Quote:
Originally Posted by man blast in your face
Oh?
How exactly did the fed cause this current fucking nightmare?
Since you've already done your research, just post a quick top 5 reasons (or whatever).
Seriously, I (honestly) don't know.
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1. The Fed completely ignored the subprime mortgage lending when it first started. It didn't call for regulations. It knew that people were borrowing more than they could afford to pay back.
2. Investment banks borrowed 20 times their net worth and put it in the market. This increased potential losses by 20 times. So a bank only needed to lose 5% in order to go out of business. The Fed ignored this and didn't call for regulations.
3. The Fed refused to increase interest rates beginning in 2003. Rates are at 2% right now. Since 1930, consumer spending accounted for 65% of economic activity. In the 2006 and 2007, it has accounted for 73% of economic activity.
Bernanke ignored this fact. It is undeniable that consumers are spending too much.
He was afraid that increasing rates would cause a recession. So he kept cutting rates when he should have increased them. He thought that he could push the recession far far away and never have to see it again, but all he did was cause it to come back even bigger.
4. The Fed refused to cut rates in the summer at what would have been a good time. Banks lost too much and by the summer were refusing to lend to anyone else. When they refused to lend, they ended their cash flow. And the Fed refused to cut rates 2 weeks ago.
5. The Fed went on a pattern of bailing out banks. They helped secure the sale of Bear Sterns. Then they put in $100 billion last April to help banks with bad debts. Was it really a surprise that they would bail out AIG? If you reward idiots for screwing up, they will just keep screwing up.