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[Back
to the subject of "root cause" for the 2008 financial crisis after
yesterday's rumination about gold we find former President George W. Bush
explaining the situation to a confused and bewildered public in a dumbed down
way that seemed to have come naturally for him. Originally published on September 24th, 2008, before almost three years of listening
to President Obama, it seems there couldn't be too more different U.S.
Presidents.]
ooo
They’re
sure talking about “root cause” a lot these days in Washington,
though, with only a few exceptions such as Ron Paul (R-Texas) and maybe Tom
Feeney (R-Florida), they’re really not even getting close to the source
of the current problems.
Aside
from a few hearty souls, the Bush Administration and nearly all of Congress
are still avoiding the underlying questions that, come to think of it, they
may not even be asking themselves in private, which, come to think of it, is
an even more disturbing thought.
That
is, whether or not the U.S. financial system is so fundamentally flawed
– based on a credit expansion which mustn’t stop but which
can proceed no further – that it can no longer survive even with
a trillion dollars of government money to plug all the known leaks.
To
hear the discussion dumbed-down so third graders might be able to make some
sense of it just makes the situation more surreal. To wit, tonight’s
address by Pesident Bush:
Most
importantly, my administration is working with Congress to address the root
cause behind much of the instability in our markets.
Financial
assets related to home mortgages have lost value during the house decline, and the banks holding these assets
have restricted credit. As a result, our entire economy is in danger.
…
Unfortunately, there were also some serious negative consequences,
particularly in the housing market. Easy credit, combined with the
faulty assumption that home values would continue to rise, led to excesses
and bad decisions.
Many
mortgage lenders approved loans for borrowers without carefully examining
their ability to pay. Many borrowers took out loans larger than they could
afford, assuming that they could sell or refinance their homes at a higher
price later on.
Optimism
about housing values also led to a boom in home construction. Eventually,
the number of new houses exceeded the number of people willing to buy them.
And with supply exceeding demand, housing prices fell, and this created a
problem.
Borrowers
with adjustable-rate mortgages, who had been planning to sell or refinance
their homes at a higher price, were stuck with homes worth less than
expected, along with mortgage payments they could not afford.
As
a result, many mortgage-holders began to default. These widespread defaults
had effects far beyond the housing market.
See,
in today’s mortgage industry, home loans are often packaged
together…
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