Economic Crisis, What are the causes?
Here's what I think are the main causes of the Crisis. Curious to know what others think.
1. Government policy of making mortgages available to people who could not afford them. To solve the fact that some people could not afford to live in expensive homes, the government created Freddy and Fanny and manipulated interest rates to make them affordable. In the end all this did was drive up the price of homes making them even more expensive and causing an overbuilding of homes during the housing bubbles.
2. Government allowing uncollateralized insurance contracts. High risk mortgages were sold as low risk investments because they had default insurance through companies through AIG and others. Capitalism or any system can not work unless parties to a contract can prove they can fulfill the terms of the contract. AIG and investment banks did not have collateral to cover their insurance policies, so they should not have been allowed to issue insurance.
3. 401k tax breaks. The government encouraged investment in the stock market through deferred tax breaks. All this did was artificially drive up the price of stocks. Too much money chasing after too few good investments. Too many investors disconnected from the operation of the company with no management oversight.
4. Home Mortgage Interest deduction. People overbought housing and borrowed tons of money as means of reducing the burden from the unfair income tax system.
5. Deferred Employee Compensation. Companies like GM and the California government making long term commitments to employees to cover their pensions and health care for life. Cash should be paid to employees who make their own retirement/health care decisions. The Union system has failed both the workers and companies.
6. Encouragement of lending. The lending industry is simply a way for the rich to get richer without work and the working poor to remain their slave. It should not be 'vital' to our economy, it needs to be discouraged and regulated as much as possible. No more bailouts.
7. Failure fix economic disparity. The fact is there is a wide gap in demand/supply in services among our workers. This problem must be solved and not a redistribution of wealth through socialism and income high taxes.
8. The Fed. The Federal Reserve was continually changing interest rates and money supply. Along with being an illegal tax and being unaccountable to the taxpayers/citizens, it created volatile conditions and bubbles. Strong economies need stability and some predictability, they need to stop continually manipulating the market and give us stability.
“Religion is regarded by the common people as true, by the wise as false, and by the rulers as useful.” Seneca