Glenn Beck's Take On The Economic Meltdown: How We Got Here and What's Coming.

He's not an economist, but he is a thinker... this is a pretty good summary with linked back up documentation. It is also fairly non-partisan. Just the facts ma'am!

Glenn Beck: What happened?
October 8, 2008 - 1:47 ET
Glenn's letter to his family explaining how we got into this economic crisis...

Yes, another email letter from your crazy brother. You raised a lot of questions in your last email and I am going to try to answer all of them. I think all of your questions fall into three areas: (1) how did we get here; (2) what's coming; and (3) what can I do to prepare myself and my family. Consider this email as my answer to your first question, "how did we get here?". I'll be sending you 2 more emails answering your other two questions. Since there's a lot of misinformation out there I will document each of the facts in my emails so you know where I pulled the information from and where you can go to read and learn more. What you shouldn't do is panic. We'll get through this--don't pull all of your money out of the bank but have enough cash on-hand to meet any possible emergencies.
First, you've got to get the stock market's ups-and-downs out of your mind. The recent drops and upticks are short-term. Our economic problems are much bigger and deeper. Too many people believe that if the stock market goes up our problems are behind us and that's simply not true.
Last week the market had big drops and big upswings. In the end, the market ended down more than 800 points and lots of 'experts' were shouting it was a time to buy. I don't see it that way.
Did you know that just two days after the stock market crashed in October 1929 the market actually gained ground the next two days? The New York Times reported that "the market quickly regained its poise and stability...." Today, Wall Street 'pros' are telling us it's a good time to invest because Warren Buffet is investing. A lot of people were probably using the same argument when the Rockefeller family was buying stocks right after the 1929 crash, what they didn't know was that it would take Wall Street ten more years to see those prices again.
Our current economic crisis was caused by politicians, both Democrats and Republicans, who perverted the American Dream by treating home ownership as an undeniable right rather than what it really is, a privilege. President Bush aggressively promoted the benefits of home ownership through various policy positions, including a reckless zero down-payment initiative for some homebuyers and praised Fannie Mae and Freddie Mac even after concerns about their accounting standards began to surface. Home ownership has always been part of the American Dream. It allows individuals and families to build wealth by having them pay themselves instead of a landlord or rental company and vests people in their communities by grounding them in local schools, stores and government. The concept that owning a home was a privilege and not a right began to change in 1992 following a flawed Boston Federal Reserve Board study which allegedly found subtle discrimination in loan and mortgage lending by banks and mortgage lenders.
Politicians didn't care that the study was full of errors. The study found discrimination took place when five minority applicants were rejected for special low-income loans even though the applicants were rejected because they made too much money to qualify for a low-income loan, not because of their race. The report also classified as 'rejected' the applications of eight minority borrowers even though these borrowers voluntarily withdrew their mortgage applications. The study's sloppiness also went the other way.
The study reported that a white applicant was approved for a $3,115,000 loan in order to purchase a home valued at $445,000. It was later demonstrated that the actual loan was approved for $311,500, far less than $3 million reported and more importantly, less than the home's purchase price. When these and other errors were corrected no evidence of discrimination existed.
But politicians didn't care. They used this report as the basis to fix a problem which didn't exist. Leading the charge for change was President Clinton who immediately set-out to rework the Community Reinvestment Act to give federal officials the power to pressure banks to make loans they otherwise considered too risky or uneconomical.
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Traditional lending requirements were labeled 'outdated' and discriminatory. What 'traditional lending requirements' were viewed as 'outdated' and 'discriminatory'? (1) banks were told that a "lack of credit history should not be seen as a negative factor" and that "past credit problems" should be viewed and considered in light of any "extenuating circumstances" so loans could be extended when they otherwise would have been denied; (2) banks were encouraged to let borrowers without enough money for a down-payment make-up any deficiency with "gifts, grants, or loans from relatives, nonprofit organizations, or municipal agencies" even though banks considered this risky as the home buyer would have little or no equity in the house; (3) banks were also instructed that borrowers who received child support, welfare payments or unemployment benefits could count that as 'income' for borrowing purposes.
Call me crazy but if you need to count child support money that's intended for your child, or are in such bad economic shape that you're relying on welfare payments to make ends meet or are unemployed, maybe, just maybe, you shouldn't be buying a house. Too bad our politicians and the 'best and brightest' on Wall Street couldn't figure that out! Community groups like ACORN, threatened to cry racism if banks didn't increase their loans to subprime borrowers. Banks typically avoided subprime loans as they carried a greater risk of default, but with law on its side, ACORN and other groups intimidated lending institutions into making such loans.
Banks soon learned, however, that making subprime loans actually could increase their profits without increasing their risk. Once the banks extended a loan to a subprime borrower that loan could then be sold by the bank to Fannie Mae or Freddie Mac, two government sponsored entities charged with making home ownership affordable to all Americans.
Banks, Wall Street, and mortgage lenders were soon eager to extend mortgages to subprime borrowers because they could make lots of money without carrying any risk. Fannie and Freddie carried all the risk once the original lending agency sold the loan to them. And once Fannie and Freddie bought the loan this freed up the banks to make even more subprime loans.
So everyone was a winner. The subprime borrower got the money to buy a house. The banks generated mortgages and made a nice profit and Fannie and Freddie executives made tens-of-millions of dollars in salaries and bonuses by hitting their annual goals.
The problem was that in order to keep all of this going lending standards were continually lowered to help the next level of subprime borrowers qualify for mortgages and no one had an incentive to make sure that the new subprime borrowers would actually be capable of making regular mortgage payments. The banks which extended the loans really didn't care because they were just going to sell the loan off to Fannie or Freddie. Fannie and Freddie weren't too concerned because it wasn't their money-they knew that they were insured by the 'full faith and credit' of the federal government (that's government lingo for "you and me").
So when federal regulators began to warn the executives at Fannie and Freddie about the increasing risks of non-payment by subprime borrowers the companies did nothing and when the regulators took their concerns to congress their warnings were met with scorn and contempt. The politicians who received the most political contributions from Fannie and Freddie, by pure coincidence, just happened to be their biggest defenders: Chris Dodd (D-$133,900), John Kerry (D-$111,000) and Barack Obama (D-$105,189).
Representative Barney Frank, who has been a fierce defender of Fannie and Freddie, actually said, while arguing against more regulation, "I want to roll the dice a little bit more in this situation towards subsidized housing.... " It's nice to know that he doesn't mind gambling with our money. Senator Chris Dodd, in praising Fannie and Freddie said, "I, just briefly will say, Mr. Chairman, obviously, like most of us here, this is one of the great success stories of all time. "While Senator Charles Schumer said, "And my worry is that we're using the recent safety and soundness concerns, particularly with Freddie, and with a poor regulator, as a straw man to curtail Fannie and Freddie's mission."
Barack Obama has received more money from Fannie and Freddie than any other senator, with the exception of Senator Dodd, in the last four years. Before entering the senate, Obama filed a class-action lawsuit against Citibank, alleging that the bank was red-lining, or not doing enough lending in certain areas. That lawsuit was eventually settled. Arguably, Barack Obama helped cause the problem he now wants to fix.
The Federal Reserve Board was doing its part by throwing huge piles of cash at would-be home buyers by keeping interest rates too low. With low interest rates speculators began to look at houses as business opportunities, while others began to look at their homes as a giant piggy bank rather than a place where you actually lived and raised a family. Alan Greenspan encouraged this type of behavior and proudly said, "American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgages..." President Bush, responding to September 11th unwisely encouraged us to "go shopping" rather than hunker down financially and contribute to the War on Terror in other ways (can you say home equity loans?).
The SEC also shares in the blame. It failed to do its job (failed to adequately regulate mortgage brokers, the credit rating companies, and naked short-sellers), acted only after the markets froze-up (finally addressed mark-to-market rules) and refused to examine how the credit-default-swap market could grow from $919 billion in 2001 to over $54 trillion by 2008 (which allowed companies to make wild financial bets with the false confidence that 'insurance' would be there if the deal went south).
So what happened? Home-ownership rates which had been relatively constant for 25 years began a 10 year upward climb beginning in 1995, around the same time that government began its push and pressure for banks to make more subprime loans. The politicians, banks, lenders and Wall Streeters were thrilled because they were all making gobs of money.
Today we are all paying the price for the decisions made long ago. I have spoken to people involved at the highest levels and they now are all saying the same thing, "it is worse than anyone knows" and "worse than I even thought." Political and business leaders who I respect have told me that the economy is on the edge of an abyss.
The bailout is an outrage and is designed only to buy time for the politicians. It will delay the real hard times from hitting until after the November elections. Not one politician has said that this bailout legislation will put us on a better financial footing or that our economic problems will be put behind us. In fact, we'll be worse off because our politicians, even in this crisis, can't stop themselves from spending. This bill includes an extension of the rum tax benefits for Puerto Rico and the US Virgin Islands ($192 million), tax benefits for companies which manufacture wooden arrows for kids ($6 million), car racing tracks ($128 million), a provision which forces insurance companies to treat mental health problems like physical problems ($3.8 billion) and many, many more.
International markets don't offer any better alternative. Germany, England, the Netherlands, and Russia have all come out with their own government backed bailout plans. There are now calls for more international regulation (presumably led by the United Nations) and China has taken this opportunity to call for "a diversified currency and financial system and fair and just financial order that is not dependent on the United States." Meanwhile, there is increasing international indications that the dollar will lose its place as the reserve currency of the world.
The politicians from both political parties continue to lie to us. They promise us better healthcare and more government programs. The only thing either party will be able to deliver is higher, much higher, taxes as the debt swells and government revenues fall. The same politicians remain silent, while capitalism, which brought us the highest standard of living in the world, is increasingly attacked and discredited by its enemies. But it's not capitalism which has been discredited by our current crisis, it's greed that has been shown to be at the root of our present economic uncertainty, and greed is unfortunately a universal human trait and has demonstrated its reach in socialism, fascism, communism and capitalism. The greed of Wall Street is nothing compared to the greed of our politicians who have continued to expand their power and influence at the expense of their country.
Our children and grandchildren will ultimately pay the price for their failure to act prudently and in the best interest of our country because they will be the ones saddled with mountains of debt and diminished standard of living.
I hope that this summary gives you a better idea of how the people who caused this fire are the same ones who are now telling us that they know best how to put it out and a reason not to believe their current promises.
We have faced tough times before. We fought the Nazis in World War II, defeated communism in the Cold War and Americans fought each other to keep our country together in our own Civil War. These tough times require us to educate ourselves and help others understand what has brought us to this point and the grave consequences of what will happen if we let this continue-that is our fight.
In my next email letter I will answer the other question you asked, "what's coming?"
Sis, I know you will always consider me your crazy brother but please pass this message on to all of your friends. There are too many rumors circulating and I want to put the facts out there. This isn't about slamming the Democrats or Republicans--this is about getting the truth out to as many people as possible. The more people we can wake-up the more people we will have restoring the hope, promise and opportunity of our great country.

Glenn Beck: What's Coming
October 9, 2008 - 3:58 ET
Guys,
If you thought my first email letter answering the question “how did we get here” was on the scary side you’re really going to find this email letter that answers the “what’s coming” question very sobering. I promise you though, my next letter addressing “what you can do to prepare you and your family” will be positive.
Related Article Glenn Beck: What happened?
Here’s my answer to your question of “what’s coming.”
The economy is going to get worse. I know that’s hard to believe considering that in the past 15 months Americans have lost over 2 trillion dollars of retirement savings, that Iceland which has a GDP of $14 billion and liabilities in excess of $100 billion held by its banks and is on the brink of bankruptcy and the International Monetary Fund has just warned of a global “major downturn” in 2009.
A Second Great Depression?
Just how bad will things get? Recently, I had an off-air conversation with one of the titans in the business community. He has been in the thick of what’s happening on Wall Street, the credit crisis and the economy. I’ve been speaking with him about these issues for about two years and he has always been an optimist. Every argument I would make about how bad things were going to be he would counter with an equally optimistic economic prognosis. For the first time he’s now told me that our economy is in for a very “rough landing, at best” and that if our politicians don’t get the bailout exactly right we could see our GDP (a measurement of the total value of all the goods and services produced every year) falling between 15%-20% in one year.
So what does that really mean? A 15%-20% reduction of GDP would be like wiping out between $2.1 to $2.8 trillion dollars from our $14 trillion GDP. To show you how big that number really is, consider that in one year we spend about $583 billion to run the entire Defense Department, $43 billion to fund the entire Department of Homeland Security and have spent less than a trillion dollars fighting in Iraq since that war began.
By way of comparison, in the Great Depression, our national GDP fell 29% over a four year period (1929-1933) and in that period we saw 7000 banks fail, a 25% unemployment rate and a Dow Jones industrial Average suffer an 80% decline. And that was when the pain of a shrinking GDP was spread over 4 years!
About three weeks ago I had the opportunity to walk with very successful billionaire who has spent over seven decades doing business in America. I asked him what it would mean if our economy suffered a 15% reduction in GDP in one year. He stopped mid-stride, thought for a few minutes before saying, “I can’t begin to imagine how bad things would be if that ever happened.”
Credit Card Debt and Greedy Politicians will Prolong our Problems
All the financial ‘experts’ are telling us that whatever is coming our way will be short-lived. Yes, times will be tough, but we’ll quickly emerge and be stronger. I agree that we’ll survive and that we’ll be stronger, but I don’t think it will be a quick recovery.
Unlike the Great Depression we don’t have a large industrial base that will assist in our recovery and too many people don’t have the savings to help them weather the storm. Instead, the average American household carries at least $8,000 in credit card debt. Lastly, our political leadership will be a burden, rather than a help, in getting us back on track. Barney Frank, Chris Dodd, Nancy Pelosi, President Bush and Secretary Paulson wake-up each morning and gobble-up larger pieces of the economy and American businesses. They tell us that ‘we need to do this or things will get bad’ but none of them have gone on record and told us that if we follow them we’ll be better off.
The Great Depression showed us that government intervention, at best, will only delay the eventual belt-tightening and pain that must take place to bring the marketplace back into balance. The overbuilding and liquidity excess of the past 10 years has to be brought back into balance. Despite 10 years of government programs under Hoover and Roosevelt accompanied by massive government spending it was not until World War II began that unemployment fell below 10%. It was not a coincidence that the stock market finally regained the strength it had in 1929 only when the prospect of global war appeared to be inevitable in 1939.
How Hedge Funds Could Make things Much Worse
If the government regulated banks can be in as much financial trouble as they are now, just imagine the problems lurking in the unregulated hedge fund world. Hedge funds are a 2 trillion dollar industry. That 2 trillion has been leveraged by several multiples giving it much more influence than the 2 trillion would suggest.
The super-rich invest their money in hedge funds because of their traditionally higher returns. Along with the super-rich, teacher unions, government employee unions and large mutual funds invest in hedge funds, in short, if you have money invested in the market there’s a good chance some of it is held and managed by a hedge fund.
In September, hedge funds around the world recorded their biggest drop since August 1998. Investors that wanted to pull their money out were prevented from doing so by mandatory ‘lock-up’ periods imposed by hedge funds that prevent investors from pulling their money out without giving advanced notice, typically 60 or 90 days. I can only imagine that lots of people have given notice and when they can, will be pulling out their money. When that happens the smaller hedge funds will be wiped out and the larger ones will take big financial hits. The next big test for hedge funds will be October 23rd when an estimated $400 billion in Lehman related credit-default swaps will have to be auctioned and settled, those hedge funds that can’t come up with the money will be wiped out.
Our Politicians keep Playing Politics while our Country is on Fire
Look for our politicians to take advantage of this crisis to promote their own agenda. They keep treating this like a game and are taking actions only after weighing whether their action will help or hurt ‘the party’ at election time. Our country is at the edge and our politicians are worried about elections. This can’t be about Democrats or Republicans. This has to be about saving America.
It’s shameful that Obama and McCain haven’t told the American people that there is no money for all of their proposed spending plans. No, our candidates continue to promise us new plans when we don’t have enough money to pay for the ones we already have.
During the last debate Obama told us that America is the richest country in the world and that we need universal health care. Maybe one of his advisors should tell him that this richest country in the world is borrowing 2 billion dollars a day from foreign countries because that’s how much more we spend than take in, and that was before we started bailing out Wall Street, Main Street and homeowners.
Obama is unbelievably still planning on redistributing wealth in the middle of an economic crisis by taxing those who earn in excess of $250,000 and then redistributing that money to those who make less than $200,000, including sending people who don’t pay any taxes at all $1,000 check. His plan has been called a New Tax Welfare Plan. Call it what you want, we don’t have the money to pay for it.
McCain’s plans for revamping our health care system and his support for a carbon-tax plan are also unaffordable. He should come clean with the American people and tell us that. His failure to so demonstrates that he really doesn’t understand what is taking place in our homes and businesses.
Congress wants in on the action too. Nancy Pelosi, Harry Reid, Barney Frank and Chris Dodd will flood our country with new programs. The progressive ultra-left has taken over the Democrat Party. They are so liberal and so out-of-touch with mainstream America that Senator Lieberman, a longtime Democrat, left the party and is now an Independent who is publicly thinking about no longer caucusing with the Democrats. Longtime Democrat and chief fund-raiser for Hillary Clinton, Lynn Forester de Rothschild, has said that her party is too far left and is now actively campaigning for John McCain.
Politicians Waiting to Exploit the ‘Right’ Tragedy
Too many politicians are anxiously waiting for the right moment to expand government. They’re waiting for the “Megan Law” moment. That moment when the stars align so politicians can pass legislation over any objections, whether it’s good or bad.
Megan’s Law is named after a 7 year old girl who was kidnapped, raped and murdered by a repeat violent sexual offender. The public had finally become so outraged that the politicians had to act. Megan’s Law requires the posting of information about sexual offenders to the public. Passing Megan’s Law was the right thing to do but it shouldn’t have taken this tragedy to do it—but it took Megan’s tragedy in order to overcome the opposition from the ACLU and other groups who kept screaming about the rights of the accused.
Pelosi, Reid and the progressive left as well as many Republicans still don’t believe that our very survival is at stake with what is going on today. They still look at this meltdown as just another opportunity to score political points. If the Democrats in the House of Representatives really believed that our country’s economic security was at stake then they would have passed the bailout bill. They didn’t need any Republican support. They had the votes. But Pelosi and the Democratic leadership didn’t want to risk a massive voter backlash so they didn’t push the bill through. That is playing politics. If the Senate believed that our country’s economic security was at stake they would have passed a bailout bill without the $100 billion in ‘goodies’ attached. That is playing politics. Do the right thing for the country, stop playing politics.
As the crisis worsens and takes a higher emotional toll on the public we will see tragic stories. We will see more stories about people giving up hope, losing focus on what’s truly important and ending their lives and the lives of people they love. And when the ‘right’ story comes along, it will be exploited to take away more of our freedoms, to shred the Constitution just a little more and grab more money for the government from the people who earn it.
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We can also expect our international/foreign enemies and competitors to take advantage of our current economic crisis.
Inexpensive oil is the lifeblood of our economy. It helps us plant our crops, is needed to make the clothes we wear, and keeps us moving freely by car, plane, and ship. America benefits when oil prices are low. Russia, Iran and Venezuela (along with several other countries) benefit when oil prices are high. Iran recently misreported that it forced a U.S. military airplane to land (it turned out to be a Hungarian plane carrying relief supplies). This was an attempt by Iran to spike oil prices temporarily, and it worked, until the truth came out.
Russia’s invasion of Georgia wasn’t about South Ossetia. It was about sending a message to the West that our efforts to build and maintain an oil pipeline through Georgia relied on the good graces of Russia and they didn’t want the West to forget that. Iran has continually petitioned OPEC to cut back on production in order to keep oil prices high and Venezuela is using its petro-dollars to spread his form of socialism.
Russia is also using its massive petro-dollar supply to buy influence on the international front. Remember all those banking problems Iceland is experiencing? Russia is now working with Iceland on a bailout package in an attempt to leverage this crisis into strengthening its international influence. Russia is also reaching out and strengthening its ties to Syria and Iran. Syria announced that it is dredging its fishing port of Tartous so it can accommodate Russian warships.
Iran will continue to develop its nuclear program. The countries of the world will increasingly be focused on reviving and in some cases, saving, their economies. Iran will take advantage or our collective distraction. I am increasingly in the camp that thinks Israel will have to take unilateral action against Iran before it develops a nuclear weapon and that would explain why we’ve decided to sell Israel 1,000 bunker busting bombs.
In the past four weeks Venezuela hosted two strategic long-range Russian bombers, and held joint navy exercises with a fleet of Russian ships, including a nuclear-powered missile cruiser. President Chavez has also been busy working with Columbia’s FARC terrorists and last week renewed his goal of building a ‘civilian’ nuclear program and has called for revolution throughout South America.
These countries will increasingly use more aggressive methods to drive up the cost of oil and expand their sphere of international and regional influence by generously spreading around their petro-dollars.
Meanwhile, North Korea doesn’t have any oil so it’s using the next best thing, the threat of nuclear weapons to get what it wants. It wasn’t too long ago that President Bush was touting a new ironclad agreement between America and North Korea. Well, after promising to verifiably dismantle its nuclear power plants in exchange for financial aid and fuel, the North Koreans have vowed to resume their suspended nuclear program. You can expect the guy with the crazy haircut and glasses to demand more money, fuel and aid for him to play nice again.
Closer to home you will see that Americans are increasingly feeling isolated and detached from their government. Part of the reason is that we don’t think politicians care what we think anymore. The $700 billion bailout bill passed the Senate at a time when only 30% of the country supported it. We felt that a giant stick was poked into our collective eye!
59% of Americans would vote the entire Congress out of office but due to the self-serving way the politicians have drawn their election districts it’s just this side of impossible to do it. Only 49% of the people believe that this congress is currently doing a better job than a group of individuals selected randomly from a phone book would do and 33% of us actually believe the group selected at random would do a better job!
Politicians play Politics with our Economy by Playing Politics with Energy Policy
But our politicians just don’t get it. Look at energy. We need inexpensive oil to make our country work and maintain our standard of living. To be perfectly clear: without inexpensive energy our economy doesn’t work and our standard of living dramatically falls.
You would think that our politicians, who understand this, would put our national interest above their petty desire for re-election, but they don’t. Look at what happened with offshore drilling. The federal moratorium on offshore drilling legally expired at the end of September. In theory, oil companies could have started drilling the first week of October but instead no oil company is even drafting plans to drill, why? Because they know that the politicians aren’t serious about offshore drilling. They know that too many congressmen are servants to the extremist environmental movement and as soon as the election is over will vote to either prevent offshore drilling or impose onerous conditions on any drilling. So the politicians will go home to their districts and tell the voters they are for drilling and then turn around and collect big fat donations from the environmental lobbyists who oppose drilling.
The same thing can be said about coal and nuclear power. Obama tells a national audience during his nomination acceptance speech that he and Joe Biden are for clean coal. Less than 90 days later Joe Biden is captured on tape telling a woman that coal isn’t going to play a role in an Obama Administration energy plan.
Obama and McCain have talked-up nuclear power on the campaign trail but have done little to actually make it happen in their many years of service in the U.S. Senate. Meanwhile China plans on building about one nuclear power plant a year up through 2020.
There’s a real disconnect between our elected leaders and the people, but the majority of Americans are willing to work through this disenfranchisement. We want to reform government. We want to improve our country and communities but there is a fringe that is actively trying to exploit this disenfranchisement. I have someone on my staff that monitors the extreme blogs—stuff that most people, thankfully, haven’t even heard of. These blogs contain a call to revolution. One writer said that we need to “join with your brothers in arms and through force, return what is rightfully the peoples to the people” and another entry encouraged the reader to “rise up and join us before our nation is taken from us by the crooks and bastards that waste our air, one nation, taken back by the force of the peoples militia…”.
Guys, I told you that this was going to be a sobering letter. We are on the edge of a giant abyss that could swallow not only our economy but the freedoms and security we have enjoyed for over 200 years. Believe it or not, I don’t think that this letter captures the urgency that I feel, but I didn’t want to include wild speculation because I can’t see into the future but I wanted to give you a sense of the Perfect Storm that I have talked about and how the pressures that our economy and country face at this time are once again placing our “lives, fortunes and sacred honor” at stake.
Please ponder and pray about what I’ve said and then pass these email letters along to as many people as possible so they can prepare themselves and their families. Then, the more people there will be to help us overcome fear and desperation.
There is good news. We can prepare ourselves and our family for what’s coming and work to prevent the worst from happening. We have to focus on value and values. Those things that our parent and their parents lived but somehow too many of us have forgotten. But that’s for my next letter to you.