Greed

Hi Everyone:

Today's blog is about greed and why is this country in such an economic disaster? I truly believe that the answer to that question is one word answer and that word is ................................GREED! Why greed you may ask? Follow my line of reasoning with just these 2 examples:

Example #1) The price of oil/gasoline. I am sure that you all know that last year, the price of a barrel of crude oil (consequently the price of a gallon of gasoline) rose the fastest ever, in the shortest amount of time, in history. Why? If you had read any online articles or newspapers and/or watched the news on TV (network or cable); the reason for the astronomical price jumps were all basically the same. There were CEO's from Exxon/Mobil and other big oil companies and government officials all saying that it was supply and demand economics. Demand for oil was increasing while the supply of oil on hand was decreasing. We were all told that this was due to the fact that China and India grew from third world countries to industrial powerhouses meaning they used more energy (oil) to run their factories etc. Then their wage earners had more disposable income and were able to buy cars etc. More cars on the road obviously use more gas. Supposedly the OPEC cartel was pumping oil out of the ground as fast as they could, but it wasn't enough. The consequence was the unbelievable increase in the cost of a gallon of gas. Now if you believe all of that BS, have I got a bridge to sell you.

After reading and learning everything I could on why the price of oil increased so much, so quickly, I finally found the true reason. There was and still is enough oil to fuel the world's economy. Using oil as the main source of energy is a subject for another day. But, do you know who owned the most oil shares in this country last year? Exxon/Mobil?-no. BP?-no. Any oil company?-no! The answer is, are you ready for this.................Morgan Stanley! Yes Morgan Stanley the investment house. They saw an opportunity to make an unbelievable amount of money by getting into the speculator market. By speculating on oil futures they went outside the foundation of a free market of supply and demand and artificially increased the price of oil. Other investment houses soon followed suit. Yes the price of oil would still have increased because of China and India but not as fast and definitely not as much.

The price of oil obviously affects every aspect of our lives. It increases the cost of manufacturing almost everything (including the cost of building houses, roads and bridges), increases the cost of delivering those products to the stores where we purchase them, increases the cost of producing the containers that products come in, increases the cost of driving or using mass transit to get to work and increase the cost to heat our homes, whether or not you used oil, gas or electricity. Those investment firms were greedy to the max and used absolutely no common sense as to the consequences of their actions. That one act of speculating would be a leading factor and the beginning of the free fall of our economy.

Example #2) In the not so distant past, in order to buy house, you had to have the following: a down payment of at least 10%, verifiable income and that the mortgage and taxes combined was no more then a certain percentage of your income ie: 38%.

Nowhere in the history of our banking system were subprime mortgages ever sold until the new millennium. To make matters worse, add to that, the banker/mortgage brokers selling to people who could not afford the eventual payment increases due to their ARMS, (adjustable rate mortgages) that were going to reset in 1,2 or 3 years. How did this happen? Somehow some and definitely not all, bankers and mortgage brokers were able to get the loan applicants to lie about their income amounts on the applications assuring them that their loan would still be approved and therefore they could get a larger mortgage amount then they needed. Banks then went around the laws that stated that they had to have a certain amount of insurance in case a percentage of people defaulted on their loans. The banks then bundled these subprime mortgages and somehow was able to resell them to Wall Street as a good investment. The originators of these mortgages made their money in 2 ways: writing/approving the loans and then reselling them. They wrote so many so fast that there was an incredible amount of money to be made very quickly. Check out what happened to World Bank Savings as an example. Remember that the housing market had not seen a valley in the normal peak and valley (up and down) cycles that always happens with home values in many, many years. People somehow forgot history and thought that the value of their homes was always going to increase and never decrease. Those who tend to forget history tend to repeat it.

Now I do not place all of the blame on the banks and mortgage brokers alone. I also place blame on the people who either signed false income statement loan apps (per the advice of whoever) or people who didn't take the time to read, understand and ask questions regarding what they were about to sign. It takes two to tango and if people had really taken the time to read everything before they signed on the dotted line, I believe that there would be a lot less foreclosures.

The combination of my 2 examples were and are a deadly duo that was sure to send our economy into a tail spin, the likes of which we have not since in 75 or so years! I personally think that the banks and mortgage brokers that engaged in the subprime mortgages should be indicted and convicted for the crimes that they have perpetrated upon the American people who now have to pay for their greed and stupidity. I wish that the lack of use of common sense in these instances could also be a crime. If these companies had only used one ounce of common sense, I truly believe that the economic mess we find our country in would not be as bad and might only be a footnote, like the recession of 2001 or 1990-91, instead of being compared to the Great Depression of 1929-1933 and beyond. When will companies learn. Maybe now! Common sense rules and greed drools to paraphrase.

Talk to you next week.