The Genesis of the Great Recession

[Chux]

Don't most ARMs reset after 5 years? Yearly?

There are a whole bunch of different ARM's that could mess with people. 10 year, 7 year, 5 year, 3 year, 1 year, then after that term it's yearly. You also have the 2/2/1's and 3/3/1's and baloons(Which is my 8 years of dealing with this stuff I've never booked one, thank god, they're retarded). ARM's were good for people who knew how to play the market, but a lot of people who would otherwise be unqualified were able to get houses they'd never be able to afford due to the ARM's giving them such a low payment.

[Type Ryan]

Greed, apathy, and entitlement. I think these three words pretty much sum up why the Great Recession started. And we're not out of the woods yet, despite recent news regarding unemployment.

[Gooch]

I don't say this for any political impact rather that I am confident the cause can be attributed to Clinton (with some to the first George Bush).

1. Clinton ran fiscal surpluses which net took money out of the economy. This did not allow the private sectors to reach their optimal level of desires savings. You can see from the chart that the reduction in government spending from the first Bush to Clinton's periods of surplus correlate with a reduction in personal savings. Government spendings equals private sector savings. The Russian default and Asian Currency Crisis resulted from fixed rate pegs to the US Dollar. Clinton's fiscal surplus caused a shortage in supply of US Dollars, and Russia and Asia were not able to obtain the USD reserves to meet the convertibility of their already issued domestic currency.

2. The private sector, in order to "fund" the public sector's surplus, had to spend more than it made, in other words, for the public sector to run at a surplus, the private sector had to run at a deficit. To run at a deficit requires decreased savings and taking on debt. We can see a correlation in the increase in private sector debt in the charts above.

3. Glass-Steagall was a post-Great Depression act in order to prevent the very activities that are attributed to helping cause the Great Depression. Clinton chose to repeal Glass-Steagall. Banks then had free reign to do what dave is ok stated. This was aided by fraud, both in subprime lending and access to credit card related debt. This expansion on credit liquidity fueled a fradulent tech bubble and had already planted the seeds for the housing bubble, really a subprime fraud bubble.

4. The second Bush aided a recovery with increased government spending but he had to spend at over 5% of GDP to offset the damage from earlier. He did not spend as much as needed and actually decreased spending until the crisis erupted.

5. The housing bubble left the private sector with underwater balance sheets, which is the balance sheet recession we find ourselves in. With high debt levels, high interest payments, declining asset values, and declining employment, the private sector has to deleverage to the extent it can. Government spending assists with this and support employment and you are also now seeing an increase in the savings rate.

[Gooch]

Deficits don't matter.

- Former Vice President of the United States

I don't look at numbers on a spreadsheet. I look at jobs.

- Former President of the United States