A Financial Crisis Of A Century

Alan Greenspan has just called this ongoing United States economic disaster a "once in a century financial crisis."

The problem for Greenspan is that he sounds like an impartial, detached observer providing commentary on the sinking of the Titanic. The reality is that he was the captain of what is now the sinking American economic ship.

The truth is that today's financial crisis can trace its origin back to 2001, amid the end of the Internet boom and the shock of the September 11 terrorist attacks.

It was at that point that the Fed under its Chairman, Alan Greenspan turned on the monetary pump to try to combat an economic slowdown. The Fed poured money into the US economy and slashed the Federal Funds rate from 3.5% in August 2001 to 1% in 2003.

Then, Greenspan's Federal Reserve made two fatal mistakes. First,it kept the Federal Funds rate too low for much too long. In doing so it created the environment of speculation for the creation of a housing bubble which is now exploding.

Next, Greenspan failed to closely regulate the bankers. Lending standards became shamefully lax and the Fed should have done something about it, not to mention the deceptive and in some cases fraudulent sub prime mortgage practices.

The problem is that as Fed Chairman, Greenspan actually encouraged the development of the housing bubble which has led to this "once in a century financial crisis". Remember when Greenspan suggested that many homeowners could have saved tens of thousands of dollars in the last decade if they just had Adjustable Rate Mortgages?

How about his request that encouraged greedy bankers to create those unique alternative products which led directly to the sub prime mortgage problems of today. In 2004 Greenspan said: "American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage."

So, former Fed Chairman Alan Greenspan created the environment and without any real oversight, the immense greed of the investment banks did the rest to create this financial mess. Now, one by one these banks march to the United States taxpayer for a bailout.

It is hard for many American citizens to understand the sheer arrogance and greed of all this. Consider that Lehman Brother's CEO Richard Fuld made over twenty two million dollars in compensation in 2007 alone. Twenty two Million dollars paid to a man who was about to run his company into bankruptcy. He is hardly alone. Tens of millions of dollars in annual compensation is the going rate for all these failed financial bank CEO's.

Indeed, it seems like every weekend brings headline news of another major failure in financial corporate America. Bear Sterns was bought by J.P. Morgan with government guarantees. FannieMae and Freddie Mac are now owned by the Federal government and the American taxpayer. Lehman Brothers has just declared bankruptcy. Merrill Lynch was bought by Bank Of America in a rush to avoid another impending disaster.

The problem is that this economic crisis is far from over and there are many more financial corporate failures to come during the remaining months of 2008. The sad truth is that there have already been 100,000 layoffs in financial services this year. It now looks like there are at least 50,000 more to go.