As Dean Baker continuously hammer's home by repeating to us, that if your plan is to buy a house that has a 20:1 ratio of a house sale price to available rent cost, then forget buying it. If one is going to end up paying 15 or 20 times more in homeownership expenses than what it would cost to rent a comparable house, then one might eventually put themselves into harm's way.
Bernanke knew this. They had to have known! Why else would they not? This is not complicated. Bernanke is a scholar on the U.S. depression, and Bush has an MBA from Harvard. They cannot be that stupid! Or are they? Their plan was to keep interest rates low during a major housing bubble to sucker workers into buying subprime mortgages just so those mortgages could be bundled up into MBSs (mortgage backed securities) and CDOs (collateralized debt obligations).
By creating these off-balance sheet, shadow banking sites that originated the debt based securitized obligation bonds, which were undercapitalized, yet "insured" (credit default swaps) in order to bring on those suckers, oh, I mean worldwide buyers, who would very happily buy up these snake oil-styled artificially safe investments. Many were worldwide investment funds, such as sovereign wealth funds (government funds, such as the country of Dubai).
The purpose behind these home loans and the garbage securities game was to create very large pools of liquidity, even though there was very little capital to shore up the house of cards. The private equity funds, such as Apollo Management, TPG Capital and the Blackstone Group ("Crisis? What Crisis", Julian Delasantellis, asiantimesonline) with a minimum deposit of $1M to join in the game, often were buying up publicly-held troubled companies, while, at the same time, taking them off the exchange boards, gutting them, improving their balance sheets by firing employees and instituting restructuring measures with the end-goal of selling them again for a substantial profit. The dividends were terrific.
The sole objective was to exploit middle and lower income wage earners, pursuing an American dream of homeownership so the richest Americans could get much richer from what would eventually happen. And that was foreclosure. Now there are some 2 million homes in foreclosure.
This was the plan. This demographic was the only one left out there with some available cash, which could be leveraged to make all the others at the top of the pyramid-scheme much richer.
All the other wage earners stuck in the middle were maxed out on credit. The only group left were those at the bottom.
Bernanke knew that if the "Bubble" broke, the government, in other words, the taxpayers, would bail the rich out making sure they wouldn't lose a penny of their private equity fund investments. Protect the rich under any and all circumstances. That is the neo-con Bush-McCain mantra. Keep the tax cuts permanent, even though he, McCain, voted against it. He just didn't comprehend within his little mind how devastating the entire domino affect would be.
Bush and Bernanke are keeping the federal funds rate (interest rate banks receive and lend to each other) as low as possible, so the drowning financial system can exchange their Monopoly money for government Treasuries in order to attract private equity fund groups to buy back their entangled MBS and CDO losses, which were how they got leveraged in the first place so they could borrow billions to buy those failing companies. They got stuck with subprime and defaulted loan obligations, too. So now, they get their bailout. Can't let the richest Americans suffer any squeezing. Therefore, for all essential purposes, it was planned that their risky investments would be "guaranteed" by the American taxpayers. Privatize the winnings; socialize the losses. Nationalize the banks, if need be.
Private equity used their relatively small amounts of capital, probably hundreds of millions, to borrow billions to buy a company. More than likely, they bought CDOs and CDSs to hedge their loans, too. It sounded so good! And so did the investment banks in order to turn that loan paper over to get cash so as to allow the private equity fund to buy that specific company. The bank more than likely needed to raise the cash that they loaned out to the private equity fund group. Turning the loan obligation paper over quickly, which they bundled up with a variety of loans, such as subprime, prime, corporate, auto, commercial, was the way to get the needed cash.
They were all told that that these collateralized loan obligations and CDSs were nearly risk free. They bought into it. Why not? The stock market has been flat for years.
But not before too long, the rotten stink rose up to the top of the masqueraded perfume bottle and the holders of the soured derivative bond obligations saw their ultimate fate---huge losses. Through that sweet smell of Chanel was a putrid stink.
But the Bernanke-Bush plan was always a bailout, but they were not sure when it would happen. Bear Stearns rang the starting bell and the new bailout game was rolled out of the gate. Call in J.P. Morgan-Chase.
This became the Economic End Times Rapture. If you were not part of the exclusive revelatory membership of the holy converted mega-ultra-super rich, you did not rise to Bernanke Heaven with the Bush Godhead passing out newly printed Monopoly dollars.
The reason the equity groups and banks fall into this rescue relationship is that they help each other. The equity fund group increases their balance sheet with more infused capital on hand in order to attract more investors. The bank gets a reliable customer to clean up their books through the help of the Fed and Bernanke transfusing the bank with taxpayer dollars.
Now, they can go outside the country and get into the hot food commodities market, as well as other types of natural resources, such as industrial and precious metals (gold, silver, palladium, copper, uranium) and oil. It is clear that Bernanke and Bush have created this upward movement in food costs by keeping the dollar valued at rock bottom pricing.
Americans pay inflated prices for food and everything else, as well as spend all their available wages on paying bills, while the rich private equity fund groups are bailed out, which creates further enticement of the rich to jump right back into such privileged fund groups buying those ever lucrative investments.
Bush knew this would happen. Bernanke knew this would happen, too. Americans are the sacrificial lambs while the rich feast from their gluttonous wealth platters.
Bush, Bernanke, and the rich, including McCain, are contributing to current worldwide economic destabilization and the "unraveling". They knew it! They brushed it off.
Rice, wheat, soybeans, and oil have all become the new gold standard. If you hold these commodities and resources, then you have power and wealth. China is hoarding their rice and not exporting it. They are importing it from everywhere else with the gobs of U.S. devalued dollars. They are buying rice up at auction in order to spend down their extraordinary quantities of U.S. dollars. They feel there is not much else to do with them as they further descend into the abyss of a further devalued American dollar. The Chinese use dollars received from what we import from them, creating a massive trade deficit, which ultimately, hurts our economy because they have less to spend on items other than food, fuel, roof and energy. 75% of our GDP is made up of consumer spending. Bernanke and Bush and McSame, oh, I mean McCain, slow the economy and negatively affect working America's budget just so the rich can earn more millions by reaching into our wallets; therefore, we spend less to support the economy. Inflation grows higher.
McCain wants this plan to continue, since he has been a part of it for the last 8 years, and even longer going back to Reagan. He believes the richest people in American deserve a $325,000 tax rebate through instituting a permanent tax cut agenda. McCain told a group of Youngstown, Ohio displaced workers, just the other day, that their jobs were gone forever, that NAFTA was worth defending, and these trade agreements are an overall plus for the U.S. economy, even as he conceded that wage discrepancies and product dumping have hurt U.S. workers. He continues to live in the dark ages by saying such things as, "workers need to get retrained", and "we are in an information technology revolution". Is he brain-dead? Trained for what? The economy is tanking and workers have been getting retrained for 30 years! We have been in the information technology revolution for over a generation. And so has been the rest of the world. They are competing with us and continue to undercut our jobs! He really is McSame or McCan't.
This is John McCain's neo-con revolution: since 2000, oil has cost us over 300% more; the euro to dollar exchange rate has increased by 85%; and gold Troy ounces have gone up in value 245%. Over the past year, rice is up nearly 150%, and only 7% of the world's rice is exported.
This is McCain's political party. This is his legacy and vision for America. John McCain is our regressive political candidate running for president. We have no other choice but to support the Democratic nominee, whoever that person may be.