Who Should We Blame for All the Impact of the Current World-wide Recession?

Today, in the U.S., whether you are a blue or white collar worker and if you still have a job, any kind of job, and have not been laid off or threatened to be laid off, then you are either just lucky, your laid off time hasn’t ticked in yet, your employer’s industry has not been immensely affected by the current economic crisis, or maybe you are simply just too good at what you do, and that your employer values your job performance more than your already laid off colleagues.

Most U.S. companies have been cutting down on their manpower, closing down some plants, or outsourcing their production operations to certain developing countries, such as China, India or Mexico, where labor is relatively cheaper.

According to CNNMoney.com, the U.S. economy continued to hemorrhage jobs in February 2009, bringing total job losses over the last six months to more than 3.3 million, and taking the unemployment rate to its highest level in 25 years. While the U.S. Department of Labor and Statistics reported in the first week of March that employers slashed 651,000 jobs in February 2009, down from a revised loss of 655,000 jobs in January 2009. December 2008’s loss was also revised higher to a loss of 681,000 jobs, a 59-year high for losses in one month.

In this document, we are going to critically analyze some of the core issues that might have contributed to trigger the current global financial crisis, which is deemed to be the primary cause of the fast rising unemployment rate in the U.S., and its impact in other parts of the world.

The views of the author expressed herein may be politically aligned, and depending on you, the reader’s political opinions and belief; that you may or may not agree with these views. It’s not the author’s intention to align to the left or right in analyzing the current global financial crisis. However, it’s fair to note that these issues might have occurred under a politically elected president, which some may say that these issues originated under a watch-less eye of President Bill Clinton or because of the carelessness of President George W. Bush, and some may even say that it is all because of President Barack Obama that we are currently in a recession.

History tells us that almost every last year of the president’s term, leading up to the presidency’s power transfer to an incoming president, there is generally an economic cyclical; with the stock market either going up or down, depending on how the market perceives the incoming new administration.

In December 1999, the Dow Jones closed at 11,497, but in February 2000, just a month after Bush took office, the Dow closed at 10,940, that’s 557 points drop (Yahoo! Finance). In fact, some analysts believe that: “He (Bush) became president 300 days into a bear market that began on March 24, 2000 (AllFinancialMatters), and then just 9 months later, the US experienced the worst act of terrorism on September 11, 2001, which created a long lasting significant economic impact on the United States and world markets, with the Dow falling to 684 points, or 7.1%, to 8921, a one-day record setting in points decline. “Wall Street suffered its biggest one-day fall yesterday since the immediate aftermath of the September 11 terrorist attacks, as a day of hefty stock market falls around the world culminated in a late panic sell-off in New York” (Guardian.co.uk).

Most analysts believe that the U.S. stock market never really recovered from the nine-eleven terrorist attacks. Some even suggest that the current financial crisis is a ripple effect from the terrorist attack. But, let’s go back a bit to the Clinton era, as the majority claim as it is where all began. As we all know, some may disagree, that when Clinton was in the office, the market was climbing, the majority of the American people had jobs, owned more than one car, and it seemed, then, like everyone was jolly and merry.

However, as the stock market was all bullish for nearly 7 years, the Fed relaxed its regulatory body, allowed the market to control itself, at the same time Clinton encouraged and passed a bill that enabled more people to buy homes. “We should also give poor families more help to move into homes of their own. And we should use tax cuts to spur the construction of more low-income housing” (President Bill Clinton’s 1998 State Of The Union Address Part 2).

Generally, when one has a good paying job for over a longer period of time, one can easily foresee the necessity of buying and owning a house, regardless of his or her race or color of skin. In addition, who could have imagined that a few years later, economic downturn will force companies to lay off nearly everyone? Thus, the majority of Americans started buying homes during the mid 1990’s. However, some continue to argue that it was all because of some poor black families, who literary knew that they could not afford to buy houses, but they did so any way. While others scream at mortgage loan officers who they feel like they acted more like predators, preying on consumers by approving them for mortgage loans even when they literary knew that the borrowers may not be able to afford making payment on their mortgage loans.

Most mortgage loan officers may not have explained to the borrowing consumers the difference between fixed interest rates and adjustable rates. And, even if they might have explained to them about the difference, the interest rates during those years around 1998 were low plus most people had jobs, good paying jobs. Thus, the majority of mortgage loan applicants opted to adjustable interest rate mortgages, hoping that if the interest rates go down, then that may lower their monthly payment.

However, some borrowers might even have lied on their applications in order to get mortgage loans, even when they actually knew that they couldn’t afford them. “As his team analyzed the individual loan files, Zimmer said he was struck by evidence of fraud, such as doctored bank statements. “Fraudulent loans were a big part of the subprime mess,” he said. Mortgage brokers forged borrowers’ signatures and pumped up their income, he said. People seeking to buy and sell a home for a quick profit lied that they were going to live in the home — qualifying for a lower interest rate. But People’s Choice calculated that it would have been too complicated and expensive to go after fraud, Zimmer said.” (Washingtonpost.com).

A mortgage company that has just approved the loan to a consumer, which it knowingly know or did not know, because may be his or her financial statement was doctored, and then sells it to another bank. In the end, most banks ended up with billions of dollars worth of mortgage loan accounts that were just nothing but aired balloons, ready to pop at anytime due to their owner’s inability to make mortgage payment. “More and more borrowers were falling behind on their monthly payments almost as soon as they moved into their new homes, indicating that some of them never really had the money to begin with. “Nobody had models for that,” said David E. Zimmer, then one of the executives at People’s Choice, a subprime lender based in Irvine. ‘Nobody had predicted people going into default in their first three mortgage payments.'” (Washingtonpost.com).

As more and more banks bought these mortgage accounts, that they eventually traded them based on their assets, as asset backed-securities, whose cash flows are backed by the principal and interest payments of a set of mortgage loans. As more homeowners fail on making their mortgage loans payment, those banks whose balance sheets were loaded with worthless receivable mortgage accounts, eventually; it all came crashing nearly at the very same time. Notably in September 2008, the balloons have popped, and everyone was in a panic mode. We can go back a little back, to July 2007, when the U.S. tasted the initial financial crisis as rippled by the credit crisis. After all, many Americans have bought many cars, houses, and have had many credit cards and store merchant accounts. Affected by the 2001 economic recession, many people lost their jobs and were unable to make payment on their credit accounts. “The roots of the credit crisis stretch back to another notable boom-and-bust: the tech bubble of the late 1990’s. When the stock market began a steep decline in 2000 and the nation slipped into recession the next year, the Federal Reserve sharply lowered interest rates to limit the economic damage” (NYTimes.com).

Banks continued to decline in lending, not only to consumers, but among themselves. They couldn’t trust each others’ balance sheets, they feared that they may also fail. Even though the Fed tried to lower the Fund rates, banks were not lending, businesses were not able to meet their operating costs such as payroll and short run expenses since most banks stopped lending to businesses. The entire market has come to a standstill. On September 14, 2008, Lehman Brothers surprisingly announced a bankruptcy filing after the Federal Reserve Bank declined to extend them a lifeline financial support. “In one of the most dramatic days in Wall Street’s history, Merrill Lynch agreed to sell itself on Sunday to Bank of America for roughly $50 billion to avert a deepening financial crisis, while another prominent securities firm, Lehman Brothers, filed for bankruptcy protection and hurtled toward liquidation after it failed to find a buyer” (NYTimes.com).

Nearly at the same time, another financial powerhouse, American International Group, Inc. (AIG) collapsed. “American International Group was the largest insurance company in the United States before it suddenly collapsed in September 2008 under the weight of bad bets it made insuring mortgage-backed securities. The company was bailed out by the Federal Reserve, but even after that $85 billion infusion, losses continued to mount and in November the Treasury announced a new rescue package that brought the total cost to $150 billion” (NYTimes.com). Today, more than 25 banks in the U.S. have failed and some have collapsed. From there on, the U.S. financial crisis has spilled into the global marketplace, causing many governments in Europe and Asia to tighten their belts, while creating financial lifelines for their banking systems.

In the UK, the government rushed to put a package together worth $692 billion, aimed at rescuing its banking industry. “It will initially make extra capital available to eight of the UK’s largest banks and building societies in return for preference shares in them” (BBC News).

Other global governments issued similar rescue packages, with China cutting its interest rates for the first time since 2002, Australia injected more than $1.5 billion in its banking systems, India infused over $1.32 billion in its banking industry, and many other European countries followed similar platform, all aimed at curbing the financial crisis. “Less than 24 hours after leaders of the European Union’s four largest countries gathered in Paris Saturday to pledge a collective defense in the global financial crisis, the strategy crumbled in the face of a still worsening credit crisis in Europe’s banks. German Chancellor Angela Merkel, faced with the breakdown of a government-brokered deal with German banks to save one of Germany’s biggest mortgage lenders, announced that all German bank deposits would be guaranteed by the government, causing consternation and anger among her European neighbors, many of whom felt compelled to follow suit” (Time Magazine).

In the U.S. in the same month, September 2008, President Bush asked for and received $700 billion for a rescue plan to bail out banks and the auto industry. “The Bush administration on Saturday formally proposed a vast bailout of financial institutions in the United States, requesting unfettered authority for the Treasury Department to buy up to $700 billion in distressed mortgage-related assets from the private firms” (NYTimes.com). Most of this money went to AIG, which continued to ask for more money from the federal government. And as of February 2009, the U.S. government has injected more than $150 billion in AIG aid, with the government owning now nearly 80% of the company. “The government restructured its bailout of American International Group Inc, raising the package to a record $150 billion with easier terms, after a smaller rescue plan failed to stabilize the ailing insurance giant” (Reuters).

Financial institutions are not the only ones that need to be rescued; American auto industry is also on life support, with GM, Ford, and Chrysler, receiving a sizeable of more than $30 billion in government bailout. Still, Chrysler is hanging on a tiny thread. “This year, everything was different. Instead of a waterfall that spelled out Jeep, there was a curtain of electric cords signifying the company’s electric car offerings” (NPR), while GM is now looming for possibility of filing for a bankruptcy protection.

This global crisis has rippled to nearly every country in the world. According to International Monetary Fund, many developing countries especially in Africa, are scrambling for cash, as their export revenues have fallen to the lowest in years, due to a decline in the U.S. market and global market demand for especially raw materials. China’s GDP has shrunk due to a similar decline in export markets. “Collapsing exports to the west caused China’s GDP growth to slide to just 6.8% in the final quarter of 2008, underlining the rising economic giant’s vulnerability to the global downturn” (Guardian.co.uk). While Japan is just a few steps behind the U.S.’s economic recession. “To be sure, Japan has been affected by the global economic downturn, with its economy threatened by recession. And its stock market gyrated and declined this week. But in an era dominated by globalization, where seemingly unrelated events can affect the lives of people half a world away, Tokyo has so far floated above the anguish gripping New York and London” (NYTimes.com).

The newly sworn in U.S. President Obama has been vocal for his plan to turn the market around, a $787 billion stimulus package aimed at rescuing, not only the banking and auto industries but most of other industries in the U.S., such as healthcare, education, and energy. On February 17, 2009, Mr. Obama signed The American Recovery and Reinvestment Act of 2009 (“Stimulus Bill”) whose aim is to once-and-for-all put an end to this financial crisis. Global financial powerhouses such as Japan are also considering passing similar stimulus bills to help curb the global financial crisis.

For Obama, the idea is to inject billions of dollars in certain industries such as constructions, healthcare, education, and energy. And in doing so; it may help provide employment for millions of Americans. “The plan would spend at least 75 percent of the total cost — or more than $600 billion — within the first 18 months, providing a massive infusion of cash to the struggling economy, either through bricks-and-shovels projects favored by Democrats or tax cuts that Republicans have pushed” (MSNBC.com).

However, not everyone is jolly and merry about Mr. Obama’s stimulus bill. No single member of the Republican’s House of Representatives voted for it, and only three Republican senators voted for it. “Without a single Republican vote, President Obama won House approval on Wednesday for an $819 billion economic recovery plan as Congressional Democrats sought to temper their own differences over the enormous package of tax cuts and spending” (NYTimes.com).

Obama’s plan is to get the economy moving again, by enabling a creation of more jobs. The Stimulus Bill hopes to help create more than 3.3 million jobs for the American people within the next two years. “The White House has officially pared its own projection to 3.5 million jobs in recognition of the bill’s smaller size. But Christina Romer, who leads Obama’s Council of Economic Advisers, said the administration remains convinced that the package of tax cuts and spending initiatives has sufficient power to boost the sagging economy toward recovery by year’s end” (Washingtonpost.com).

The idea is to put Americans back to work. A ripple effect from a single contract payment may work like this; hypothetically, well this may be an economic 101 to some. Well, suppose that the Ohio Department of Transportation (ODOT) receives $1.5 billion from the Stimulus Bill to build and construct more roads and bridges. Because ODOT doesn’t do the construction work for roads and bridges itself, it would contract a local construction company, who in turn would hire more people. In addition, the construction company may need additional construction materials from a firm, let’s say in New York. Furthermore, the newly hired employees now have more income to spend at local grocery stores, buy more cars, and renovate their homes. The firm in New York may hire more people, and or order raw material from a company let’s say in Alabama, so the process repeats itself.

In all of this, the money from the Ohio Department of Transportation is shared among several communities and industries. In turn, the economy may move ahead again. Now, imagine all of this stimulus bill money injected in various industries, of course, the wheel will start to turn forward again, and the market will start to run again. “Everybody says this is going to create a lot of jobs. We feel strongly that it’s going to be in the three to four million range,” Romer said in an interview. “In my mind, the worst that can happen is the jobs aren’t created as fast as we wanted” (Washingtonpost.com). However, as more money is poured in the economy, the price of manufactured goods may rise, but how fast could it rise, that depends on how much money is flooded in the market. That’s why we have to be careful not to trigger inflationary price.

However, opponents of the stimulus bill believe that this is all a waste of money, by Democrats who simply want a larger government with wasteful spending. “Most analysts of the stimulus package have come with broad disclaimers. “The macroeconomic impacts of any economic stimulus program are very uncertain,” Douglas Elmendorf, director of the nonpartisan Congressional Budget Office, wrote in a recent memo to lawmakers. “Some economists remain skeptical that there would be any significant effects, while others expect very large ones.” (Washingtonpost.com).

Now, here is a political suicide for the Republican Party, if this stimulus package works, then no current Republican member in the house of representative or senate will have a platform to run on in the upcoming national electiosn, except the three republican senators who voted for the stimulus bill. However, if the stimulus bill fails to live up to its much lauded vision, then that would be the end of the Democratic Party, except the 21 Democrats who voted against it. “”What kills a skunk is the publicity it gives itself,” Schock said, quoting a previous occupant of his House seat — Abraham Lincoln” (Washingtonpost.com).

Everyone wants to blame the other. Bernanke wants to blame Greenspan; Bush is blaming Clinton, while Obama is blaming everyone else.

The entire global financial market is a wait game; no one knows exactly what would happen. It’s all about theorizing. No one is wrong and everyone seems to be right. A future research is a must to completely determine what might happen. But everyone around the world hopes for the market to rebound, to bring more jobs not only to the American people, but to all other workers around the world who have been left in dire destitute, because of this financial crisis.

The world’s market economy is now interconnected, and when one sneezes, it’s not only one who catches the cold, but everybody else does. Thus, instead of working individually, everyone should work collectively for the good of humanity.


Isidore, Chris (March 6, 2009). “Unemployment hits 25-year high.” CNNMoney.com. Retrieved on March 8, 2009, from http://money.cnn.com/2009/03/06/news/economy/jobs_february/index.htm?postversion=2009030608

Paradis, Tim (January 20, 2009). “Stock Market falls as Obama Takes Office.” ABCNews.com Retrieved on March 6, 2009, from http://abcnews.go.com/Business/MarketTalk/Story?id=6690598&page=1

JLP (February 11, 2008). “Looking at the Clinton and Bush Presidencies and the Stock Market”. AllFinancialMatters.com. Retrieved on March 9, 2009, from http://allfinancialmatters.com/2008/02/11/looking-at-the-clinton-and-bush-presidencies-and-the-stock-market/

Elliott, Larry (February 27, 2008). “Wall Street suffers biggest fall since 9/11”. The Guardian. Retrieved on March 8, 2009, from http://www.guardian.co.uk/business/2007/feb/28/china.frontpagenews

C-SPAN-3. “President Bill Clinton’s State of the Union Address Part 2.” Retrieved on March 8, 2009, from http://www.c-span.org/executive/transcript.asp?cat=current_event&code=bush_admin&year=1993

Goldfarb, Zachary A. and Klein, Alec (June 16, 2008). “The Bubble”. The Washington Post. Retrieved on March 8, 2009, from http://www.washingtonpost.com/wp-dyn/content/story/2008/06/16/ST2008061600096.html

The New York Times. “Credit Crisis — The Essentials”. Retrieved on March 4, 2009, from http://topics.nytimes.com/topics/reference/timestopics/subjects/c/credit_crisis/

The New York Times. “American International Group Inc.” Retrieved on March 8, 2009, from http://topics.nytimes.com/topics/news/business/companies/american_international_group/index.html

BBC News (October 8, 2008). “Rescue plan for UK banks unveiled”. Retrieved on March 6, 2009, from http://news.bbc.co.uk/2/hi/business/7658277.stm

Crumley, Bruce (October 6, 2008). “Europe Scrambles as the Credit Crisis Goes Global.”Time Magazine, Paris. Retrieved on March 8, 2009, from http://www.time.com/time/world/article/0,8599,1847433,00.html

Felsenthal, Mark and Zuill, Lilla (November 10, 2008). “AIG gets $150 billion government bailout; posts huge loss”. Reuters Small Business. Retrieved on March 9, 2009, from http://www.reuters.com/article/ousiv/idUSTRE4A92FM20081110


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The Housing Market Crunch, Who’s Next?

CNNMoney.com today reports the current pending lawsuit of $20 billion against Citi for helping Enron to manufacture its financial statements.

After the fall of Enron, there were other several companies such as MCI, Global Crossing, Andersen, etc., that followed suit; but nowadays with the current housing market crunch, who’s possibly going to eat the dust?

Countrywide, Fannie Mae, etc., these companies and others will likely survive the current housing market crisis, and will likely heal within the next 2-3 years.

However, not only the current housing market crunch is affecting mortgage brokers and underwriters, it has also affected home improvement retail stores and home furnishing businesses.

And, those who can afford it are poised to cash in big time in the near future as they currently are the likely majority buyers of most homes at the most cheapest price and they will just sit on them until the market recovers.

Tip-Mart Makes the List of Finalists for the TechColumbus 2007 TopCAT Innovation Awards

We’re moreover excitedly excitingly excited to announce that Tip-Mart, Inc., the developer of RentersQ (www.rentersq.com) and soon to be launched Gatepedia (www.gatepedia.com), has made the list of finalists for the TechColumbus 2007 TopCAT Innovation Awards in the category of Outstanding Startup Business.

TechColumbus (www.techcolumbus.org) accelerates the growth of the innovation economy by providing vital resources and assistance to people and enterprises that depend on technology to achieve their business goals.

The annual TopCat Innovation Awards (www.topcatawards.org) is the most prestigious technology event in Ohio, which recognizes outstanding achievements in technology leadership. From hundreds of entries, TopCat Awards will be given to 13 outstanding leaders and teams who exemplify the best in technology leadership and innovation.

Just for having been nominated for this category for the TechColumbus 2007 TopCat Innovation Awards and now that we’ve made the list of the finalist is even better. And we hope that we win, but even if we don’t win, we’re just humbly honored for being part of these great events.

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