Anger won't build wealth - but don't let that stop you!
Want to build wealth? Getting angry over what's happening out there today won't do it. But I think most people know that and it doesn't matter. They're getting angry anyway. What are they angry about.
It's not any one thing. Talk to different people, you get different answers. Some people focus more on financial institutions, some focus on political issues. Whatever the reasons, there's a lot of anger, and it keeps building. So here's some of what I've noticed.
I think people - especially those who've lost their jobs - don't understand why, while they're suffering from the consequences of a financial crisis, the people in the government and at the Fed keep their jobs - the same people who set the policy that fed the bubbles that caused the crisis.
I think they don't understand why bankers who seemingly abused the system to fill their own pockets with profits - gargantuan profits in the millions, tens of millions, hundreds of millions, even billions - continue to receive fat bonuses even after those bankers were bailed out by the government. And I think people are fully aware of whose money the government used to bail out these banks: those same angry - in many cases unemployed - people, of course.
Look. The cheap money made available as a result of Fed policy was the major condition that allowed the lunatic lending by banks to people who were sketchy credit risks and institutions like investment banks who, knowing the system inside and out, took advantage of an opportunity to make a fortune, without regard to the consequences of their actions.
The Fed kept money cheap by keeping interest rates low. The banks lent tons of low-interest money and made tons of money in fees selling those loans. People who were sketchy credit risks bought houses - sometimes huge luxurious houses - they couldn't afford. Investment bankers created, bought and sold investment vehicles built on the cheap money available and made money coming and going.
When Lloyd Blankfein and the other bank CEO's recently testified before Congress that they really didn't realize the bad things that might happen as a consequences of all this, you can almost believe them. They were making so much money, who had time to think of anything else? Of course, it's no excuse. It's no different than the person who gets drunk, drives and kills someone. Except the drunk usually pays a price. We're waiting for Blankfein and company to pay their price.
Let's go over this again. The Fed, with the government's encouragement, kept rates low literally for years. This resulted in banks being able to lend money at low, low rates. In addition to lending at low rates, the banks also lent money under the assumption that real estate would always go up in value to people who borrowed money thinking that real estate would always go up.
The low rates are the fault of the Fed. The lunatic lending is the fault of the banks. Without the low rates, there would have been no lunatic lending. But banks took advantage of the cheap money once they saw how much they could make lending it willy-nilly. As for believing that real estate always goes up, everyone involved is on the hook here.
And let's get back to Blankfein and company for a moment. These guys, if they understand anything, understand money. They know how money works. Are we supposed to believe they didn't understand how using all that "cheap" money to make sketchy mortgages would lead to problems in the mortgage market - in fact a crisis. Are we supposed to believe that they didn't understand that the "toxic" products they created would someday collapse under their own weight and lead to a financial crisis? And are we supposed to believe that a company that sells products to customers, then "shorts" those same products (Goldman and others do this) doesn't create a huge conflict of interest? We're supposed to believe that they just didn't understand rather than that their focus was on their own pockets - no matter the consequences.
C'mon. Who's kidding whom here?
Meanwhile a lot of us have lost our jobs because of all these shenanigans. And the rest of us are sitting in the midst of a tattered, dysfunctional system trying our best to build wealth - or at least preserve our wealth. Can you really blame people for getting angry? And will it surprise anyone if that anger continues to build up in the months - and maybe years - to come?
It's not any one thing. Talk to different people, you get different answers. Some people focus more on financial institutions, some focus on political issues. Whatever the reasons, there's a lot of anger, and it keeps building. So here's some of what I've noticed.
I think people - especially those who've lost their jobs - don't understand why, while they're suffering from the consequences of a financial crisis, the people in the government and at the Fed keep their jobs - the same people who set the policy that fed the bubbles that caused the crisis.
I think they don't understand why bankers who seemingly abused the system to fill their own pockets with profits - gargantuan profits in the millions, tens of millions, hundreds of millions, even billions - continue to receive fat bonuses even after those bankers were bailed out by the government. And I think people are fully aware of whose money the government used to bail out these banks: those same angry - in many cases unemployed - people, of course.
Look. The cheap money made available as a result of Fed policy was the major condition that allowed the lunatic lending by banks to people who were sketchy credit risks and institutions like investment banks who, knowing the system inside and out, took advantage of an opportunity to make a fortune, without regard to the consequences of their actions.
The Fed kept money cheap by keeping interest rates low. The banks lent tons of low-interest money and made tons of money in fees selling those loans. People who were sketchy credit risks bought houses - sometimes huge luxurious houses - they couldn't afford. Investment bankers created, bought and sold investment vehicles built on the cheap money available and made money coming and going.
When Lloyd Blankfein and the other bank CEO's recently testified before Congress that they really didn't realize the bad things that might happen as a consequences of all this, you can almost believe them. They were making so much money, who had time to think of anything else? Of course, it's no excuse. It's no different than the person who gets drunk, drives and kills someone. Except the drunk usually pays a price. We're waiting for Blankfein and company to pay their price.
Let's go over this again. The Fed, with the government's encouragement, kept rates low literally for years. This resulted in banks being able to lend money at low, low rates. In addition to lending at low rates, the banks also lent money under the assumption that real estate would always go up in value to people who borrowed money thinking that real estate would always go up.
The low rates are the fault of the Fed. The lunatic lending is the fault of the banks. Without the low rates, there would have been no lunatic lending. But banks took advantage of the cheap money once they saw how much they could make lending it willy-nilly. As for believing that real estate always goes up, everyone involved is on the hook here.
And let's get back to Blankfein and company for a moment. These guys, if they understand anything, understand money. They know how money works. Are we supposed to believe they didn't understand how using all that "cheap" money to make sketchy mortgages would lead to problems in the mortgage market - in fact a crisis. Are we supposed to believe that they didn't understand that the "toxic" products they created would someday collapse under their own weight and lead to a financial crisis? And are we supposed to believe that a company that sells products to customers, then "shorts" those same products (Goldman and others do this) doesn't create a huge conflict of interest? We're supposed to believe that they just didn't understand rather than that their focus was on their own pockets - no matter the consequences.
C'mon. Who's kidding whom here?
Meanwhile a lot of us have lost our jobs because of all these shenanigans. And the rest of us are sitting in the midst of a tattered, dysfunctional system trying our best to build wealth - or at least preserve our wealth. Can you really blame people for getting angry? And will it surprise anyone if that anger continues to build up in the months - and maybe years - to come?
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