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Crisis in the U.S. Financial Industry

Included for your perusal, a historic piece from back during the great Stock Market Crash of 2008. Note the tone, the kind of fraud perpetrated had not been seen in years. Today we know more about it, but, are we sure it will not happen again?

What else should I be writing about right now? Every news outlet is telling of the end of the U.S. Financial system and the collapse of the economy. Speaking as someone who is unemployed, and looking for a job, this worries me. As the wise International Analyst said of Canada, “When the U.S. sneezes, Canada gets a cold”, so any kind of economic turbulence in the U.S. does not bode well for Canada, in the services area at least. I believe Canada’s economy may weather this storm better, simply due to our heavily resource laden economy, but again, only a guess on my part.

Bush’s Own Words

The scary thing is, President Bush seems to inadvertently hit the nail on the head with the following statement:

“… It will help American consumers and businesses get credit to meet their daily needs and create jobs. And it will help send a signal to markets around the world that America’s financial system is back on track…”

American consumers need credit to meet their daily needs? If that is the case, the U.S. economy is in dire trouble. Americans are living on credit and now the whole system is collapsing under the weight of this credit load? Not sure that is completely accurate, but given the President mentioned this, it’s an interesting point to consider.

Fraudulent Securities?

President Bush also mentioned:

“… Many investors assumed these securities were trustworthy and asked few questions about their actual value. Two of the leading purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac. Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk…”

So you are implying that there was a fraud on investors, or you are saying there are some very stupid investors out there. I think both of those statements have a ring of truth to them as well.

Blame Canada?

No, but it’s a funny headline. Will this affect (effect?) Canada? Yes, but how much remains to be seen. There is now panic statements about how the Canadian housing industry “bubble may burst”.  Given I am living in a house, that I bought a while ago, I am not that worried about this, but for new home buyers this could be a big issue. Being saddled with an enormous mortgage, with possibly much higher interest rates (to deal with that 3.5% Inflation I mentioned yesterday), could slow spending from these folks, causing yet another interesting economic ripple in the pool.

Now is the Time To Panic?

I would suggest going out and buying some Eagles or maybe some Jackson Browne, slam it into your Impala’s 8-track tape player and drive ’til the music stops. Sorry, I waxed poetic, no it is not time to panic, but it is time to watch and see what might actually be going on here. I suspect we are living in very interesting times, to quote a Chinese proverb.

Feel Free to Comment

  1. A podcast I listened to claimed that real wages have been stagnant in the US for a long time: maybe 15 years. To maintain standard of living, consumers have tapped the equity in their homes. With house prices falling, consumers can no longer do that, so something will have to give. Either credit card debt will increase, or people will have to cut back. The alternative is rising wages, but that’s not likely when the economy is weak and people are losing jobs.

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