When the Community Reinvestment Act ("CRA") is a federal law created to be an incentive to the banking and savings institutions to help meet the need of borrowers from all socio-demographic segments in the United States and within their their respective communities, low- and middle-income neighborhoods. Federal Regulatory Agencies would enforce the statute by checking compliance of the CRA and by taking the results of their review into account when approving the applications of these institutions for new branches, mergers or acquisitions. In plain English, the government forced the banks to extend loans to pretty much anyone, financially able and capable to take on a loan or not, extending as much as 125% loan-to-value. If the aforementioned institutions could not show that they had a high enough ratio of such loans extended over each predetermined period (e.g. a calendar quarter), then they would be punished by not having their applications for mergers, acquisitions or new branches approved by the Agencies. In my opinion, pure extortion!
Now, moving forward to 2008, and not forgetting all Acts and rulings enforced by the U.S. Government in the meantime and before 1977, "all of a sudden" the derivatives created by selling these mortgage loans in packages to the "open market", are so polluted, that a fair market value could no longer be established and basically the value of the housing/real estate markets (nationwide and worldwide) fell apart. As such, financial institutions, heavily invested into these holdings, fell apart (e.g. Lehman Brothers) and the overall equity market became very shaky as trust was and is completely gone (the Dow Jones Industrial Index went from approximately 11,400 to around 6,500 in 2008.
Housing values dropped - in some cases 50-60% - and still today, no-one knows what the real values of the real estate markets are. This undermines our complete financial system. We have a real estate market that is about to fall apart, we have an equity market that - see later blogs - is build on very shaky pillars and thirdly, the commodity market has become very unstable (what will happen when the entire oil market falls apart, energy prices tumble, supplies become uncertain, etc...). When all three markets tumble uncontrollably (equity, real estate and commodity markets), the economic environment can be defined as a depression. High inflation rates (hyper-inflation), high employment rates (15% - 35%), low productions ratios, low consumption rates, higher savings rates, the undermining of the national currencies and sort-alike ratios, will lead to complete chaos and in my humble opinion to a depression (sociological and economic) of which the likes we have never seen. Ask yourself a simple question, "what is one to do if you don't have income, your currency has devalued tremendously to the point where it has become worthless, you have no savings and your kids need fed? What is one going to undertake in real action to feed his/her children and self? Do we start by demonstrating, then hunger sets in and we steal, then it becomes really desperate and we undertake what action next? What will society local, state, national and international turn into when that happens? At this time, just a question to make you think about it!
We are now spending more than we are taking in. We are seeing that the government (U.S.) is spending more and more in relation to its own GDP (Gross Domestic Production or total of all national products & services produced). And we are reaching a deficit ratio that is about to surpass 100% in relation to the GDP. Once that happens, I believe we are entering - as a nation - bankruptcy. We cannot have a nation where the government believes that the solution to resolve the financial crisis is to employ more and more people with itself as someone (the taxpayer) has to pay for it. Once you surpass the economic limitations (the laws of finances - you cannot spend more than you take in over the long-term), it becomes nearly impossible to recuperate and to govern responsibly.
At this time, we see Greece and many other nations implode. Citizens feel they are entitled to all their so-called "rights" and will not allow their governments to make the necessary changes. As such, we are now seeing demonstrations and the beginning of anarchy. Not to forget the nations no-one mentions yet: Ireland, France, Spain, Portugal, Italy (southern Europe) and then following the richer northern European nations: Belgium, The Netherlands, Germany, Switserland, Austria, Scandinavian countries, etc. Little banks are already imploding, larger banks to follow. Germany will not continue to "feed the hungry nations" and cannot continue to forgive large debts of foreign nations (40 Billion U.S. Dollars to the Greek banks alone!). Eventually, if immediate action is not taken, all will implode (large/small banks, governments, complete hierarchies of power and structure and complete populations will feel left in the dark upon which it would not be unreasonable to assume that war among nations will be purposely created! Once the European markets/countries fall apart, the rest of the world is only to follow (Japan, the U.S., Canada, etc.).
The aforementioned is merely an introduction to the individual segments to follow on this "blog". However, it is intended to make the reader think about the unforeseeable and yet foreseeable consequences of what is taking place on the world theater. Not even mentioning the Middle-East yet, Russia and many other "fronts". Let this just be an introduction of more to come.
Obviously, it is a subjective take on events that take place and are about to take place as well as sometimes a historic view on past events. Therefore, if the reader, with his/her subjective viewpoint, sometimes backed by objective facts as is the case with me, would like to provide feedback in a constructive and respectable format, I would welcome such action anytime. The more people think about the issues and concerns at hand, the more ultimate solutions might be brought to the table. And, ... we never know who's table it might be!
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