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The Con That Turned the World Against America

thetrumpet.com — The world ’s financial system came precariously close to seizing up these past couple months. In fact, as far as some big banks and financial institutions were concerned, for a moment in time, the system was in a full-blown cardiac arrest. Liquidity, the flow of money the lifeblood of todays economic structure came uncomfortably close to clotting up

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  • linktothepast, on 10/10/2007, -8/+42You do realize that this is from an Evangelical magazine. Not Falwell Evangelicals. "The World is Ending" Evangelicals.
  • foxhaze, on 10/15/2007, -25/+19And this is why we should've stuck to the gold standard.
    • jdb252, on 10/10/2007, -10/+17I was wondering how someone was going to jam Ron Paul into this.
      • joel2600, on 10/10/2007, -1/+5... that would be you
      • MWeather, on 10/10/2007, -1/+10Perhaps if you had actually heard of the gold standard before Ron Paul mentioned it, you wouldn't associate the two.
        • jdb252, on 10/10/2007, -1/+1Right, because the original commenter wouldn't have mentioned the gold standard if he hadn't heard of it before Ron Paul.

          Wizard of Oz. Anybody who is not just trying to blow smoke up everybody else's asses about the gold standard will get that reference.
    • tdelet, on 10/10/2007, -3/+17No, we should adopt the leaf as currency!
      • tdelet, on 10/10/2007, -2/+3Sadly...few people will get the reference...
      • Murdats, on 10/10/2007, -0/+2we have already started destroying all the trees :)
    • edjenkins234, on 10/10/2007, -5/+1yeah foxhaze your right mercantilism was so awesome
    • therightside, on 10/10/2007, -4/+7Except all of our gold would have been shipped out of our country long ago. Brilliant!!!
      • Fordi, on 10/10/2007, -0/+3The gold standard failed as a result of the federal reserve. Without the fed, the value of a commodity-backed dollar doesn't fall to the point where the supply of commodities chokes the economy.
    • AllenAllen, on 10/16/2007, -3/+3To paraphrase Henny Youngman, "Take my econ class . . . please!"
      Dopey. It was a false measure of productivity that was choking the world.
      Also, consider this: What if science finds a way to inexpensively extract the masses of gold that is in the ocean's sea water? Or, what if radically better methods of location and mining occur (advanced satellites are already doing that to a small degree)?
      Answer: There'd be a sudden glut of gold and your "standard" would be (and I project will be within 10 years) look pretty silly.
      Another: It's some collapse of civilization and you have 100 Canadian Maple Leaf coins now worth WOW a lot! But then how much? Your children are hungry and someone has a can of beans. That's right ... the rate of exchange THEN would be 100 gold coins = 1 can of beans.
      D'oh! Think first, please!
      • Murdats, on 10/10/2007, -1/+4as opposed to say, $100 = 1 can of beans
    • trogdor282, on 10/10/2007, -1/+2Look up fractional reserve banking. In our current standard, 100% of our money is fiat. In a gold standard, 95% of it is fiat. There's really not much difference in practice. It's still a huge scam either way. http://www.youtube.com/watch?v=cy-fD78zyvI&feature ...
    • LetsGoHawks, on 10/10/2007, -1/+2The original currency was food, tools, skilled labor, and other necessities. Then, people decided gold was valuable because it was far more convenient than bartering. Then they decided paper money was valuable. Now we're going electronic, so 1's & 0's have value. If there is an apocalypse, food and basic labor skills will become valuable again.

      S f**k gold, we need to get back to the barter standard!!!
      • mstoneburner, on 10/10/2007, -1/+1Are you out of your mind? How are you going to barter for gas, meals, clothes, internet service, etc. etc.?
        • Fordi, on 10/10/2007, -0/+2If only there was some convenient exchange medium, whose value we could all agree upon...

          Which is, of course, the problem with the way the Fed and other involved in policy-making look at things; they concentrate on the medium of exchange, rather than the actual exchanged values.

          Like looking at photons to determine mass.
      • h00ligan, on 10/10/2007, -0/+1Dollars is the barter system. They exist as a standard divisible means of barter, but it's still barter.
      • podrag, on 10/10/2007, -0/+1We need money as a common commodity of exchange and a store of wealth. We need a common means of comparing the value of, say, apples with oranges, and we need a store of value because apples and oranges are perishable.
    • bobbyi, on 10/10/2007, -2/+2Rather than having the money supply controlled by the Fed, it should be controlled by whenever someone happens to stumble onto a new gold mine. Brilliant!
  • lOvOl, on 10/10/2007, -13/+27While most people in the world are ignorant about how America affects the global financial system, more and more people are wising up to the reality. Most of Asia still blames the United States for the Asian financial crisis of the 1990's that basically evaporated the middle class from South Korea to Indonesia. Once the credit was gone, the ***** hit the fan. I fear the same thing may happen to the United States but this time we are the debtor rather than the creditor.

    I mean, what if there was a mad revolt against Washington by the former middle class who now has the kind of food insecurity that are common to poor people in third world nations. Would our so-called government "of the people", start killing off the undesirables in such a way that Mao Tse Tung would look like the tooth fairy?

    You don't think the crap that is happening in Myanmar could happen in the United States? Well think again.
    • Doofy, on 10/10/2007, -11/+25"You don't think the crap that is happening in Myanmar could happen in the United States? Well think again."

      No, Myanmar has gun control. Only the government has guns.
      US Citizens have LOTS of guns, and they know how to use them.
      • Waiting2awake, on 10/10/2007, -9/+21LMAO I know we saw all this stuff during Kartrina. Remember the battles between the government blackwater people and the citizens.... Wait - nope nothing happened because even jethro knows his rifle, ain't going to do ***** to the paramilitary forces of blackwater with all their funding...

        It can, it will - and when it does, those that have claimed the right to bare arms will be just as *****. You concept of the brave American fighting off a bad government has been shown to be an illusion for the last 6 years now...

        Just saying/
        • LaueOfficer, on 10/10/2007, -7/+2Wait... What? Katrina and Blackwater?
          • crunchyeyeball, on 10/10/2007, -1/+7Yes, Blackwater were deployed in the aftermath of Katrina, and were involved in the shooting of civilians, who they claimed were "armed black gangbangers". That's what the right to bear arms gets you in the eyes of Blackwater: http://www.thenation.com/doc/20051010/scahill
          • MWeather, on 10/10/2007, -0/+3Yeah, they're the ones who were confiscating guns. What, did you think we only used mercenaries outside of the US?
        • AntBing, on 10/10/2007, -5/+5Katrina was a hurricane, NOT the fall of democracy or suppression of it. If the government came to take away my Constitution or Bill or Rights you better believe I would pick up a gun.
          • farther, on 10/10/2007, -2/+7And then they would have one more reason to shoot you. And throw grenades in your house to flush you out.
          • darkcooger, on 10/10/2007, -2/+5@farther: At least if they killed you, you wouldn't be living under tyranny. I think that's the whole point of being willing to die for what you believe in.
          • MWeather, on 10/10/2007, -1/+4What gun? Blackwater confiscated it.
        • Shandooga, on 10/10/2007, -0/+1I believe that is the sound of the truth detector that I hear.
      • Godlike, on 10/10/2007, -2/+9LOL and America doesn't have gun control? You have high-powered automatic weapons, mortars, RPG's, jeeps, trucks, tanks and helicopters with which to fight off a military?
        • LaueOfficer, on 10/10/2007, -4/+3high-powered automatic weapons? Check
          mortars? Check
          RPG'S? Sorta
          Jeeps? Hell Yeah
          Trucks? Duh
          Tanks and Helicopters? Nah, but the base is down the road a bit
        • yojiffyskippy, on 10/10/2007, -2/+5The attach on 9/11, the US failure in Afghanistan and the US failure in Iraq clearly demonstrated that it doesn't take high tech weaponry, Tanks, and Helicopters to defeat the US.
        • hobbitaussie, on 10/10/2007, -0/+1Let me check my bunker...
      • MASTERPL, on 10/10/2007, -4/+4"US Citizens have LOTS of guns, and they know how to use them."
        Too bad MOST gun owners are pussies that would never put their LIFE on the line. Knowing how to use a gun isn't the same as being trained to use one.
        Everything changes when you are getting shot at.
      • Maarek, on 10/10/2007, -2/+17Right because guns are where power is held. As long as I have a gun it doesn't matter how weak willed and docile I've become right? As long as I have my gun it doesn't matter if the policies that I support bring me closer to Myanmar not further, cause you know when the ***** goes down, I'll have my gun. My gun will give me free will and thinking that I currently don't have.

        Please.... most of these so called patriots with their guns would be the first to bow down (were the first perhaps?) to authority as long as authority offered them big macs and jobs. These people in Myanmar that are being beaten and rounded up, they are patriots on a level that practically no Americans have been for a long long time. Power and protection do not come from inanimate things like guns, they come from a willingness to do what it takes to achieve your goals. For the new authoritarian conservative movement that means worshiping authority rather than questioning it, because allegiance with the power is kind of like power right? It's better to be the guys swinging the billy clubs at the protesters than it is to be the protesters, right?
    • Shandooga, on 10/10/2007, -1/+2Definitely going to happen.
    • gak001, on 10/10/2007, -1/+4If memory serves, it was also a bunch of American investors that pretty much single-handedly saved the area from complete economic collapse. Of course, they made a killing on the currencies exchange, but Southeast Asia has not reverted to a feudal system.
    • hansk, on 10/10/2007, -1/+2no, their currencies was artifically overvalued, their own governments did not let it rise and fall. this is similar to the argentian bank crisis of the mid 90s. because of this a huge infastructure was built but with no solid foundation to keep it afloat. people like to blame the world bank, but if countries would just listen to them now and again they wont sink their economies.
    • jxs2151, on 10/10/2007, -3/+3..."the former middle class who now has the kind of food insecurity that are common to poor people in third world nations."

      Food insecurity? You must be mad to say something like this. Perhaps you could show some proof of your assertion that the American middle class is starving like 3rd world people?

  • izzybr, on 10/15/2007, -14/+32I'm pretty sure that 'the con that turned the world against america' was all this ***** the Bush administration made up about Iraq and how we were going to do whatever we wanted to do and the rest of the world could go ***** themselves
    • therightside, on 10/10/2007, -11/+8Good analysis. Are you in high school yet?
      • izzybr, on 10/10/2007, -2/+3Nice rhetorical style, and a very effective argumentum ad hominem.
        Did you fail rhetoric or were you too stupid to get into a decent school?
        • netant, on 10/10/2007, -0/+1Decent schools REQUIRE rhetoric in their undergraduate curriculum? Which ones?

          Pot, meet Kettle.
    • Rimrock, on 10/10/2007, -4/+3I was thinking issybr might be a HS soph...
  • dukeeeey, on 10/10/2007, -2/+22The slashing of the interest rates will destroy the US dollar, and this will have serious economic consequences. Since the US has a massive balance of payments deficit, ie everything is imported, if the purchasing power of the us dollar declines, suddenly everything will get very expensive. There's no way out of this mess the bankers created.
    • Rukaribe, on 10/10/2007, -4/+1I really hope this doesn't affect NASA. :(
    • fossilnews, on 10/10/2007, -7/+15That's simply not true. As the dollar becomes cheaper it means that goods made in America (manufacturing) will pick up. Companies outsourcing some of their manufacturing will begin moving those operations - as warranted - back to our shores. It's just a reversal of the previous cycle of the strong dollar. During that previous cycle people screamed about how manufacturing was never to return and the economy would suffer. Sure there were some transition pains, but today we have a very healthy economy and very, very low unemployment.

      It's all just a cycle. It's happened before and will happen again. There's no reason to believe that this time we're doomed.
      • azprofessional, on 10/10/2007, -2/+3That depends, How low does it have to go to compete with the price of Chinese manufaturing? Isnt this the next war brewing? China Vs USA in manufacturing power? Do you expect the Chinese to sit back and let the West have all of its manufacturing back? Even if the gap between Chinese labour and American labour costs narrows, companies will go anywhere they can save a cent over the other place, so I mean judging by the cost in China the dollar and rates would have to fall pretty far.
        • fossilnews, on 10/10/2007, -1/+8All good points, but we can debate the intricacies to infinity and still not have an answer. For example: what about the price of labor in china? It's rising at a faster pace than ours. The cost of fuel to transport the goods across the pacific - it's rising as well due to the weak dollar. It goes on and on and the the specifics of each industry (heck, each business) is different - so their is no one unified answer as to whether it makes sense to begin manufacturing here again.

          The point of my previous post was to simply dispel the idea that "there's no way out of this mess". One of the reasons the US economy does so well is not because we are the cheapest or have the strongest currency, it's because we are the most adaptive. Our economy absorbs things that (on a relative basis) would severely impair other countries. Sub prime loans are no different.
          • netant, on 10/10/2007, -0/+1Hmmm, spoken by someone who names himself after a fossil...

            So, is there an adaptiveness index we can reference to see just how resilient the US is compared to other economies? Or do you just like throwing around groundless memes to help you sleep better at night? Or propound cow dung in order to sustain the neocon agenda?

            The reason why the US economy did well when there were economic squalls WAS because we had such a relatively strong economic wealth. It was also a PSYCHOLOGICAL value, not measureable in dollars. When there was world regional crisis, the place foreign money went to was the US, because it was so freaking rich, it could best assure return of value. The US was the oil currency, and just important, the most economically TRANSPARENT compared to most other countries (which can be quantified). But those days of psychological overvalue will soon end. And we are not rich, or in as good an economic position as the US was in the '50's.

            The crisis in sub-prime loans are not the magnitude of the deficits. They are a microscopic percentage of the entire loan industry. Even with companies shutting their doors every few days means nothing other than careless, reckless investors will screw themselves. NO, the PROBLEM is that those shaky sub-prime loans were repackaged as good loans and sold to investors who were subsequently defrauded by them. And its hit major financial institutions like Bear Sterns, Citibank, and UBS.

            The problem is all PSYCHOLOGICAL. But now the problem is how do you reassure the people you just BURNED? No foreign lending/investment, and America goes down the *****. (Why make "risky" plays in America, when you can do them in Brazil, Argentina, and Asia???) The other problem is WHY the Fed dawdled in reigning in interest rates. The artificial housing bubble was being used to prop up our GNP numbers. Low GNP=low productivity=low return on investment.

            I don't care if this news is coming from a bunch of evangelical retards, IF their facts check out, which they generally do. I am not rich. I have to depend on employment to stay fed, housed, and not have a cardboard box residence when I retire. The same supply-side retards that go and pontificate "the market will correct itself", no need to fear, NAFTA is "good" for the US middle class, are the same ***** that said the Iraqis will greet us with flowers and chocolates when we invade, and the whole operation will be financed from Iraq's oil revenues. Only a stupid person lets themselves get burned twice with unwarranted optimism in the face of hard, negative facts.
        • gak001, on 10/10/2007, -0/+4You're talking in absolutes. Of course labor costs in the US aren't going to drop below the Chinese, or really the majority of the world. But there are other financial incentives to bring production back to your home country during a recessionary period and we're only talking about relative decreases in the cost of production.
        • LetsGoHawks, on 10/10/2007, -1/+4The "Chinese miracle" is not sustainable. They are raping their resources and destroying the land with pollution. One of their top economics ministers said so himself in an interview.

          Doesn't really matter though. If Asia actually runs out of cheap labor (probably not in our lifetimes), Africa will be waiting to take over.

          Of course there is the wild card of global climate change. This will have major effects in the next 50 years or so and there is no telling what it will do to the world economy.
          • netant, on 10/10/2007, -0/+2Africa can't take over. Its population is being ravaged by disease, famine, geopolitical chaos, and unlike Asia, has no built in infrastructure.
      • isellmacs, on 10/10/2007, -0/+4Just a note: They track unemployment by people who are claiming unemployment benefits, which only last a couple months. After that, those people are considered 100% employed as far as survey statistics go, even though many are still unemployed.

        I'm honestly not sure what it's like in other parts of the country, but right now in California there is a fairly scary amount of unemployment; when you have a multitude of highly skilled and experienced system/network administrators all competing for that $10-12/hr data entry job (as my assistant) it makes me strongly question the "very low unemployment" that is often quoted. These are people that by their own admission long since ran out of unemployment benefits and are extremely desperate to find ANY job above fast food.
    • gak001, on 10/10/2007, -2/+6Congratulations, you only read half of the chapter on Net Exports and Currency Exchange Rates in your Principles of Macroeconomics textbook. Perhaps you should read the other half before you make yourself look like an asshat again in front of people who actually know what they're talking about.
      • Wartyboskfapped, on 10/10/2007, -0/+3No fear of that here.
      • RabidAngel, on 10/10/2007, -2/+2If you know so much, why not enlighten those of us who are less informed on matters of global economics? Name calling is a pretty weak way to strengthen your position in a practical debate.
        • Anticast, on 10/10/2007, -0/+1While his delivery method may not have been the most diplomatic, I understood gak001’s point to be that dukeeeey did not have a full understanding of what a drop in the value of the dollar would do. It would seem intuitive that if the value of the dollar drops then our purchasing power would also drop, but, as the article says, it’s all relative. At a basic level, if you can buy a Big Mac (made in America) today for $5 and a DVD Player (made in China) for $100, and if tomorrow the value of the dollar drops by half, then your Big Mac will still cost $5 but that DVD Player will now cost $200. Just like fossilnews said, this will encourage Americans to buy products made in America because they will be cheaper, and thus creating more state-side jobs, and so on and so fourth. The reason “The Fed” cuts interest rates, which discourages people that want to save money by giving them less interest on that money, is to encourage people to invest money. A lower interest rate makes it more attractive to buy stocks rather than bonds which helps raise capital for companies to hire more employees and build more businesses, and the cycle continues.
          • netant, on 10/10/2007, -0/+1You can't cut indefinitely. Once you hit zero, that's as far as you can go with stimulus. Look at the Japanese "recession" of the '90's. More important, the Fed rate controls the rate of inflation. You may want more stimulus, but the alternative is less things you can buy with each dollar.

            Finally, you can't just have money to put into factories and grow your way out of recession/depression, if you don't have the personnel to design the widgets you want to produce out of those shiney new factories. But you will have a buttload of MBAs, lawyers, and communication majors to build your new economic utopia.
        • janrito, on 10/10/2007, -0/+2That is 'if' there are products made in America to replace the Chinese ones. And even if there are, you have to ponder why the American Automotive industry is doing so badly. American cars are expensive, and usually of much lower quality than European or Japanese cars. On top of that, even if the Chinese DVD player costs $200 dollars, manufacturing costs in China will still be considerably lower than producing those same products in the states.
    • bubbadoo989, on 10/10/2007, -1/+1Um, what does slashing interest rates have to do with the value of the $ on the currency markets? HINT: not much. The dollar is losing value due to our never ending need to spend more money than we really have (think Iraq and the usual Federal hand-out program), causing us to print even more money, thereby diluting the value of the dollar.

      Take a look at how much $$ has been sent to Iraq (currently around $680 billion!), courtesy of GWB, and you'll have your answer.
  • KingCook, on 10/10/2007, -2/+12This + combination military industry complex
    (it seems we keep finding spending bigg on military)

    I just wonder what the outcome of this will be...
    Maybe they will be taking defending corporate interrests to a new level ! (maybe I'm a bit late with this conclusion but hey I'm only 22 so I am just starting to learn to bend over ... getting ***** by government is still quite new for me)
    • therightside, on 10/10/2007, -9/+2The ***** they taught you in that crappy liberal arts school you went to isnt really true.
  • holysin, on 10/10/2007, -11/+6burried due to the source and the mention of doomsday in a fiscal article.
    • Hetman, on 10/10/2007, -0/+5I agree. The evangelist are the biggest asses in the world. Not only do they want the fall of america but they want the fall of the entire world. Thats a good goal /sarcasm. They do not even take into account that the prophecy of Jesus comming back was supposed to happen in the time of the apostles. Guess what it didnt and it isnt every going to happen.
      • jheathupton, on 10/10/2007, -0/+0And what exactly makes you thing the prophecy of the return of Christ was supposed to happen during the time of the apostles? That would be a good statement if you had facts to back it up....
        • janrito, on 10/10/2007, -0/+3He probably pulled it right out of his ass, just as everything else in that book of prophecies, so you're even.
  • has2k1, on 10/10/2007, -13/+8 The world’s financial system came precariously close to seizing up these past couple months.

    In fact, as far as some big banks and financial institutions were concerned, for a moment in time, the system was in a full-blown cardiac arrest. Liquidity, the flow of money—the lifeblood of today’s economic structure—came uncomfortably close to clotting up.

    Defibrillators sizzling and money flowing, central banks around the world acted in concert to jump-start financial markets, slashing lending rates and injecting a half trillion in dollar steroids into the economic pulmonary system.

    But contrary to what the big media outlets may have reported, it is actually inconsequential whether or not central bankers succeeded in temporarily stabilizing markets.

    Irrevocable damage to America’s economic system has taken place.

    And because the world’s largest economies are so closely intertwined, the effects will not be limited to the United States. Confidence in the world’s financial system—a system based on the dollar as the reserve currency—is failing, not because of a liquidity crunch, a popping housing bubble, or the myriad of other commonly spouted economic causes, but because of broken faith. The result will be a new world financial order—one without America at the head.

    Here is what happened and why you need to know about it.

    The world’s economic system is built on trust. Money is no longer backed with tangible assets. The only thing giving that Jackson in your wallet purchasing power is the perception that it will be able to buy a similar batch of goods tomorrow as it can today. But here is the catch. There is no standard that determines what a dollar is worth—ultimately it’s all relative. Its value could disappear overnight.

    The same is true for every currency, whether yen, ruble or peso. Each is backed by confidence—confidence that the government will act responsibly, confidence that the government will honestly pay its debts (not just print more money), and confidence that the currency will remain a store of wealth.

    When that confidence is broken, faith-based economic systems go into meltdown. Investors and international banks flee, currency values plummet, inflation runs rampant and economies are destroyed.

    In August, when fallout from America’s popping housing bubble began to hit the market, trust in America cracked—and with it, so too did confidence in the global economic system.

    Hamid Varzi, writing for the International Herald Tribune, summarized world opinion this way: “The U.S. economy, once the envy of the world, is now viewed across the globe with suspicion” (August 17).

    He continued: “The ongoing subprime mortgage crisis … presages far deeper problems in a U.S. economy that is beginning to resemble a giant smoke-and-mirrors Ponzi scheme. And this has not been lost on the rest of the world.”

    Trust in America is quickly disappearing. Why? Because America single-handedly brought the international financial system virtually to its knees by foisting off fraud-ridden subprime debt on an unsuspecting world, which resulted in the ensuing credit crunch.

    America will not escape unscathed. You can’t cheat the very people you rely upon to lend you money without a backlash.

    Here is how American greed ripped off the rest of the world.

    In 2000, America faced a recession. But rather than letting the economy rebalance, the Federal Reserve decided to slash interest rates to artificially stimulate the economy—even though it knew that doing so would probably create even bigger problems later.

    Consequently, mortgage rates in America plummeted and, suddenly, millions more Americans could buy homes. House prices skyrocketed: tripling and quadrupling in many areas. The bubble fed on itself as prospective homeowners, often acting more like speculators, rushed to buy homes as quickly as possible to capitalize on further price appreciation.

    As home values rose, fewer people could afford traditional loans. To keep their profits growing, banks and lenders began offering easy-to-get subprime mortgages—mortgages to borrowers normally considered too risky due to credit history, income status and other factors.

    Oftentimes these loans were adjustable-rate, or had initial teaser rates that would ratchet up later. Often the loans were given without any applicant background checks at all. As long as a borrower could write his own name and yearly income (regardless of whether or not it was true), he could get a loan.

    And everyone was happy. Record house prices fueled a building boom and jobs were created. Borrowers were glad because they got huge loans and could purchase homes that were rising in value. Real-estate agents were pleased because the bigger the house sold, the bigger their profit. Lenders and loan brokers were cheerful too because they each got their cut of the action.

    But there was just one problem: The whole boom was based on artificially low interest rates. What would happen when interest rates rose, homes stopped appreciating and borrowers had more difficulty making payments?

    American banks, understanding the risk involved in holding so many chancy (and possibly largely overvalued) subprime mortgages on their own books, decided to get rid of them. But who would want to buy all the risky mortgages? Certainly not Americans who were already maxed out on subprime debt. The answer was foreigners.

    But here was the catch. To make the sales profitable, the risky mortgages had to be marketed as a “safe” investment.

    So American banks sliced and bundled their subprime mortgages together into packages. Using complex computer models, and by geographically and otherwise diversifying the bundled mortgages, American banks convinced world-renowned and trusted American investment-rating agencies like Moody’s and Standard & Poor’s to give the mortgage securities higher valuations than regular subprimes would typically rate.

    Later it became public knowledge that these same ratings agencies, which foreign investors were relying on for impartial advice, were being paid by the very banks and lenders that were bundling and selling the subprime mortgages—a huge conflict of interest that produced some terribly misleading data for foreign investors.

    It has also emerged, at least in Moody’s case, that the agency knew for years that the mortgages securities they rated as safe were more than 10 times as risky as other similarly rated bonds (Daily Reckoning, September 3).

    But at the time, even the banks were happy. They could merrily issue subprime mortgages (and still collect all their fees) because they were able to both quickly remove the mortgages from their books and get top dollar for them, thanks to the high ratings. And foreign investors (as well as domestic investors) confidently purchased these supposedly safe mortgage investments.

    That is, until interest rates started to rise—and subprime borrowers began defaulting in droves.

    As with all parties, the fun and games eventually end. Suddenly the world woke up to the fact that subprime mortgages were just that—subprime—regardless of what American ratings agencies and banks pretended. As the U.S. housing market slumped, suddenly nobody wanted any American mortgage securities anymore, let alone subprime ones.

    Investors around the world tried to sell American mortgage securities, but by this time, the shoddy credit ratings had become public knowledge. American credit-rating agencies embarrassingly began to issue massive ratings downgrades, and foreign investors found that to even get any bidders on their American mortgage portfolios, they had to accept steeply marked-down prices.

    Hedge funds and other investment vehicles began to seize up as people tried to pull their money out of any and all businesses associated with U.S. mortgages. Panic ensued.

    As the credit crunch spread, it became evident that the “made in America” economic crisis was not contained. America’s trade partners would also take the hit for the moral breakdown in America, a breakdown that could have been avoided had greed not been such a big factor.

    Banks and mortgage lenders across Europe and America began to fail.

    German, French and British banks, as well as stock market investors around the world, got hit especially hard as the credit crunch and fears of new restrictive lending practices shook international bourses. Investors lost billions.

    Things got so bad in Germany that the government had to step in to save two banks from failing. In France, bnp Paribas, one of the nation’s largest banks, had to suspend redemptions from three investment funds it managed.

    In Britain, Northern Rock Plc., the nation’s fifth-largest lender, experienced an unprecedented bank run as customers lined up for hours to clamor for their money when it was revealed that it was having trouble accessing enough credit to continue normal operations. The Telegraph compared the scene to something out of Zimbabwe.

    And the few big-name collapses experienced so far may be just the beginning.

    You can be sure that billions in losses—all as a result of what amounts to a con—will not pass without a response. International backlash is growing.

    “The entire world is growing in its disgust for having been defrauded,” says economic analyst Jim Willie. “French, British, German, Japanese and Chinese banks have been harmed from ingesting falsely labeled food items. What was sold as ‘AAA’ rated milk products was actually highly toxic acid ….”

    For example, in a foreign-policy speech on August 27, French President Nicolas Sarkozy called for an enhanced global rule book to avoid financial crises—a rule book governing America. Sarkozy, who has vowed to “moralize financial capitalism,” said America’s crisis could recur if “the leaders of major countries” did not take “concerted action to foster transparency and regulation of international markets.”

    Peter Bofinger, a member of the German government’s economic advisory board, agrees. “We need an international approach, and the United States needs to be part of it,” he said.

    Dick Bryan, a professor of economics at the University of Sydney, says the world must respond as well. “[T]here is the need to challenge the sovereignty of national regulators—why should the rules of lending in the U.S. be left to U.S. regulators when the consequences go everywhere?” he said. In this globalized world, “a problem in one location is a problem everywhere.”

    If and how long Washington can resist international pressure is unclear. So far the response from Washington is that it wants “no form of oversight.”

    But a new global rule book may be the least of America’s worries.

    While regulators in the U.S. have been unreceptive to international monitoring, Europe and Asia, unlike in years past, now have growing financial leverage up their sleeves.

    What if foreigners stopped lending to the U.S.? Worse, what if they started dumping U.S. debt in the form of treasuries and bonds?

    “America depends on the rest of the world to finance its debt,” Bofinger reminds us. If foreigners stopped buying America’s financial products, it would be a catastrophe.

    Foreign willingness to purchase U.S. debt has kept interest rates low in America—thereby creating millions of jobs in real estate, home construction, remodeling and other associated industries. America has become so dependent on foreign money that if foreigners stop lending to America, the America you know today would not survive.

    Even now, the foreign backlash is beginning to be felt. The U.S. dollar is dropping to lows never before experienced. In September, the dollar fell to the lowest it has ever been against the euro. Against the Canadian dollar it hit a 31-year low, making the two dollars almost equal in value.

    So while U.S. officials continue to brag that all will work out just fine and that the credit crunch is contained, they are missing the bigger point: America cheated the very people it depends upon for loans. Now, foreigners are voting with their feet and are choosing to reduce investment in America. They are abandoning the dollar.

    As Jim Willie warns, we “might be in the early stages of … a boycott of U.S.-dollar-based financial assets.”

    But who can blame them?

    Greed and corruption have been exposed for being endemic to so many levels within America’s economy. Who is to say that even U.S. government bonds more closely resemble subprime mortgages than their conventional reputation as a safe investment?

    The world is approaching an end of an era. America’s moral collapse now lies exposed to all—a virtual death sentence to an economic system based on trust. Confidence lost, America’s reputation as a financial safe haven is being replaced with subprime status—and as foreigners have found out, subprime risks just aren’t worth it.
    • hansk, on 10/10/2007, -3/+1meh meh meh monster post post post.....
  • tlurie, on 10/10/2007, -0/+19Not big on the source of the article, but it certainly sounds right from where I'm standing.

    For those who think the subprime 'crisis' is over, here are the numbers... listed below, the dollar values for subprime mortgages due to 'reset'. Values are in billions. (so in January of 07, 22B in mortgages switched out of their adjustable rate, and so on)

    jan 07 22
    feb 07 25
    mar 07 35
    apr 37
    may 36
    june 42
    july 43
    aug 52
    sep 58
    oct 55
    nov 52
    dec 58
    jan08 80
    feb08 88
    mar08 110
    apr08 92
    may08 76

    Do we see where this is heading now?
    • d3matt, on 10/10/2007, -0/+1I didn't get that great of a rate, but I'm glad I didn't get an ARM when I bought my house!
    • isellmacs, on 10/10/2007, -0/+4Anybody who thinks the crisis is over is in for a rude awakening: We are just feeling the initial tremors right now, it's going to get much worse. I deal with mortgage fraud all day long (it's my job) and what i'm seeing is FAR worse and more widespread than the media is reporting.
      I'm pretty sure they are just trying to keep things calm and people from panicking and making the situation worse, but that doesn't change the very likely outcome as foreclosures on fraudulently obtained properties sweep across like wildfire burning people into bankruptcy.
      We haven't even really seen the Alt-A sweep yet, and even A-paper borrowers are starting to struggle as our economy and employment starts tanking.
  • thanakar, on 10/10/2007, -10/+5what a bunch of op ed horse manure.
  • Hetman, on 10/10/2007, -7/+4Repent now and the lord shall safe you from ye economic crysis.
    • dondara, on 10/10/2007, -0/+2Cuz Jeebus cares about your wallet
    • Hetman, on 10/10/2007, -2/+1Yea he does. I tell you the truth, it is hard for a poor man to enter the kingdom of heaven. Again I tell you, it is easier for a camel to go through the eye of a needle than for a poor man to enter the kingdom of God. Farwell 19:24.
  • Rich711, on 10/10/2007, -10/+6The sky is falling! The sky is falling! And ass-monekys all think they understand economics!
  • swaney3, on 10/10/2007, -2/+8Although I too am a little skeptical of the source I have seen groceries increase in price by at least 70% in the last year and with 5.00 per gallon milk and 3.00 per loaf bread everyone can feel the pressure. I suspect that our economy is being propped up by the war on terror and as it winds to an end so may our econmy.
    • Shandooga, on 10/10/2007, -2/+6Yes, the economy has been artificially supported by the "war on terror", also by the "war on drugs" which has been a pretext for the government to have an excuse for having it's hands in drugs. In reality, the CIA is distrubuting drugs to support the economy. One cannot fight or win a war on a concept. All wars are wars on people, wars on humanity.
    • MrVictor, on 10/10/2007, -0/+2I have too seen grocery prices creeping up. It is a bit scary. Our economy seems to be swinging between a inflation/deflation scenario. When the debt bubble starts to burst the fed has to step in and print money to add liquidity or else deflation is the result. But printing money just causes more inflation. We seem to be stuck between a rock and a hard place. On top of all this the price of oil keeps going up! This situation is not good at all.
    • holzp, on 10/10/2007, -0/+1Agreed. I am suprised more is not made of this. Staple products are noticeably increasing. People make a big deal about gas prices because they can see them every time they drive by a gas station, and seem not to notice that milk, eggs, bread, etc has gone up 50% in the last few years.
  • addikt, on 10/10/2007, -11/+3America has nothing to do with this con.

    The Con is the monetary system itself.

    The monetary system works similar to the phone system in respect to that its only security comes through obsecurity.

    The assumption that people wont take the time to learn how it exactly works. When you do actually take the time to learn the history of money and about the people behind the world bank, imf, ibs. You start to realize that money is nothing more than a tool used by a realy realy small amount of people to exploit and and gain power over the rest of the people in the world.

    The question you have to ask is, if we asked the world bank, imf, ibs to clear the debt....does that mean we have accepted their rule over us all? or have we already done this ?

    History has taught us that the borrower is always slave to the lender.

    ps. typical for americans to think its all about americans, I swear im so ***** sick of tired of americans and their ***** arrogance it realy starting to ***** get to me.
    • Shandooga, on 10/10/2007, -0/+3No, people won't take their time to learn how the system works. Most Americans think the Federal Reserve is a federal agency. It is not. It's a privately-owned cartel owned by the wealthiest Europeans which was used to rob America of all the gold in the now empty Fort Knox.

      Even if the American populace should learn of the ugly truth, just what would they do about it? March peacefully? Sure, a lot of good that'll do. Of course the governmedia knows the truth about this but what are their choices? Suffer with the poor and starve, join the scheme and grow wealthy or fight the scheme and get shot. Well, it's clear what they're going to do.
  • ajazzscientist, on 10/10/2007, -1/+5Thesis:
    "The world’s economic system is built on trust. Money is no longer backed with tangible assets. The only thing giving that Jackson in your wallet purchasing power is the perception that it will be able to buy a similar batch of goods tomorrow as it can today. But here is the catch. There is no standard that determines what a dollar is worth—ultimately it’s all relative. Its value could disappear overnight."
    Correct me if I'm wrong. I think the Euro seems like a much more stable because a currency because it is shared by multiple countries, and therefore cannot be manipulated by one central bank.
    And by the way, anyone investing in the Shanghai Market Index is making 50% APR.
    • Shandooga, on 10/10/2007, -0/+6Bad things happen when untrustworthy people are trusted anyway.
    • bobbyi, on 10/10/2007, -0/+2The euro money supply is still ultimately under the control of a central bank. It's not like any member country can single-handedly decide it wants to start printing more Euros.
    • mr138, on 10/10/2007, -0/+0If the Euro was really that strong or stable the pound wouldn't exist. I'll still take our 13 trillion dollars over the Euro, no matter how much ground it can temporarly gain. $0.4% annual growth says it's a safe bet also.
    • lorematerdigg, on 10/10/2007, -0/+0You are wrong.

      Look up 'Fiat Currency' . Just because a fiat currency is traded by 'more than one entity' doesnt make it any less unstable. The inherent danger of fiat is not that it can be manipulated, all markets are manipulated, the danger is that it can be inflated ad infinitum.
  • navspecwarcom, on 10/10/2007, -3/+5Subprime was driven by pure greed. Foreigners don't know anything about the intricacies of the US. Do you think a Deutsche Bank manager knows in detail how a house in the US is valued by an appraiser? The appraiser mind you has no formal education nor a meaningful formal state license. The appraiser only answers to the realtor or mortgage broker. Your realtor and mortgage broker do not require a formal education either, for the realtor it is what? 4-6 weeks course? Then he/she is sanctioned by some Realtor association with no government oversight? Laughable. Mortgage brokers? They don't have to have any formal education or carry any license. Today you flip burgers, tomorrow you can sell mortgages. That's how easy it was/is in the US. It's a joke that house values were artificially inflated by the above cons, fueled by Wallstreet. Nowadays I enjoy seeing the dead broke, unemployed realtors and mortgage brokers. The housing mess will continue into 2009, mark my words.
    • bubbadoo989, on 10/10/2007, -0/+1Sure, sub-prime was driven by greed ultimately. But what does a Deutsche Bank mgr have to do with a home appraiser? Asnwer: NOTHING. By the time mortgages are sold and securitized, they are pooled with many other mortgages, all of the same or similar credit quality. This has nothing to do with the home's appraised value. By buying the riskier mortgage securities, you enjoy a higher rate of return.

      Yes, it does not take an psychic to know that realtors and mortgage bankers are not the most honest professionals in the world. Obviously, they're shades of grey based on the used car salesman, lawyers (personal injury) and other unscrupulous pros. No digg.
    • OsiVert, on 10/10/2007, -0/+2I do IT at a FCB and it depends on the company. If you work for a Federally Chartered Bank you have to have a clean record but you don't have to have licensing. If you run a brokerage, then most times you need a Real Estate license for the owner and state licensing for each state and loan officer. (Some states don't require this, like CO and HI) People still do work out of these shops without any type of licensing though, so it is a problem.

      As for appraisers, it's the same thing where there are two types. There are appraisers that work directly for only one bank, and their job is to make sure the bank isn't getting screwed over. Then there are free lance appraisers who work for everybody else, but in any case they get certification. I'm not saying shady people aren't part of the problem, they are just a part, and I think they will eventually get weeded out as the crunch continues.
  • JohnnyXmas, on 10/15/2007, -11/+3RON PAUL would never allow this to happen!

    Oh, Wait, THAT'S HIS ENTIRE ***** PLATFORM.

    ***** Ron Paul.
  • Hetman, on 10/10/2007, -1/+8Brought to you by the people who retirement fund is the Apocalypse.
    • gernblansted, on 10/10/2007, -0/+0And hundreds of other reputable sources, including the Comptroller General of the United States Government Accountability Office.
  • bubbadoo989, on 10/10/2007, -9/+15This article and most of the comments in this section are utterly *****! The article is based on false facts and while no one can deny the incompetence, dishonesty and duplicitiness of our current administration in Washington, SUB-PRIME MORTGAGES WERE NEVER SOLD AS SAFE INVESTMENTS.

    Fixed income investors, the type who would invariably buy products with sub-prime components, understand credit quality and the associated credit enhancements that are used to package the mortgages. Investors flocked to these securities because the spread over treasury's is fat. It has to be because of the increased credit risk with sub-prime credit. Basically, the investor enjoys higher rewards for assuming higher risk.

    Thus the tenet upon which this article is based, is faulty, making this article a waste of bandwidth.

    The true problem with the sub-prime mortgages is the amount of fraud committed by unscrupulous mortgage bankers and prospective homeowners, some of whom should never have been granted any credit. But the fees and commissions to the bankers were very fat. Additionally, people blame the credit rating agencies for not issuing warnings and downgrades on these risky securities. But at the end of the day, the issuers were granted ratings based on credit enhancements and blends of credit quality. So, for example, some securities would have one or two sub-prime traunches, but they would be buoyed by a large conforming, prime mortgage truanche.

    ***** this article.
    • Mark7r0n, on 10/10/2007, -0/+3AMEN! Everyone who bought subprime packages was looking to make a quick buck on increasingly risky investments. They knew what they were getting into, the global financial markets are full of big boys and girls. This whole debacle is the result of the rich screwing the poor and other rich people on a global scale not just America.
    • LogicAJV, on 10/10/2007, -1/+1"SUB-PRIME MORTGAGES WERE NEVER SOLD AS SAFE INVESTMENTS."
      On MSN business section, one of the business advisors stated that the subprime mortgages were too bundled and sold as AAA rating to investors. Which is the best rating you can get. How did they do it? They did the same thing hedge funds do. They split the more likely to default from the other and then bundled them as bad and good subprime mortgages securities.
    • richmomz, on 10/10/2007, -0/+1Maybe you need to read the article a bit more closely. The sub-primes weren't sold as safe investments by themselves. They were bundled together with other mortgages and sold as a package so few people actually knew what they were getting. Investors assumed from the inflated ratings that they were getting something that was much more secure and got screwed. You don't have to buy into the apocalyptic-crap from the article but its basic point is valid: the bottom line is that now nobody trusts us and the US has lost much of its credibility as an investment 'safe haven.'
    • lorematerdigg, on 10/10/2007, -0/+0Perhaps you should do some more research before you spout off about how something wasnt AAA rated by world recognized rating agencies such as Standard & Poors and Moody's.
      1. http://preciousmetalzone.blogspot.com/2007/09/unsa ...
      2. http://preciousmetalzone.blogspot.com/2007/09/chap ...
  • SOS777, on 10/10/2007, -2/+1He said "the Cosmic Master" made be do it.
  • blubolt, on 10/10/2007, -2/+2Forget the source and read what they are talking about here. this is fact - not fiction. does it matter who it comes from if it is the truth? Or are we caught in our own "distortion field" where we don't care about truth anymore? It's all good as long as I have my IPhone...... fracking idiots.............and intolerant at that............ OPEN YOUR EYES PEOPLE!!!!!
  • conrail, on 10/10/2007, -4/+2Dugg down for innacurate bible thumper source material
  • FLUX, on 10/10/2007, -5/+2Ok lets see what myth is gonna destroy society as we know it so far :Global warming,peak oil, banking crisis, national debt , Bush becoming a dictator, an asteroid in 2029, mega volcanoes(Yellow stone), Mega tsunamis, Ebola

    wow man were screwed, or is it this world is filled with a large number of head cases just looking for new and novel ways worry about their end

    you decide
    • LogicAJV, on 10/10/2007, -1/+1The black death didn't kill 1/3 of europe? The nazis didn't murder millions of Jews? People don't starve to death in the world? Why do you think we get so many vaccines?
      How can you not see that no one is immune to global problems? Man you are blind.
  • HappyScrappy, on 10/10/2007, -1/+7Even for gold bug articles, this one is insipid.

    Go read the Economist, nutjobs. It covers the US collaterized securities (or as they call it, "securitisation") problems and how the rest of the world sees it a lot better than this article.

    And the record, the level of liquidity available in this market under this credit crunch is still FAR FAR higher than what would be available under a gold-based system. If you want to see what a real lack of access to credit will do, go to a gold-based system. Only those already sitting on a large pile of gold can issue any loans, and if they've issued all the ones they are eligible to, the markets are ***** out of luck, no matter what the need for credit is.

    International backlash to the US mortgage-backed securities problem is not "rising". Nicolas Sarkozy (mentioned in the article as very concerned) will almost certainly move France closer to the US system of mortgage finance during his period in office. Yes, there will be more regulations to avoid the problems with the "laundering" of poor-quality debt, but nothing like this return a system like the gold standard.

    It's simple, just think of it this way:
    The current credit crunch is because entities are holding on to more of their assets instead of making loans against them. This is reducing the availability of capital (and money supply), especially when the knock-on effect is considered (money not loaned is also not re-loaned). In essence, the increase of money in the system from fractional banking is going down right now. Instead of there being 9X as much money on loan as there are assets to back them, there is only 8X.

    Under a gold-based system, this would drop to a fixed 1X. This would obviously create a credit crunch FAR larger than we are having right now.
    • LogicAJV, on 10/10/2007, -0/+1It isn't the credit crunch that will kill our economy. The economy isn't made just from money. Money is just some middle factor set up so we all don't have to compare apples to oranges or TV to sugar, value wise. If we had good jobs, and a lot of free capital from investors, we really don't need the bank's money. Credit didn't always exist in the past. So credit isn't fundamentally needed for an economy to function.

      Credit itself has created its own problem. Credit itself has driven our economy higher than what it should be. Credit has made our economy boom and without it, our economy must bust back down to where credit isn't so cheap and easy to get. The real problem is our economy was in a recession and should have been in a recession from 2001+. The credit bust will bring us back to where we should be, if we had not made credit cheap and easy.

      "In essence, the increase of money in the system from fractional banking is going down right now. Instead of there being 9X as much money on loan as there are assets to back them, there is only 8X."

      This pretty much sums it up why this much credit is bad. You have 8 to 9 times more money chasing assets than you should have. That means the value of the dollar could be 8 to 9 times more valuable than what it is, if you only take in account loan money and not the other money in the world.
      • HappyScrappy, on 10/10/2007, -0/+1The article here says the credit crunch is the killer. So if you think it isn't, take it up with the article writer or poster. I was rejecting its thesis, not yours.

        I have no problem with the economy not being in recession when it might otherwise have been. And if the credit bust ONLY takes us back to where we would have been anyway, what's the problem? We spend some time doing better than we should and then return to where we should be. That's no worse than going into recession and then going back to where we should be. In fact, most would say it is better.

        As to the dollar being worth 8X or 9X what it is, it does me no good if I can't get any of them. WIthout a system of finance that allows access to capital, we wouldn't be where we are today. A zero growth economy doesn't produce the same results as a growth-oriented one.

        This is a common mistake, people thinking if we used the gold standard, they'd be better off. The rich would be batter off, many of the others would be worse off because their jobs are based upon someone else getting a loan to start a business and employ them gainfully.
  • omegaredIX, on 10/10/2007, -0/+2We are all going to die.
  • Hetman, on 10/10/2007, -2/+3This article is written by the people who think the world is 5k years old right?
  • jomunculus, on 10/10/2007, -1/+1Did anyone check the background of the author of this article? He's just another religious fundie dooms-dayer that I personally am sick and tired of. They offer only criticism and no solutions. Oh wait, one solution, when the ***** hits the fan get on your knees and pray. Hmmm.
  • BradMW, on 10/10/2007, -4/+3Who the frickin' hell is digging this? Go back to your hole.
  • ZenFountain, on 10/10/2007, -1/+2I agree with the above posters, everyone from top to bottom was complicit in the sub-prime crisis. There was a terrible amount of greed every step of the way.
  • Jack9, on 10/10/2007, -1/+2Marked inaccurate. If you're stupid and you borrow/lend, you get burned. Quit employing/lending to idiots.
  • galleryfront, on 10/10/2007, -0/+2I didn't want to forget that I surfed to this article through digg so I'm coming back early to comment:
    The first few paragraphs are awesome. What a great analysis of what our economy and it's cardiac system have been doing.
  • alydis, on 10/10/2007, -0/+1I'm an engineer and I worked hard for my money -- paid in a currency backed by trust. I want to keep it. Where do I go read more about economics?
    • macman2k, on 10/10/2007, -0/+1thehousingbubbleblog.com is a great source of information and a great community of people.
  • testcase, on 10/10/2007, -0/+6The article is correct; around the world, a large number of financial institutions have gone down because of this swindle - including 8 major finance companies in New Zealand. Thousands of major investors have now sworn off US investments forever because of this.

    This investment money doesn't just disappear - it goes elsewhere. All around the world now, the same thing has happened in other countries, and American financial products are now seen as tainted. The money (or should I say "value") is being stripped out of America and shipped wholesale to the rest of the world, as fast as possible, before it's too late.

    I call this the Rape of America, because for years now, America has been robbed blind by a few thousand financial geniuses who've been hell bent on asset stripping the United States to the bone. It's a big job, but they've nearly accomplished it. They've fled with their gold certs and cashed in their options, and they can now afford to live as tax exiles in Switzerland.

    But you my friend, as you sit there staring at your computer screen, you are going to catch it in the neck when the global economy rules against the American financial system. You've been kept doped up on cheap consumer crap from China the entire time, and you gotta admit, you never saw it coming.

    Good luck.
  • thbt, on 10/10/2007, -0/+1I agree about the subprime crisis, but the article is all doom and gloom. The author is trying to say that the rest of the world was conned?? Everyone saw it when the banks' lending policies were slackening, and that they were lending to people with traditionally subprime credit. It astounds me that the outcome turned out to be a big surprise, but there you have it.
  • fixedcoma, on 10/10/2007, -0/+2I SAW ALL THIS COMING 5 YEARS ago when i almost bought a house for 50,000$ and then two years later it was worth 100,000$ I was so pissed to see such an appreciation. it was then i could feel something was about to happen here in America! So no I'm not surprised about the greedy ones here!!
  • jlhoben, on 10/10/2007, -0/+1Why does everyone think Greenspan is so great? This is a trend that has been going on for years and years. This is the Fed's fault and the banks fault.
  •  

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