Looking Back At America - Conclusion

This is Part VII, and the conclusion, of the Looking Back At America series, which presents the perspective of what today's America might look like to historians 100 years in the future. This series of articles is most easily understood by starting with the first installment.


The picture presented here was painted with broad strokes. In order to paint the big picture, it was necessary to give only superficial treatment to many of the underlying causes and conditions, and to leave out numerous other contributing factors.

The Federal Reserve System is a subject on which hundreds of volumes have been written, and it is certainly worthy of in-depth scrutiny, but for the purpose of this account, suffice it to say that the Fed exists to serve the banks. This fact has been kept from the general population by cloaking the financial systems in mystery, using esoteric terms that serve to confuse rather than enlighten. By design, We the People are not supposed to understand the banking system and the nature of money. As Henry Ford was quoted as saying, “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

Very little attention was given to the deficit spending by the government, or so-called stimulus spending, facilitated by the Fed and the Treasury. This policy attempts to fix a debt problem by piling more debt upon it. Mathmatically, it cannot succeed. In 2010, the deficit was $1.7 trillion dollars, more than 12% of GDP, and growing. This stimulus spending is hiding the fact that the real economy is contracting by almost 10%, with no relief in sight.

The collapse of the housing market and the magnitude of the foreclosure crisis was discussed, but this part of the story is worthy of the volumes being written about it now.

The flight of manufacturing from the U.S. to other countries deserves more attention than it was given here, and the pathetic condition of the American public education system was not even mentioned, though both of these factors are greatly responsible for the situation in America today.

The political system in the United States is broken. The very qualities required for the average politician to organize and fund an election campaign are the exact opposite qualities that are required for an honest political system. Politicians of all stripes are bought and paid for during the campaigns, and once elected, do not represent the people, they represent the corporations and special interests that made the biggest monetary contributions to their campaign.

The two party system is a scam that is perfectly suited to the interests of the financial cartels. They can purchase both Democrats and Republicans for virtually the same price, and this system keeps the American population focused on wedge issues like abortion and gay marriage, while the critical issues facing the nation are kept hidden from view.

The complex federal tax code serves to drive American businesses overseas, which accelerates the deterioration of employment conditions in the U.S. The tax code also creates pockets of special interests that further corrupt the integrity of the political system.

The mainstream media is complicit in the deception. Many of the mainstream news outlets serve as the public relations channel for the collusion between the federal government and the banking cartels, keeping the American people distracted and therefore marginalized.

At this critical point, the remaining options are not attractive, but the opportunity still exists to steer away from the cliff and avoid catastrophe. This would require an awakening of the population and a demand for honesty and integrity in the financial system. This would be painful, as many people and institutions would be bankrupted, but it would allow the system to purge the bad debt, cleanse the economy of inefficiencies, and provide a foundation for recovery. But if the difficult decisions continue to be avoided, the outcome will be determined by the markets, which cannot be deceived forever. This would be The Great Collapse. If that happens, God help us all.

Looking Back At America - Part VI

This is Part VI in the Looking Back At America series, which presents the perspective of what today's America might look like to historians 100 years in the future. This series of articles is most easily understood by starting with the first installment.


It was in 2010 that another problem manifested for the banks. This was dubbed “Foreclosuregate” by the media, and came to light as a result of a rash of lawsuits by people who felt they were being foreclosed upon illegally. These people alleged that the banks could not prove they had the right to foreclose, because they didn’t possess the required documentation; indeed, in some cases, multiple banks were trying to foreclose on the same property at the same time. The reason for this is because the banks, in their haste to originate loans, securitize them, and sell the securities, had ignored well-established property title laws regarding the transfer and notarization of “wet signature” documents when the loan moves from one “interested party” to another. In hundreds of thousands of instances, perhaps even millions, the notes had not been properly transferred, but yet the securities had been sold, and the issue of who actually owned the loan became very opaque indeed.

In an attempt to cover up their fraud, the banks used law firms as “foreclosure mills” to process the foreclosure legal paperwork. The law firms employed people who did nothing but sign legal affidavits all day long. Some individuals signed as many as ten thousand affidavits a month. These people were given the title of “Vice President”, as the documents had to be signed by an officer of the bank, and it was later revealed that many of these people, employees of the law firms, were listed as officers for multiple banking institutions at the same time. The affidavits they signed attested to the fact that the original “wet signature” documents were unavailable but that the representations made in the foreclosure documents were true and accurate. The people who signed these thousands of documents did not in fact know that the representations were true and accurate because they had not even glanced at the contents of the documents. This amounted to perjury in a court of law. When this story broke in the news, these people were dubbed “Robo-signers”.

When the “robo-signing” scandal erupted, the banks began to panic. The robo-signing of fraudulent affidavits was the banks’ attempt to cover up their fraudulent business model. In September, 2010, most of the major banks instituted a moratorium on foreclosures in the 27 states that require a court procedure to foreclose. This received some attention in the mainstream media, but it was spun as merely a pause to confirm that their processes were legal, though perhaps a bit sloppy. They took down the moratorium weeks later, to give the appearance that the problem no longer existed; it was all an over-reaction to sloppy paperwork.

The problem for the banks was three-fold. First, the originations of the loans were fraudulent, because they made loans to people knowing, at the time of origination, that these borrowers would not be able to afford the loan once the teaser rate expired and the interest rate reset higher. They told the borrower that it was no problem, they could refinance in two years because their property would appreciate in value so much that they would have enough equity in two years to do so. This was illegal, as it constituted “fraud in the inducement”. And people signed up for that scam. By the hundreds of thousands. The mortgage industry had turned into one huge, unbridled Ponzi scheme.

The banks gave loans to people who had no business taking out a mortgage, even people who were unemployed or marginally employed. These loans became known as “liars loans”, and it is estimated that by 2005, “liars’ loans” constituted 80% of the mortgages being written each year. The banks attempted to cover this fraud with the illegal affidavits, as they did not want the original paperwork to come to light and expose their fraudulent business model. In fact, in many cases the original documents had been intentionally destroyed.

Second, the banks were packaging the liars’ loans into pools and dividing them up into securities that somehow received AAA ratings, and selling these loans to the institutional investors. The problem here was, the securities were actually worthless because the securitizers had not followed the legal procedures required to transfer the mortgage into the trusts from which the securities were sold. Essentially, the investors had been sold empty boxes. Because the banks had misrepresented the quality of the contents of the securities, they could now be on the hook for all of the securities they sold. The investors could put back trillions of dollars worth of securities on the banks. This would blow them out of the solar system.

The third problem for the banks was the HELOC loans. If the first loan was in default, the HELOC was completely worthless. It is estimated that the three remaining major commercial banks (Citigroup, Bank of America, and Wells Fargo) had upwards of $350 billion in HELOCs outstanding. If only 30% of these loans were behind defaulted first mortgages, it would be enough to render these banks insolvent many times over.

Still, the full realization of the insolvency of the institutional banks had not reached a critical mass of the population. The main stream news media colluded with the banks to downplay this story, spinning it as mistakes in documentation, mere technicalities, rather than a full-on cover-up of the disaster they had created. But the bank officials knew they had a problem. They knew they would need a lot of help from the media (from whom they purchased millions of dollars of advertising every year), from their political puppets in Congress, and especially from their key accomplice, the Federal Reserve Bank.

Both Alan Greenspan and Ben Bernanke share the blame for the monetary policy that allowed the credit explosion to occur. But it was Bernanke who, when his policies failed to stimulate the economy, redoubled his efforts to pump liquidity into a system that suffered from insolvency. He was trying to pump up the credit markets by holding interest rates low, but this policy was doomed to fail because the credit markets needed to void the bad debt before they could absorb any new debt.

He also instituted “Quantitative Easing”, a euphemism for the monetization of the massive debt held by the government after bailing out the banks. Still, We the People failed to see it for what it was. And in 2010, he implemented the second round of Quantitative Easing, or QE2, a policy that would pump another $600 billion into the system if it ran its full course.

The problem here was, even as Bernanke tried to force credit into the system to get the economy moving again, there were no borrowers left to whom to lend. In order to lend, there must be a willing borrower, and all potential suspects were already soaked in debt.

It was apparent to all but the most obtuse observers that The Fed’s policies ultimately served only to bail out the insolvent financial institutions at the expense of the American taxpayer. Although Bernanke’s policies led to a reflation of the stock market for almost two years, and let him claim that TPTB had saved the world from a total collapse of the global financial system, in reality it was only a temporary fix.

The economy had not improved, though in the summer of 2010 the media did its best to convince the American public that a recovery was underway. A massive PR campaign – “Recovery Summer” – was launched by the spin doctors in the Federal government. By this time, however, a larger percentage of the population refused to accept this spin, and there was growing unrest among the natives. As 2010 drew to a close, there were many indicators of what was to come in 2011, but even so, very few people understood the gravity of the situation.

Not only had the banks, on a historically unprecedented scale, perpetrated a Ponzi scheme on the American public through their fraudulent business model, but this reality was finally dawning on the public. And now the powerful unions were aligning against them, as well. As 2010 came to a close, this confrontation was quietly manifesting.

Entering 2011, the American economy was contracting again. The government and the media continued to skew the unemployment numbers, but even with their manipulations unemployment was over 10%. The real numbers were far worse, with actual joblessness running at well over 20% of the working age population. Over 14% of the US population was on food stamps. Homelessness was on the rise and becoming a middle-class problem.

Global disruptions were also manifesting. European nations were struggling with their own sovereign debt, and the European Union was showing signs of fracture. North Korea was rattling its saber. China was fragile, going through its own credit expansion, inflation, and housing bubble. Mexico had seen an explosion in violence as the drug cartels feuded with each other and the government. Al Qaeda and similar terrorist groups continued their random attacks on America and other western countries. The worldwide landscape was simmering, seething, and approaching a boil.

And it was then, as a critical mass of Americans finally awoke to the hubris and rapacious greed of the men in power, and the nefarious nature of all their schemes, that the shit truly hit the fan…


Part VII concludes the series.

Looking Back At America - Part V

This is Part V in the Looking Back At America series, which presents the perspective of what today's America might look like to historians 100 years in the future. This series of articles is most easily understood by starting with the first installment.

The stock market topped in October of 2007 and began a downward decline into 2008. The U.S. economy slipped into recession as the construction industry stalled along with the housing market. Unemployment started rising and kept rising. People, ever so subtly, began to restrain themselves from borrowing more money.

It was early in 2008 that the financial system began to get more widespread attention. The sub-prime mortgage market was collapsing, and with it the value of the securities the banks had sold to the pension funds. The collateral that investment banks used to float their transactions had lost value, and this created a solvency problem for the banks. Banks reacted by tightening lending standards, belatedly, and this served to further exacerbate the collapse of the housing market.

By September of 2008, the financial system was in a full blown crisis, the likes of which had never been seen in human history. On September 18, 2008, an electronic run began on the banks, draining over $550 billion dollars from the money market accounts of the large financial institutions in less than two hours. The U.S. Treasury shut down the accounts and announced a $250,000 guarantee on these accounts, stopping the run.

Hank Paulson, Treasury Secretary, told Congress that afternoon that if they had not taken these actions, and did not take further action, that the world as they knew it would come to an end. Paulson, as paraphrased by Rep. Paul Kanjorski, a Democrat from Pennsylvania, told congress:

If they had not done that, their estimation is that by 2pm that afternoon, $5.5 trillion would have been drawn out of the money market system of the U.S., would have collapsed the entire economy of the U.S., and within 24 hours the world economy would have collapsed. It would have been the end of our economic system and our political system as we know it.

On September 18, 2008, with the financial markets in chaos, Congress, the White House, the Federal Reserve Bank, the Treasury, and leaders of the large financial institutions scrambled to stop the bleeding and prevent an all out collapse. These leaders will be referred to from this point forward as TPTB (The Powers That Be), for it was collusion among these leaders that stayed the collapse in the near term while making it all the more catastrophic when their manipulations inevitably failed.

After temporarily stabilizing the financial markets in September, the next several months offered the last opportunities to minimize the pain that would be necessary to fix the financial system. This is when losses should have been taken and the banks restructured. The bad debt should have been exposed and flushed from the system. This would have caused a short term dislocation in the American and global economies, but it would have been over fairly quickly and would have provided a healthy foundation for recovery. Instead, TPTB instituted policies that would cover up the problem in the short term, but magnify the ultimate devastation that was guaranteed by their actions in the longer term.

When the bailout for the institutional banks was announced, We the People did stand up and shout, but TPTB ignored the strident pleas of the population and bailed out the banks anyway. We the People were told that these banks were integral to the financial system itself. These banks, it was explained, were Too Big To Fail, for their failure posed “systemic risk” and could cause a complete failure of the global banking system; they had to be bailed out. This bailout was funded by We the People, though they did not agree to be pillaged in this manner.

This is when We the People failed to fully recognize that the system in its totality was rigged for the banks, and that their elected political leaders were indeed bought and paid for by the institutional banking cabal.

The American people had been fleeced in a number of ways by the fraudulent behavior of the institutional banks and, to add insult to injury, were then forced to bail them out. The sub-prime mortgage market was shot through with fraud, from appraisals to origination to processing to securitization to the ratings and sale of the securities. The entire business model was fraudulent. Then, when the bubble collapsed, the American taxpayer was forced to bail out the same institutions that had fleeced them. Not only that, but many of these people were invested in the pension funds that bought the worthless securities, and their retirement funds were now in jeopardy. The average middle-class American had been robbed in three different ways by the same institutions.

This was akin to having one’s pocket picked by a meth addict, then, after he has smoked himself nearly to death on what he stole from you, being forced to allow the him to stay in your home while you pay for his rehabilitation. Then he turns around and burglarizes your home while the sheriff holds you at gunpoint.

The financial crisis impacted the psyche of America, and as the U.S. approached the Presidential elections of 2008, Americans wanted change.

Barack Hussein Obama represented change in every way. He couldn’t have appeared more different than George W. Bush, or the any of the Republicans, physically or ideologically. He was the first black nominee for either party, and the first truly serious black contender for the White House. It didn’t seem to matter to the American people that he was inexperienced and untested. He ran on a platform of Hope and Change, a brilliant campaign stroke at a time when America was hungry for hope and desperate for change. He was a charismatic orator, and a tireless campaigner, and the financial crisis couldn’t have come at a better time for Barack Hussein Obama.

It was ironic that the American people, in their desperation for change, would elect not only the first black President, but one whose name sounded like that of a Muslim terrorist. In fact, the Iraqi war had been in part a thinly-veiled effort to remove Saddam Hussein from power in Iraq. And his last name, Obama, rhymed with Osama, as in, bin Laden, the world’s most influential terrorist at the time. That they would elect as President a black, very junior Senator with a terrorist name spoke volumes for the desperation in America.

Obama, who said he would not appoint lobbyists and Wall Street insiders to influential positions, took office and promptly began appointing lobbyists and Wall Street insiders to just such positions. Many of his appointments created public embarrassments that he and the mainstream media substantially and successfully ignored. Many of Obama’s appointees seemed to have trouble paying their taxes. Ironically, Tim Geithner, Obama’s choice for Treasury Secretary, was found to owe the IRS over $35,000 in unpaid taxes. Still, Geithner was appointed to oversee the Treasury. Not only was he a tax cheat, he was also one of Wall Streets most influential advocates. So much for Obama’s promise.

In 2009 Obama approved Ben Bernanke’s nomination to another term as Chairman of the Fed. Ben Bernanke had succeeded Alan Greenspan as Chairman of the Federal Reserve Bank in 2006. Bernanke was a Harvard educated economist and an academic. He had been a professor of economics at Princeton, and was a proclaimed expert on the Great Depression, prior to being appointed to the Board of Governors of the Federal Reserve System in 2002. In 2006, President George W. Bush appointed him to a four year term as Chairman of the Board of the Federal Reserve. It was widely believed (or at least, widely promoted) that Bernanke’s machinations to stem the crisis of 2008 had saved the world from disaster. Bernanke was even named Time magazine’s 2009 Man of the Year. Thus Obama kept him in power.

Incredibly, very few people saw that Bernanke’s machinations were nothing more than a bailout of the banks at the taxpayer’s expense. Americans weren’t paying attention to details; they saw only the mendacious big picture painted by the mainstream media. A small minority opposed Bernanke’s reappointment, but they were a tiny voice in the din.

It would be negligent to overlook the compliance of the mainstream media in the charade. Americans might not have been paying attention to details, but the alleged journalists of the mainstream media did little to provide honest details. The primary news media outlets were owned by corporations with plenty of motive not to rock the boat. If Americans had been exposed to the truth, perhaps they would have woken up sooner.


Part VI continues the construction of the historical perspective.

Looking Back At America - Part IV

This is Part IV in the Looking Back At America series, which presents the perspective of what today's America might look like to historians 100 years in the future. This series of articles is most easily understood by starting with the first installment.

For over two decades American prosperity was on the rise. There were minor setbacks. The late eighties and the nineties saw recessions, but they were relatively brief and shallow. Policy-makers allowed the recessions to occur naturally. Recessions are natural and healthy and necessary for organic growth in a free market economy. Excesses are voided from the system, as they should be. The economy burps and feels better afterward.

For two decades, the collective mood of America was also on the rise. It can be said that the collective mood of most of the Western world was on the rise, but nowhere more so than America. Unemployment was low, holding steady below five percent the majority of the time from 1982 through 2000. People felt safe in their homes and safe in their jobs. The future looked bright.

Because people generally felt good about the future, they took their eyes off the ball. They became accustomed to being in debt, with credit cards, car loans, and mortgages, and didn’t worry about their ability to pay their debts, because on paper they looked wealthy.

There was a bit of a disruption in mood when the stock markets tanked in the spring of 2000 and the economy went into its worst recession in two decades, but even then, people knew that the American economy would bounce back shortly. It always did.

This time, however, policy-makers didn’t allow the economy to recover naturally and void the bad debt it had accumulated. The Federal Reserve Bank, under the direction of Alan Greenspan, lowered interest rates to try to force liquidity into the system. It didn’t matter that the system wasn’t suffering from a lack of liquidity, but rather trying to void the waste of excessive speculation, liquidity was viewed as the solution.

The large institutional banks, now free to both create credit and use it, did what banks do and found ways to capitalize on the easy money policy of The Fed in a non-regulated environment. They started lending money as fast as they could find borrowers. This unchecked credit expansion is precisely what led to the bubble in the housing market and the explosion in real estate that occurred between 2001 and 2006.

If Americans felt wealthy in the late nineties, by 2005 they felt filthy rich. A couple in their early thirties who bought a house in 2001 had $100,000 in equity by 2005, in many cases much more than that. They could refinance their mortgage at historically low interest rates, take out $50,000 in cash, and not even see an increase in their mortgage payment. In fact, many even saw their payment decrease.

During the eighties and nineties, America went through a period of de-industrialization. U.S. corporations moved manufacturing operations to other countries with more favorable tax policies, cheaper labor, and few, if any, environmental restrictions. Due to advances in technology, agriculture needed fewer laborers, so employment in agriculture became less significant to the overall economy. The U.S. economy became tilted much more toward services and away from manufacturing and agriculture.

In 2006, America was at the height of her hubris. Americans had become accustomed to a comfortable life that was bought but not paid for. They had fallen in love with false prosperity, living in debt but not feeling poor because no one saw the end of real estate appreciation, and the stock market had been rising for four years straight.

But 2006 was the year that something changed. The first tiny cracks in the real estate market began to appear. High risk borrowers who obtained adjustable rate mortgages (ARMs) in the early 2000’s began to default on their loans as interest rates adjusted higher after the initial teaser period. As these defaults began to show up in large numbers, the real estate market stopped appreciating. Few people at the time thought of this as anything more than a minor bump in the road, and virtually no one understood, or would admit to, the fact that the system had reached the point of credit saturation.

The stock market continued higher into 2007 and people were still optimistic about the future, but perhaps less so. The euphoria was starting to wane a bit. Although the credit market had stopped expanding exponentially, real estate prices had flattened, and America was fighting two wars (Iraq and Afghanistan), people still had jobs and their stocks looked good, so there was no noticeable change in lifestyles. However, the underpinnings of the American quality of life were showing serious weaknesses to the few who bothered to look. The ones who bothered to look saw that the American dream had become a lifestyle based on debt and supported by the illusion of wealth.


Part V continues the construction of the historical perspective.

Looking Back At America - Part III

This is Part III in the Looking Back At America series, which presents the perspective of what today's America might look like to historians 100 years in the future. This series of articles is most easily understood by starting with the first installment.

It was during the mid-eighties to the late nineties that more and more middle-class Americans were becoming stockholders and investing, if somewhat tentatively at first, in the financial markets; buying stocks, participating in 401K plans, investing their savings with their eyes on big returns. People who had never owned stocks before – hadn’t even really thought about it – were now buying stock, afraid not to because they didn’t want to miss out on this incredible opportunity and be left behind on the road to riches.

The internet mania was coming into full bloom at the same time that banks were making it easier to borrow money. Because prospects were good, people had an appetite for risk, and many borrowed money to speculate on the Dot Com craze. The mania turned into a full-blown bubble by the late nineties and the stock markets experienced a meteoric rise, led by the technology firms and internet-based companies of the NASDAQ index.

People saw their investment portfolios double and triple in the late nineties, and they felt wealthy because, well, on paper they looked wealthy. The American middle-class fell in love with their newfound prosperity. They spent money freely, though their incomes had not improved significantly. It was okay, though, because according to their stock portfolios, they were doing just fine.

Credit cards were now available to anyone with a job, and people spent money they had not yet earned. Car loans were available with no money down, and in fact people could even finance the taxes they paid when they bought their car.

While previous generations worked and saved so that they could buy the things they wanted, people now bought first and paid later. The culture was changing. Being in debt became a way of life, but people did not worry much because their stock portfolios and 401Ks were doing quite well, thank you.

The Dot Com craze came crashing down as the NASDAQ tanked in April, 2000. Investors had poured hundreds of billions of dollars into companies that never produced a dime of profit, but whose stock prices had risen exponentially on the potential that they would become immensely profitable one day. Irrational exuberance was the fuel for the fire, but this insanity began to wane as the companies wallowed in losses before finally going belly up. Investors lost billions. People no longer felt so wealthy, and the economy went into a recession in late 2000 that lasted until 2002.

And it was during this time, the eighties and nineties, that commercial banks and investment banks were pushing for deregulation of the finance industry. They wanted the right to merge their operations, and expand into those areas that current laws prohibited.

The Glass-Steagall Act of 1933 came into existence as a result of the Great Depression, and imposed laws that kept commercial banks separate from investment banks. This act was designed to control speculation and avoid moral hazard. It was designed to keep an entity from being able to both grant credit and use credit; otherwise, banks could basically create and lend money to themselves for the purpose of speculation. It was designed to prevent another Great Depression, and it had.

Banks began lobbying to repeal this Act in the eighties, and the movement gathered steam going through the nineties. It was in 1999 that the critical decision was made to repeal Glass-Steagall. It was this decision that exposed the underpinnings of the global financial system to the rapacious corruption that ultimately led to The Great Collapse.

On November 12, 1999 President Bill Clinton signed into law the Gramm-Leach-Bliley Act, which repealed Glass-Steagall and allowed commercial banks to operate investment divisions, and vice versa. This act gave birth to the exponential credit expansion of the early 2000’s. This was the first necessary ingredient in the recipe for disaster.

It was during the 2000-2002 recession that the Chairman of the Federal Reserve Bank, Alan Greenspan, lowered interest rates in an effort to provide a boost to the economy. And it did, as it opened the valve on the real estate bubble that would inflate for the next five years. This was the second necessary ingredient.

With the repeal of Glass-Steagall and a loose monetary policy by The Fed, large banks such as Citigroup, Lehman Brothers, Bear Stearns, Goldman Sachs, Wells Fargo, Wachovia, Washington Mutual, and Bank of America were now inventing new investment vehicles; creating exotic, complex securities - known as derivatives - that were sold mostly to institutional investors such as pension funds and mutual funds that were attracted by the strong returns promised by the banks. These investors were the teachers’ union pension funds, and the firefighters and police and autoworkers’ pension funds, and government employee pension funds, and the managers of corporate 401K plans.

This is where cause and effect begin to blur. Beginning in 2001, thanks to the easy money policy of The Fed, low interest rate mortgages were stimulating housing demand, and also creating a market for mortgage refinances. The mortgage industry was booming, aided by an easy market in which to fund these mortgages: the Big Banks. The banks bought these mortgages, pooled them and divided them into risk tranches, based on the credit-worthiness of the mortgages in the tranches. This process was known as “securitization”. They then packaged and sold these securities, known as Mortgage Backed Securities, or MBS, to the large investors (pension funds).

Because the managers of these pension funds had a fiduciary duty to buy only the highest quality securities, it was necessary for the banks to have these securities rated AAA by the rating agencies such as S&P, Moody’s, and Fitch’s. It is difficult to say with any certainty whether the analysts in the rating houses were corrupt, stupid, or both, but it is plain to see that they applied AAA ratings to securities that were clearly higher risk than what was specified by the rating criteria. This was the third ingredient in the recipe for disaster.

Now, with the path cleared for the pension fund managers to buy these AAA rated securities that promised 8% or greater returns, demand for these securities soared. The banks had a seemingly insatiable market for MBS. This gave birth to the massive sub-prime mortgage industry, as the banks created new types of loans that were marketed to people with worse and worse credit. The prime mortgage market was mature, but the subprime market had yet to be truly exploited, so the banks went after subprime borrowers with frenetic gusto. Banks were so anxious to create more mortgages that by 2005, a person with a 600 FICO score could buy a home with no money down and without having to prove they even had a job. Yet somehow the securities derived from these questionable mortgage pools were still rated AAA.

As mortgages became easier to obtain, and interest rates continued to fall, demand for houses skyrocketed and drove real estate prices into a mode of nearly exponential appreciation. From 2001 through 2006, real estate prices in many markets doubled every two years. In nearly all significant markets, property values appreciated a minimum of 75% in those years. This was the fourth, and most visible, ingredient in the recipe.

As property values appreciated exponentially, homeowners felt wealthy again. A home for which someone paid $150,000 in 2001 was worth $225,000 in 2004, and $350,000 in 2006. With all this equity, people could refinance at a lower rate, take out some cash with which to remodel their kitchen or buy a new SUV, and not see much of an increase in their mortgage payment. This felt like real wealth.

The construction industry boomed as developers built new neighborhoods as fast as they could buy up the land. Carpenters, electricians, plumbers, roofers, landscapers, all were thriving, and they were buying houses, too. The construction industry, both residential and commercial, provided a feedback loop and helped fuel the bubble.

And people speculated. People who had never built a house before were getting into the homebuilding business, buying lots and building spec houses, turning them and starting two more.

Another cottage industry that emerged was the House Flipping business. People who had never speculated in real estate before could get loans to buy second houses based on the equity they had in their primary residence. They bought homes, did a little landscaping and applied new designer paint, installed wood floors, and three months later sold the homes for 25% more than they invested. Then they did it again, and again. Many people generated substantial “wealth” in this manner.

Banks were now offering Home Equity Lines of Credit (HELOCs) to those homeowners with equity, which was just about anyone who owned a home for more than a week. This helped fuel a home remodeling frenzy as everyone now had to have wood floors, granite counter tops, and stainless steel appliances. But the difference with these loans was that the banks kept most of these loans on their books, rather than packaging and selling them. This would prove to be critical.

All of this development activity spawned new businesses to cater to the new neighborhoods. Grocery stores, dry cleaners, hair and nail salons, restaurants, gyms, flooring stores, landscape businesses, nurseries, and gas stations all sprang up around the new residential developments. Banks were handing out commercial loans with the same gusto as residential mortgages, and they packaged these loans into securities and sold them also.

Most big cities experienced expanding suburban sprawl. Counties and municipalities had to build new roads and new schools, new water treatment facilities and additional capacity on the power grid, but as property values increased, so did tax revenues, so these governments spent freely. They also sold bonds to raise money for their growing infrastructure needs, and as their coffers grew, so did their budgets, but this was no concern, as property values continued to rise. This was yet another ingredient in the catastrophic recipe.

But how could all of this be bad? From the outside looking in, America was thriving. Everyone had iPhones and flat screen TVs and shiny cars. If all of the previously stated ingredients looked good on the outside, how could they become so harmful when mixed together? How could this lead to The Great Collapse? An examination of the psyche of the American public will offer some insight.


Part IV will continue the construction of the historical perspective.

Looking Back At America - Part II

This is Part II in the Looking Back At America series, which presents the perspective of what today's America might look like to historians 100 years in the future. This series of articles is most easily understood by starting with the first installment.

In the early 1980’s, as the Greatest Generation reached retirement age and the Baby Boomers grew into their prime earning years, America and many of the world’s most advanced societies began an ascent that can only be described as fantastic.

Ronald Reagan was the President of the United States and the country was on a course of increasing prosperity. America had just weathered more than a decade of hard times, but patriotism was enjoying a revival. The sixties and seventies had been challenging times, economically and politically, but by the early eighties the country was on the mend and people were optimistic about the future. Ronald Reagan was a strong, charismatic leader, the economy was growing, and Americans were feeling good about America.

The U.S. economy was the engine that drove production and growth throughout much of the rest of the world. The economy was fueled by the American consumer and as the U.S. emerged from the doldrums of the seventies, Americans had more disposable income and were willing to spend it. Credit cards also were becoming a staple in the wallet of the consumer, and it was becoming easier to spend money one had not yet earned. But, the economy was surging and all prospects looked good, so there was little concern with debt.

The American middle-class was a powerful force and comprised about sixty percent of the U.S. population. Middle-class Americans generally lived in a house; had a color television set; a phone; a car, maybe two; a grill in the backyard and a basketball goal in the driveway. Middle-class Americans worked hard, but they also enjoyed their recreation. They played bridge, and bowled, and played golf, and the kids played baseball and football and cheered and danced and took piano lessons. They had block parties and cookouts, cut the grass, raked the leaves, and generally treated their neighbors with respect. People, for the most part, were happy and felt positive about their prospects. Life was good and getting better. The collective social mood was on the rise.

Americans were productive, hard-working people and enjoyed an increasingly comfortable quality of life. And they were proud of it. America was the Land of the Free and the Home of the Brave. Many people in the world believed America was the Promised Land, and immigrated to America in search of the American Dream, or for the more practical reason, to escape oppression. Yet to others, America and Americans were to be despised; they were thought of as arrogant and crude, a society of belligerent bullies.

No matter how the rest of the world thought of America, if you were American, you were proud of it. From a global perspective, Americans were the kids at the cool table in the high school cafeteria.

American innovation was carving a path toward the information age, and the U.S. military was the mightiest, most technologically advanced fighting force in the world. America dominated the air and sea, yet frequently found itself in ground wars it could not win. America tried to force her will upon certain regions where it would be advantageous to have an ally in power, but found that she could not win the war short of a pyrrhic victory. In Vietnam, Iraq, and Afghanistan, the U.S. fought to a draw in wars that drained its coffers and produced no strategic advantage.

The American economy and indeed the global economy were dependent on oil. The countries of the Middle East supplied most of the world’s oil, and this was a region consumed with religious and tribal conflicts; highly unstable and unpredictable. America was the world’s largest consumer of petroleum, and the lion’s share of America’s petroleum was imported from countries in the Middle East. For that reason, America tried to impose her will on this region, supporting certain nations, like Israel, Kuwait, and Saudi Arabia, while being at odds with others, such as Iran and Iraq. American leaders spoke of peace in the region but often supplied the instruments for war, if not the armies. America wanted peace, but she wanted it her way.

In the early nineties the personal computer and the cell phone exploded onto the scene. Advances in transistor technology and miniaturization allowed for the proliferation of the cell phone and laptop computers as they shrank in size and grew in power. It was during this decade that personal computers became ubiquitous in homes and offices, and virtually everyone had a cell phone.

The mid-nineties brought the proliferation of the internet and the World Wide Web, and spawned the Information Age, where with a few taps on the keyboard and clicks of a mouse, people could access just about any kind of information and it would be delivered right to their desktop. The birth of the World Wide Web gave rise to a global industry that impacted every nook and cranny of society, from business to military to government to consumer.

As America approached the new millennium, the sky, it seemed, was the limit.


Part III continues the construction of the historic perspective.

Looking Back At America - A Hundred Years From Now

Historic times, these days. Epic times. Looking back, a hundred years from now, people are going to say, “Why didn’t they see it coming?”

Eighty years ago we had The Great Depression. Eighty years from now, the times in which we currently live might be called The Great Collapse. Just as with The Great Depression, future economists and other self-proclaimed experts will disagree as to the exact cause of The Great Collapse, but there will be no question that We The People fell asleep at the wheel, allowed the banking cartels to take control of the government and the economy, and waited until it was too late to take the painful but necessary actions to save the country from the greatest financial, economic, and social catastrophe the world has ever seen.

History will view the generation currently in power as the generation that ran America off a cliff. This generation is commonly referred to as the Baby Boomers. History will not treat this generation kindly, nor should it, because this generation, when the chips were down, didn’t have the balls to make the difficult decisions that were needed to save the country from disaster. Indeed, they created the policies that allowed for the unprecedented explosion in the credit markets, and when confronted with the pernicious consequences of their policies, failed to take corrective action. For this reason, history will view this generation as an epic failure.

But to blame one generation is not accurate, because it’s not that simple. No, it was actually a blend of multiple generations that created the circumstances leading to The Great Collapse. The Centennials (the generation coming of age at the turn of the Twentieth Century) and the Greatest Generation laid the groundwork and built the foundation, and the Baby Boomers and Generation X were more than happy to raise the walls and hoist the rafters. The people born between 1875-1975, give or take a few years, are the people who created the system, perpetuated it, abused it and finally broke it. But it is the Baby Boomers who are at the wheel at this critical time in history.

Some will assert that it was the creation of the U.S. Federal Reserve Bank in 1913 that set in motion the events that would eventually lead to the collapse. This is true, but the collapse wasn’t imminent at the moment the Fed was created; decisions made later charted the disastrous course (though these decisions were only made possible by the existence of the Fed).

And it is in 2011 that the last opportunities to steer away from the cliff are being ignored. Difficult choices are being avoided. The American Empire is straining under the burden of unsustainable debt, while We The People sit idly by, occupied with iPhones and FaceBook, where we tell anyone who cares to listen what we are having for dinner, or that we joined a karate class, or that the baby just crapped its diaper.

The Baby Boomers will be blamed because they are holding the wheel as the country goes over the cliff. They are the ones in the leadership positions, ignoring reality in favor of greed-fueled schemes, while the general population is too enraptured by the illusion of prosperity to actually look at what is happening. As blatant as our leaders’ incompetence and greed will look to us in a few years, it is the American population, We the People, who have allowed ourselves to be distracted, marginalized, and defrauded.

And while history will judge us harshly for our greed, corruption, and neglect, this is not the entire picture. It would be unfair to ignore the accomplishments of these generations, for we have also overseen the greatest advances in technology, science, and medicine since the beginning of human history. We built a quality of life unmatched by any other society in history. These achievements provide the contrast, and the irony, for our greatest failures.

So what happened?

Let’s take a look at what our society might look like when viewed from the historical perspective of a hundred years in the future. In an attempt to simplify an immensely complex situation, a macro view will be presented, with a focus on the terminal economic, financial, and political conditions that led to The Great Collapse.


Part II begins the construction of the historic persperctive.