@ Gates: The 30-min. version of I.O.U.S.A. is available here.
http://www.youtube.com/watch?v=O_TjBNjc9Bo
The DVD isn’t released yet (I think it’s mid-April.)

As for the Fall of the New Roman Empire, geez, that metaphor has been around for decades. I’m pretty sure every country in the world, besides America, knew they were going to collapse eventually. Every empire does and has. Just ask Darth.

So what if Greenspan had jumped the Fed rates to something high (say 10%). Would this have anymore solved the issue? It likely would have dropped the hammer on many of the last .com holdouts.

But it would also mean that the US government would have hordes of 10% notes floating around that they probably “weren’t any good for”. Especially given the spending record of the US gov over that last 6 years (.com = Apr 2002) I’m not particularly convinced that the US economy would be any further ahead.

The real GDP from then to now: $10.0k to $11.7k. that’s like 18% growth in 6 years, which certainly doesn’t cover 10% promissory notes, especially in a country already running a deficit.

OK, so maybe Greenspan sets the rates at 4% instead of 10% and people don’t flock to “mortgage-backed securities”. No mortgage-backed securities = no mortgage crisis (potentially), but it still doesn’t solve the bigger problems, it just rolls back the crisis to 2002 instead of now.

(But that’s all just theorizing)

When something is fake and all of a sudden every realizes it and drops, it let if fall!

Point taken.
Is there may be something here that Greenspan knows and we don’t? (like maybe the inevitable fall of a country that can’t export and runs a deficit?) Just sayin’ :)

Gates and Greenspan — I know it takes a ship fool to sink it, not just the captain. But really, Greenspan was a major player in getting this disaster underway. Instead of just letting the market sort things out after the .com bubble he tried to keep things at the same level (i.e. lowering interest rates to “stimulate the economy”).

When something is fake and all of a sudden every realizes it and drops, it let if fall! Now, instead of a post-.com American recession, which they would have recovered from and gone on their merry way, we now have a global economic meltdown.

I do agree, there are many who caused…and…no one fixing…

That’s a lot of blame on one person’s shoulders, especially for a person with very few tools. In fact, the only tool Greenspan had for his entire tenure was interest rate control. The only response the Fed has is to raise or lower interest rates.

The Fed doesn’t control government spending (in fact it’s the other way around, the government tells them how much money to print). The current situation in the US is caused by things like the trade deficit, a lack of personal savings, government promises (Medicare, Social Security, bailouts), consistent government over-spending, etc. All of this is coupled with the pressure of globalization, large amounts of leveraged lending, lots of people lying and an under-educated US citizen (on a global scale). I have difficult time believing that lack of educational funding is an interest rate problem.

As an illustrative example, ask yourself “What happens if interest rates changed drastically tomorrow?”

If Bernanke dropped rates to 1% would that solve the problem of negative personal savings? Would it fix the trade deficit? Would it “save” the housing industry? Would it prevent the government from getting into greater debt?

Now what if Bernanke raised rates to 20% tomorrow, would that solve any of these problems? Probably not.

Let’s face it, interest rates can solve some problems, but they’re not a universal solution. The problems currently facing the US economy are well beyond the Fed’s control at this point.

The bail-out mindset put forth by the government says to the private citizen, “It’s okay to be financial negligent, someone will save you.” — which is not the truth. How many BANKS have failed in the last year in America? And they are supposed to be GOOD with money! Yikes.

Do not rely on the government or corporate “America” to teach financial responsibility or even basic money sense. That task lays in the hands of the people, such as FrugalTrader et al.

And, for the record, I hold Greenspan (ir)responsible as the single cause for this whole mess!

The overly leveraged corporate finance structure we see today is entirely because artificially cheap Fed money has distorted risk premiums on lending.

There is a natural check and balance to prevent this stuff from happening – free market pricing equilibrium. Unfortunately, this has been bypassed since Bill Clinton and Alan Greenspan through a chronic over-supply of USD.

Executives would not have raised the cash if this hadn’t happened: the cost to raise cash would have been indicative of the real risk, and it would have been prohibitively expensive as a result.

Citizens look around and watch as their government throws huge sums of money at bankrupt corporations (Fanny & Freddie) that acted in highly irresponsible and unintelligence ways which got them in trouble in the first place!

The average in-debt Joe thinks, “Hey, I can keep on doing what I do, SOMEONE will bail me out!”. Or perhaps someone will not.

It’s a scary time to live in the IOUSA with the government taking steps to devalue it’s countries worth on so many levels, all paid for by generations of tax-payers yet to be born.

Again, it’s more than education, there has to be a shift in mindset, principles, and values in order for such financial (personal, corporate, and governmental) disasters to stop.

#1. We live in a capitalist society where the value and success of society itself is measured in…you guessed it, dollars! Good or bad, that’s just the way it works: end goal = money. So people intrinsically want more and more in order to feel more valuable to and in society, even if it’s at a subconscious level.

#2. Yes, all the marketing people know this. They are out to make money for their companies so they construct ways to control individuals; emotionally, physically, intellectually, etc. Regardless if we want admit it or not, the greater swath of society does not truly think with an independent mind, or for themselves. Add in the 24/7 barrage of capitalist marketing and money is soon, and easily, swayed from Main Street to Wall Street. People set their priorities in such a way as to make them feel and appear as good as possible (acquiring new, bigger, better, products) as opposed to giving them security (reduction of debt, creation of wealth, etc.). It’s no fun to pay off a credit card when you could take take a trip to the mall.

#3. Like any simple animal, humans learn from example. Especially in America, the financial example set forth by the government (and a few corporations too) is horrendous. How can the people in charge of all the citizens run up a massive debt with apparently no consequences? The citizen thinks to himself, “Hey, I can do that too!”. He is wrong and ends up being either a slave to banks and credit companies, or he winds up permanently poor…all the while his leaders keep on spending his great-great-great grandchildren’s paycheque.

Bottom line is, yes, definitely financial education should be mandatory in every grade school, but if people don’t wake up and think for themselves then all the knowledge in the world won’t help them. But of course wide-spread independent thought is too dangerous for the greater good of a capitalist society, so the machine just keeps on chugging…

Keep up the good work, FT!

Give me a break. They likely have been lying through their teeth in credit applications (this is generally called fraud), and if they are unable to service all of their debt, they should have their kids taken away and be put into indentured servitude until they pay their debts.

They’ve been committing fraud to the point that they’re going to have to resort to stealing (defaulting on their loans, bankruptcy) through obscene gluttonous living, and this is somehow the fault of everyone but themselves.

135K in credit card debt, unbelievable? No, we have a client with over 416K in credit card debt. It makes you wonder how that is possible.

Good article. Thanks.

I agree with Jimmee. I think the show was staged too.

Two of the cars are likely required just for getting to & from work. It’s typical of suburbanites to work in very different locations, sometimes opposite directions. With 6 kids, it’s likely that at least one of them is a driver who’s already become part of the “taxi service”. When your nearest grocery store is 3 miles away, it’s not like you’re going to walk.

It’s easy to say “take the bus”, but when average commutes are 25 minutes each way (by car, on the freeway!) the bus not only becomes time prohibitive, it may not even be an option.

If it sounds really dumb, it is. But out here (in the US), it’s the common delusion that everyone lives in suburbia and drives 25 minutes to work and Mom & Dad each have their own car, etc. Not having a car in Winnipeg or Edmonton, was met with surprise, but mostly because I was making good money. I knew lots of people without cars.

Not having a car in Kansas City is simply met with incredulity.

Again, it’s all kind of demented. People in China are making dollars / day and saving 25%+ of their salary. People in the US are making hundreds / day and saving -5% of their salary. The US is built on cheap gas and that reality is collapsing and true cost of have 30 mile commutes (not just 30 minute commutes) is really coming to light.