LET'S CUT TO THE CHASE

The media and presss have done a very pathetic job in educating the public how this financial crisis was created other than it had to do with mortgages and something called credit default swaps. Bear Stearns bought mortgages and bundled them together and sold them as bonds called CMO on Wall Street.
Banks, pension plans, etc around the world bought them. Bear Stearns used the money to buy and bundle more mortgages. A big buyer of these Collateralized Mortgage Obligations was AIG. The problem however extends to credit default swaps(a type of complex financial instrument known as a derivative). AIG sold insurance in the form of CDS(credit default swap) which is insurance against the default of a corporate bond issued by General Electric or Lehman Bros. for example. AIG beleived that CMO were safe, after all they were rated AAA by
Standard and Poor and Moodys for example. Some CMO especially for subprime(people with lower credit scores or no down payment) mortgages. These were especially attractive because of the higher interest rates. So the whole system was predicated on this cycle of mortgage, bundle it, sell it, use money to lend new money on new mortgages, then do it all over again created a global chain.
Now enters a problem AIG and others were borrowing money for short periods of time to buy what is essentially a long term financial instrument. It is known as the carry trade. As long money was easily available, they began to buy $30 of bond for every $1 they had in assets. This is what has always been known as speculation. As a result the global purchase and trade of financial derivatives exceeded the entire value of the gross domestic product of the world. They were essentially buying on margin. Well if you have ever heard of a margin call, you know that you end up having to sell stock to meet a margin call, in other words you must put up collateral against the money you borrowed.
As long as housing values went up, people refinanced to use equity in their homes to buy items they otherwise could not afford, money was flowing and everybody seemed fat and happy. What however was created was a bubble in the housing market unlike any previous housing bubble, since consumer spending in 70% of our economy. Now it was not a large percent of subprime mortgages that went into default about 8%, but when you are leveraged 30 to 1, it does not take much to bring the whole house of speculation tumbling down. Once it started heading down, bear raiders(again speculators) rushed in to grab a quick profit, they started buying credit default swaps and shorting(borrowing shares, selling them today and repaying the shares in the future by buying them when they became cheaper) financial instutions. This accelerated the fall of the house of cards, financial institutions had to put up collateral because of the loans they had taken, as they did so, they had to write down the value of their assets, as they did their share prices fell, which bear raiders then shorted even more, as the value of CDS(credit default swaps) went up.
The federal government decided to let Lehman Bros fail, the bonds it had sold became worth only pennies on the dollar, it rippled around the world started bringing down banks while bear raids did further damage. Finally Uncle Sam could no longer stay on the sidelines, so they jumped in with hundreds of billions, then hundreds of billions more, took over AIG, Fannie Mae, Freddie Mac, etc. As noone anymore wanted to buy CMO, no more money for mortgages, housing sales dropped, values of houses dropped, causing layoffs, ertc. AIG and others stopped borrowing money and issuing credit default swaps. The credit market froze up, causing more layoffs, further declines in home building and sales, etc.
As Paul Harvey would say and now for the rest of the story. Eventually a large stimulus bill of almost a trillion dollars was passed. On top of the immense borrowing by the Federal Government to the tune of 5 billion dollars a day, the Federal Reserve a little more than a week ago, decided to add to their reserves, so they issued electronic money in exchange for Treasury bills. This injection did not mean money was printed, but actually produced right on the computer at the Federal Reserve to the tune of a trillion dollars.
Consumers have cut back, the savings rate has gone from minus one percent in 2007 to plus 4 percent so far this year, it was 10 percent back in 1980. Now the actions Uncle Sam is doing will cut into those savings with inflation. When you pump up the money supply to this degree, hyperinflation is coming, not too far away. Inflation was created in the 70s, mortgage rates went up to 19% for those with good credit, it was as a result of wage and price controls imposed in the early 70s, when they were taken off, inflation took off. This was at a time of increasing unemployment, added together it was called the misery index and propelled Ronald Reagan into the White House.
It is time to stop adding to the national debt, not just for the doubling and quadrupling of debt. The Debt was doubled under Pres. Bush and is being doubled again under Obama. From 5 trillion to 20 trillion in 12 years. It took 211 years to get to 5 trillion, only 8 years to get to 10 trillion and will at this rate only take 6 years to reach 20 trillion, 4 trillion of which was taken from the Social Security payroll taxes over the last 40 years leaving zero, yes that is right zero cash in the so called Soc Security lockbox.
Tell your congressmen/somen that you do not want them to creat debt at this rate, they must slow down in issuing debt. How? Send them an empty tea bag, beleive me, they will know what it means, it will speak for itself, a modern day "Boston tea party".