The “System” & How It Operates (Part 4): The Next Financial Crisis

28/01/2014

To continue the theme of my recent blog posts regarding the financial crisis and the Federal Reserve I’m going to share a review I did last year of the documentary called Overdose: The Next Financial Crisis. In the introduction to the documentary it foreshadows what we are going to be learning in the next 45 minutes of viewing, which is that despite everything that has happened over the last five years nothing has actually been fixed, we have just kicked the can further down the road as the Americans like to say. In the introduction it plays quite a few sound bites of George W. Bush, we look back at his 8 years in charge and realise that no wonder the world got in such a mess with him as “the leader of the free world”.

2001-2007

We start the documentary in the Spring of 2001 as the US economy is struggling to recover from the Dot Com bubble bursting, the economy is still in a bad way when 9/11 happens and sends the US economy into a nosedive. Interest rates are lowered and lowered until they reach 1% in 2003 and remain that way for a full year. And what this low interest rate does is give investors and consumers a false sense of security and thus creates another bubble. It brings in the system of privatised profits and socialised losses where profits go into private pockets but losses are covered by the public through tax money. In this part of the documentary it features an interview from Gerald Celente whose Trends Journal is defiantly worth checking out. He is quite a pessimist to be honest but he is always aware of what is truly going on in the worlds markets.

We hear how Nobel prize winning economist Vernon Smith blames the low interest rates for the real estate bubble, it was during this period that a lot of reckless behaviour occurred with people using their homes as an ATM machine to live beyond their means, they did this by using their home as collateral for loans. This type of behaviour was encouraged because people thought the good times would never end. But nobody was aware of what was really going on.

We are introduced to the Government Sponsored Enterprise Freddie Mac and Fanny Mae which were private companies chartered by the government which had a special line of credit with the US treasury and had special tax and regulatory advantages. They also operated under the presumption that the public would bail them out should they ever get into financial trouble, which as events proved was an accurate assumption. The purpose for Freddie and Fanny was to provide a way for people with  low income to get their hands on a mortgage and a foot on the property ladder.

But like everything in the modern world they have turned houses into a commodity, instead of them being a place for people to rest their heads and keep all their stuff for a reasonable price. They are a vehicle of wealth, so the higher the prices the better it is for business but bad for people.

Then we reach the Securitisation food chain that we looked at in Friday’s blog titled Inside Job, this is the invention of CDOs or Collaterised Debt Obligations which is debt packages being sold as securities by investment banks to investors. These CDOs were given AAA rating by the ratings agencies who just happened to be paid large amounts of money by the investment banks who they were rating. Suddenly the inevitable happend, you can’t keep a scam going forever and the wheels fell off the economy. The ratings on the CDOs were dropped and suddenly people found themselves in a mess because they had bought their investments based on the ratings.

To put this into Layman’s terms it would be like spending a lot of money buying a shipping container painted in Ferrari logos from a Ferrari dealership with the promise it contains a Ferrari so you don’t check but when you do check you find all it contains nothing but worthless shit. The market seized up and lines of credit froze, the banks that rely on overnight loans to operate were in big trouble.

2008-2009

The collapse happens in September 2008, the big US banks are given a $700 billion dollar TARP bailout to fix the damage caused by corruption. Other governments around the world take the same course of action. And these bailouts are the purpose of this documentary, some people believe that the biggest bubble of them all has been created, the Stimulus bubble. In December 2008 interest rates in the USA are lowered to 0% and again other central banks over the world do the same and set their interest rates very low.

Then Obama steps on the scene with hope and change you can believe in and in February 2009 there is TARP II a further stimulus package of $787 billion dollars to try and kick start the economy through infrastructure programmes but as the documentary shows the majority of these funds were mis-managed and had little impact on the economy. They had the cash for bangers scheme which was subsidised buying of cars if you scrapped your old one but once the incentive is removed, sales slump. But it’s business as usual for the people that caused the problems, stock markets are at record highs and they are still living the high life.

2010-The Future

The documentary ends with where we are at today. The rich and fabulous are still doing their thing, primarily being egotistical and obsessed with materialism. I find it such a crying shame that the people who are in the position to make actual real changes chose not to. I often wonder why it is that somebody like myself who doesn’t really have any money can always dig into my pocket for somebody in need but the rich people refuse to do so.

The documentary shows how the actual productive people in society, the workers, are suffering. And the suffering only seems to be getting worse. People are on the edge now whilst interest rates are at rock bottom, if they were to raise it would push the majority of people over the edge which is why recently the Federal Reserve and Bank of England have announced they will be keeping interest rates low for the foreseeable future.

The reason this subject strikes a chord with me, the reason it really grates on my nerves is because ultimately it is all bollocks. It is all fake, people are suffering and even dying for something that is not real, debt does not exist. If you ask somebody to take you to go and see all the debt they would look at you strangely and they would say the most we can do is show you a figure on a screen. That’s the madness of it all! The problem is unfixable without wiping the slate clean and starting again. The documentary predicted the bailout of entire nations and that there will be civil unrest, which did indeed happen and the civil unrest is becoming increasingly more common. A good example at the minute would be the riots in Ukraine. In my opinion these things are only going to get worse until people either:

A. Wise up and sort it out voluntarily

Or

B. The shit will well and truly hit the fan and people will be lost and confused which will only result in panic like it did in 2008.

The choice is ours, for now.

This article is authored by Lee Cooper

Follow me on Twitter: @MCR_WAKE_UP

Follow me on YouTube: www.youtube.com/wakeuppromotions

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s