Market Meltdown

The credit crisis just keeps getting worse.  Lehman Brothers (which predates the Civil War and survived the Great Depression) just filed the largest bankruptcy in American history.  Yesterday was the worst day on Wall Street in 7 years, with the Dow dropping over 500 points.   According to NBC Nightly News, “This is certainly the largest financial disaster in decades in this country, and perhaps the end of an era in American business.”  And many believe that the worst isn’t over.

This whole problem stemmed from one thing:  Bad mortgage loans.  Ten years ago the American home seemed like such a sure bet that a huge portion of the global financial system ended up owning a piece of it.  Unfortunately, the mortgages (and mortgage deriviatives) these financial institutions were gorging themselves on were bad.  And to make matters worse, banks bought these bad loans on credit, creating a massive house of cards.  Once these loans started defaulting and housing values dropped, the house of cards began to crumble.  Now guess who will end up picking up the tab?

My question is this:  Why isn’t anyone talking about the government’s role in all of this?

Isn’t it the role of government regulators to identify these problems before they happen?  The practices that were used by mortgage lenders were so obviously bad — surely some economist at the Fed noticed.  Why didn’t they take action to avoid this?

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6 thoughts on “Market Meltdown

  1. I think the government needed to keep things going because international demand for the mortgage backed securities has been one of the few things propping up the dollar… the whole US economy has basically been on an IV fed by China, mid-East sovereign wealth funds and who-knows how many shady hedge (?) funds from all over the globe. The US economy is sick. But rather than diet, get some sleep, and get in shape, the government has been pushing anti-biotics. But like I’ve said before, I’m not an economist.

  2. The republicans think the economy self-regulates.
    The democrats think the government regulates.

    And everybody in power in both sectors maintain the status-quo and push the responsibility on someone else. Why give up money and power to do the right thing when its so much easier to assign blame?

  3. I’m just a simple-minded gal, but I cannot for the life of me understand why it is the GOVERNMENT’S (and me with my tax dollars) responsibility to bail these people out. I hear the arguments that giving AIG an $85 billion emergency gov’t funded loan is good for the economy, blah, blah, but I don’t see it. Whatever happened to taking personal responsibility? Ugh.

  4. that’s billion alright – 85,000,000,000.00 !!! So much for lowering your taxes anytime soon, huh ? With what money ?
    Why waste this money on investment/insurance firms. Spend it on helping people whose homes were blown away by a storm that wasn’t their fault.

  5. The AIG bailout was done out of fear of the unknown. The government was afraid that an AIG bankruptcy would cause the current crisis to become a catastrophe. They’re saying that this is an unprecedented move.

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