Monday, November 21, 2011

A Look Back In Time: 2001 - 2002

For those that enjoy financial history, we start the week with two videos from the beginning of the last decade.  One is the now famous home ownership program speech from George Bush.  He lays out the plan to push mortgages on people who could not afford them at a time when home prices were already entering bubble pricing.  Bush, along with most democrats and republicans at the time, was taking in millions of dollars in campaign contributions from the GSE's and the Wall Street banks who were packaging these toxic mortgages (and making billions$ in profits).



The next video, which receives far less attention today, is from 2001.  This other politician explains how money was leaving the bursting stock market bubble and entering the real estate market due to the Federal Reserve slashing interest rates down to dangerous levels and Fannie Mae and Freddie Mac (the GSE's) reducing their standards on who they lend to.  Endless books have now been written discussing how these events created the financial crisis of 2008, but only a handful of economists (and one politician) understood exactly what was happening as it was taking place. 



Ten years later, as the politicians continue to take millions of dollars in campaign contributions from the Wall Street banks, and the Federal Reserve has interest rates at 0% along with quantitative easing programs, he continues to speak about the coming crisis that once again falls on deaf ears.  It is impossible to know the date when a bubble will burst.  A famous saying in the financial world is that markets have the ability to stay irrational longer than an investor can stay solvent (betting on the correct outcome).  Many astute investors can see today that we have a government bond market bubble in our country, but the ability to stay the course and not get caught up with the herd is almost impossible due to the way we are wired psychologically.

No comments:

Post a Comment