The Great Fake Recession

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Yes, I am officially calling this “the Great Fake Recession”.  It seems that this recession (or depression if you want to call it that) is a fake one.  No, its not in our minds, we see the layoffs every day, people spending less, and so on but I don’t think this is any normal cycle.  I think this is a deliberate attempt to sabotage our economy just so the elite few can benefit from it.  I also think I know who we can blame for it 0 the people who are benefiting from it the most today – banking executives (and other high end investors / executives).

Take a step back though the past few decades.  Though the 80s we saw growth in the US faster than anything before.  Banks were able to invest in businesses and get a good return on their investments.  This lasted all though the 80s and got a small boost in the early 90s with the first gulf war.  Times were great to be an investment banker.

Then came the 90s, physical growth slowed down (well, didn’t grow as fast) but with the exploding popularity of the internet banks were again able to invest small amounts of money into virtual companies (a.k.a. .coms) and get a huge return on their investments.  The banks also invested in “sub prime” mortgages – approving high interest mortgages to people that they knew couldn’t afford them and continue to do this though today, thus making them a lot of money.

The .com bubble burst in 2000 / 2001 and the terror attacks of Sept 11, 2001 showed the vulnerability of the stock markets but real estate skyrocketed.  People wanted to move out of cities and into the “safer” suburbs.  This allowed the banks a golden opportunity – allow many more people mortgages that they know the people couldn’t afford but get huge returns on them.

The banks aren’t stupid and know damn well what was going to happen next and were prepared for it.

Starting after the housing bubble’s height in 2006, things started to catch up to the people.  People started to not afford their mortgages and defaults started to come in.  Not many, but probably more than the banks expected.  Don’t worry, they now own these houses and could sell them, right?  We all know what foreclosures do to property values.  Values are based on recent home sales so if homes in your neighborhood have been selling for $150,000 and then all of a sudden have several selling at foreclosure for less then $25,000 values plummet.

All of a sudden, people had no equity in their homes to borrow off of, many homes even had negative equity (you owe $150,000 on a home worth $100,000).  Banks used this as an excuse to curb lending – not lending out anywhere near as much money as they used to.  This prevented people from getting homes, cars, and other high ticket items that they wanted or needed, including businesses.

Banks started to hoard money.  Its interesting how banks claim they are going to fail because a small percentage of their loans were defaulted but they used this excuse to lend out even less money.  Large businesses were refused loans so they couldn’t buy inventory or give raises.  People spent less money and we all know this vicious cycle.

I know, people can say this is all speculative but here’s the coup de tat:

Banks started to ask for bailouts form the federal government and they got them.  Banks knowingly made bad investment and lost billions of dollars but our government still bailed them out.  So, what did they do with the money?  Hmm..

We see the news every day.  Bank executives getting bonuses worth more than all the money most of us will see in our lifetimes, they go on lavish vacations and give themselves pay raises.  The hoarding continued in many other industries and then these companies complained that they had no money – and got bailed out from the government.  The banks then ask for more money, and then give out more bonuses and vacations.  Just look at AIG – they’re asking for a third round of bailouts after giving out bonuses to executives who no longer work for them.

So- when could it have started?  I’m thinking it started around 2002-2003 when the banks realized that nothing was safe to invest in.  Large corporations probably started the massive hoarding sometime in 2005-2006.  I seriously think this whole thing was planned but I think these corporations really screwed themselves because the economy is now far worse than they expected it to be, and we need to pick up the tab.

So, businesses are playing with our money, losing our money, then asking the government to give them more money because they can’t manage their own finances.  Nice, and I’m still waiting for my bailout.

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