- Web of Debt Chapters 31 & 32
- Wizards of Money 16: There’s a Generic in my Shark Fin Soup
- Democracy Now interview of Yves Smith, author of Naked Capitalism, on the 50-State, $25B Mortgage Settlement
- Extra listening: Making Contact interview of Richard Wolff on How to Occupy the Economy
- Extra reading: Financial Tyranny: Defeating the Greatest Coverup of All Time on Divine Cosmos
Questions on Web of Debt
Chapter 31: The Perfect Financial Storm
- How can inflation and deflation happen at the same time? What is stagflation? How much did the GAO predict in 2005 that the housing market might decline by? What would be the effect of this?
- What led to the rise in housing prices in 2001? By 2005 what percentage of new mortgages were high-risk adjustable and interest-only? By how much had the average house appreciated from 1997 to 2005?
- Who profited by low interest rates and tax cuts? What investments suffered from which demographic? How did it effect both the investment and the investors? How did it affect foreign investors and what role do they play in the US government?
- Explain the relationship between interest rates, the national debt, foreclosures, and credit-money. What was the equity-to-debt ratio in 1990 to 2005, and why? What would 20 million defaults do to the money supply, according to Alan Greenspan?
- How does Yves Smith analysis of the mortgage settlement bear on the question of whether it was relief for homeowners or a bailout for the banks? Why do the banks have to pay so little yet get credited for so much more? What does Attorney General Kamala Harris say about Fannie and Freddie Mac?
- How did Fannie and Freddie expand the housing bubble? How large are they? Are they private, public or both? How did loans work under Fannie Mae in the ’70’s? What changed in the ’80’s? Explain what an MBS is. Who buys them and who’s responsible if they default?
- What is a collateralized mortgage obligation and how do they differ from an MBS? Are they assets? Why were they particularly risky? How much did Fannie Mae owe in bonds on what amount of mortgages? What was the risk of a substantial number of defaults? How much had they guaranteed in Mortgage-Backed Securities and how much in derivative obligations?
- What happened in 2003 to Freddie Mac and in 2004 to Fannie? How much did they pay? Was this enough? Describe the scenario when a mortgage that’s been bundled and sold goes into default. Why is the public damned if they do (foreclose) and damned if they don’t?
Chapter 32: In the Eye of the Cyclone: How the Derivatives Crisis Has Gridlocked the Banking System
- What does the financial derivatives market make a mockery of? What does Martin Weiss compare it to? John Hoefle? Colt Bagley? How much money is in the derivatives market currently? (Answer here.)
- How is the derivatives market connected to tuition hikes? How has liquidity been affected by the derivatives crisis? Why has the Fed bailed out losing counterparties like the hedge fund LTCM?
- Did the 1998 LTCM bailout solve the problem or “kick the can down the road?” Describe what happened in 2005. Why did the Fed stop reporting M3 in March 2006? Speculative question: Why did it take them a year and nine months – December 2007 – to start issuing $16 trillion in what they call “broad-based emergency programs?”
- What did it mean that Nixon closed the gold window internationally and FDR closed it domestically? What happened after each of their actions? What does “Weimar Republic II” refer to?
- What international action also happened in March 2006 that may have prompted this reaction? What’s the significance of this to the dollar? Research question: What country did the same thing at an earlier date and what was the US reaction to it?
- Why might the Fed print $2 trillion in cash rather than create it electronically? For a graphic representation of a trillion in cash go to Oto Godfrey’s website.
- What economic indicators turned around in the summer of 2006? Who became the treasury secretary in May? What change was anticipated in November?
- What does Catherine Austin Fitts say is used in the “Orwellian scenario” to keep the value of financial assets up? Does this also keep the dollar able to buy third-world consumer goods? What does she say it leads to?
- Thought question: If the “IMF riot” is anticipated as a way of ushering in domestic security measures, does it follow the Naomi Klein Shock Doctrine of disaster opportunism? What does “posse comitatus” mean and how was it violated after Hurricane Katrina?
- What was Henry Kissinger taped saying at a 1992 Bilderberger meeting? Why does Al Martin speculate that FEMA may be militarized in the future (and Homeland Security already designated as disaster response)?
- How does Henry C.K. Liu use physics to describe the topsy-turvy world where debt creates money? If money was community-issued tradable receipts for goods and services, would it avoid the matter-antimatter collision?
- What are alternatives for pumping liquidity back into the system? Which of these has the US government not done?