culture:

No Fed audits, no transparency, no matter how much money the Fed prints for the banks

A toothless Consumer Protection Agency

Wall Street must continue controlling rating agencies

Unregulated proprietary trading of derivatives with loopholes for corporate derivatives

No new Glass-Steagall laws to prevent Wall Street from trading with customers' deposits

And taxpayers must remain liable for future bailouts over $50 billion up to unlimited sums even greater that the recent $23.7 trillion the Fed and Treasury handed out.

Bottom line: The Goldman Conspiracy must kill any real financial reform. Why? The Goldman Conspiracy cannot generate huge bonuses without their new Invisible Hand; the resurrection of unregulated neo-Reaganomics allowing traders to keep gambling in the lucrative $670 trillion global derivatives shadow banking casino.

reply to post by JacKatMtn


And working hard they are, at a tune of millions of dollars been injected into congress rats campaign funds.

Yes their lawyers and lobbyist are the ones redacting the Financial reform at we speak, that is why those in congress that are no selling themselves for money are fighting this bill.

Goldman Sachs adds to its ranks of lobbyists

www.washingtonpost.com...


Despite Reform Efforts, 'Big Banks Have Enough Lobbying Power To Continue Taking Big Risks'

The political debate is in high gear as many candidates to congress in mid elections had money ties with Goldman Sach including making profits with the mortgage crash.

This spells CORRUPTION all over our political system then what kind of reform we should expect from all this. . .

Goldman Sachs Donations Loom Over Republicans, Democrats Alike

www.bloomberg.com...

Goldman Sach is very well known for buying politicians and political seats from the president to congress.

Their version of Financial reform is to make the tax payer libable for over any future loses due to their dirty deals, and with all the money they are giving away to buy politicians they may as well get it

They invested heavily in Obama also, millions of dollars for his campaign.

More on what main street is against of,

Big Business Lobbying for Loopholes

While Wall Street financial firms have been lobbying furiously against regulatory reform, other big businesses have been working behind the scenes to water down the bill or insert loopholes that would exempt their industries.

Credit card companies, auto dealers, community banks, investment firms, hedge funds and student loan firms all have a stake in the game. And all have descended on Capitol Hill in an effort to shape what is set to be the most sweeping financial reform since the Great Depression.

www.economyincrisis.org...

No chance for main street at all.


[edit on 4-5-2010 by marg6043]

reply to post by marg6043


As I said, from Carter on down to Clinton, each president tinkered with and tweaked the lending policies to ensure that banks would benefit by lending to folks who, normally, wouldn't get a loan. The original intent was noble, help lower income families own a home. When Clinton did his tweaking, it was no longer a small benefit and his tweaks resulted in lenders creating a variety of new loans that were designed specifically to ensure that lower income families could afford a home.

Prior to the lending craze, 4% of the loans made were unconventional (adjustible rates, interest only, pay as you go, etc). By the time the bubble burst, the number was frighteningly higher. These programs were time bombs that were, for the most part, created and fostered under Clinton's administration. When Bush took office, he wanted to stop it, as referenced in my link. He, or, rather, his advisors, warned of an impending crisis but he was unable to combat the democrats that ruled the roost. Thus, we wound up in economic hell.

Is it possible that the whole thing was set up to fail? Sure, anything's possible but, much like every other supposed conspiracy that stretches over decades and lifetimes, what's the point? If something was put in place in the 20's, and took 90 years to come to fruition, why would the original perpetrators have done it? To benefiit their great great grandchildren? Who's to say they'd have them? Who's to say they'd want the same evil results?

Truth is, I highly doubt anyone, including the folks at Goldman, Lehman, AIG, wanted the gravy train to end. Did they enjoy it, while it was working? Absolutely. They all got rich. Why would they want it to blow up? Now they run the risk of being more closely monitored. Now they run the risk of greater, stricter regulation. They might find themselves working for ordinary means until they find new, and inventive ways to beat the system.

Why would the government? How has the government benefited from this? They've ensured that our grandkids are screwed. Crazy inflation is almost guaranteed. The economy is in turmoil, the world will suffer as a result.

Is that a win?

I don't think so.

reply to post by Crakeur


Is not the government per say that benefited but those that works within the government our buyout politicians many have profited personally from the mortgage crash.

Perhaps like everything morgarge affordability had a humble and honorable beginning but then as generations cames new they get greedy and greed is what cause the mortgage bubble crash at the end.

But look how many politicians Goldman Sach and other big banks had bought . . .

Corruption runs rampant in Washington and Wall street.

reply to post by marg6043


As I said, a few times, this was, originally, done to help people. Banks are in the business of making money. They found ways to do it and then, thanks to Clinton, they were given even more incentive to take advantage of lower income families. They did. It was legal. It was what the Clinton administration wanted. This was done so Clinton could say "look at how many people could buy their own home under my watch."

I find it ironic that Bush is the only president in the last 30 or so years who saw the writing on the wall. Sadly, he was fighting folks like Franks and Dodd. Franks and Dodd had every reason to fight Bush and his attempts to halt the crisis before it happened. Check into their history with the banking industry. Check out Dodd and the loans he received, for himself and, I think, his grandmother. These guys, like all politicians, are weasels.

This might be the one thing Bush was right about. Sadly, he's not bright enough to capitalize on it and try and restore his tarnished image.

Don't get me started with Frank and Dodd, they are the biggest friends that the Big bank have in Washington.

Let not forget the US vice president for the BofA.

Is nice to work for the rats in congress specially if one of them is Barney Frank.

Democrats demonized lobbyists for the last two years on the presidential campaign trail, and won the 2006 midterms by criticizing the “culture of corruption” in the GOP-run Congress. My, how times have changed. Look who just got a cushy job as the top lobbyist at the most politically-connected firm on Wall Street:

Goldman Sachs’ new top lobbyist was recently the top staffer to Rep. Barney Frank, D-Mass., on the House Financial Services Committee chaired by Frank. Michael Paese, a registered lobbyist for the Securities Industries and Financial Markets Association since he left Frank’s committee in September, will join Goldman as director of government affairs, a role held last year by former Tom Daschle intimate, Mark Patterson, now the chief of staff at the Treasury Department. This is not Paese’s first swing through the Wall Street-Congress revolving door: he previously worked at JP Morgan and Mercantile Bankshares, and in between served as senior minority counsel at the Financial Services Committee.

hotair.com...

Then Dodd link to bribes of Subprime loans lenders

We in main street have no way to fight the corruption in Wall-street and its links to Washington, more bubbles will be make and more money will be profited and when most congress is owned by big corporations we the tax payer are the ones to forward the money for the corruption.


[edit on 4-5-2010 by marg6043]