Here's What's Happening To The Economy

by Randall Hoven - March 12, 2009 - American Thinker

What we have is a four-tiered avalanche.

Tier 1. The US housing market was a bubble that burst ...
Tier 2. That led to a global financial crisis because so many investment and insurance firms around the world traded in mortgage-backed derivatives that no one understood ...
Tier 3. That financial crisis led to an over-reaction on the part of politicians. The TARP legislation in the US in particular provided the double-whammy of being largely ineffective in its own right, and signaling to investors everywhere that it is time to panic ...
Tier 4. And that led to the political meltdown in the US, in which a socialist agenda is being implemented as quickly as possible, in the name of crisis management ...

At each step, the markets gave us an estimate of the damage done.

It is always useful to look back at a crisis but you have to wait until it is over to look "back". With the market uptick the day before yesterday, it is hopeful that the worst of the damage is behind us. Before we look forward, a debriefing on the recent history is well worth while, so we can start to put it in perspective. This article is a good review.

Separating the tendency to try and assign blame from the facts behind them, it is clear that the triggers were; a housing collapse, a derivatives collapse, political panic by the Bush regime and finally market reaction to the Obama regime solutions to the economic panic.

The housing collapse is appearing more and more likely a direct result of government interference in the market to pressure banks to make "minority" loans, coupled with a housing industry use of the new rules to loan a huge amount of funds to home refinances with the same insecure standards. The boom in prices collapsed leaving at least 5% to 6% of all housing under water. Foreclosures skyrocketed. Whether you agree that Democrats caused the crisis or not, it is totally false to argue the problem was an unregulated housing market as the Democrats continue to claim. That claim is deceitful.

The attention to the collapse of home prices made it clear to many investors that the derivatives assumption of home prices going up forever meant the entire complex derivatives market was a house of cards. Derivatives collapsed as a result of the home price collapse - damaging many insurers - with focus on the huge AIG. It also severely damaged investment banks around the world, including the recently created investment banks in America (formerly known here as security firms).

The timing of this is what many people still question. This was the collapse that was just too convenient. It came just as McCain-Palin caught the Obama-Biden ticket in the polls and ended that surge. The Bush reaction was the next huge move in the economic collapse, as Paulson, Bernanke and Bush ran around talking panic like a trio of chicken little idiots screaming the usual "the sky is falling ..." By their actions they scared the economic community and the populace. They did this only a month before the election. Was panic called for or was it, as Randall Hoven argues, a useless reaction to an economic condition that had already been priced into the market? That question will be at the heart of endless soul searching over the few years.

What came next was predictable, given the crisis reaction of the Bush regime. The American people watched the Republican regime panic and appear out of control. With no time to decipher the totality of the crisis, they turned to the opposition party to get us out of the crisis. In the last month before the election, the late deciders decisively chose the Democrats, giving them nearly total control of our government.

Obama had his opportunity. He has used it to push for socialist solutions to our crisis. With Democrat control of congress for two years, they were organized and ready to crush Republican opposition. The timing could not have been worse for anyone who fears socialism is a bad move. Democrats have made huge progress in driving our nation to socialism. The market reaction to Obama and that socialist move has been entirely negative. The American people seem stunned and still hopeful that Obama and the Democrats will end the crisis, not make it worse.

If we have reached bottom, will America blame the precipitous fall in market prices on free enterprise or the Democrats? That is the billion dollar question whose answer will determine if America stays free or not.