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Wall Street’s financial elites are robust promoters of trickle-down economics. Provide special breaks for us speculators, they say, so we can amass royal fortunes – then, someday, someway, our massive gains will magically trickle down to the lower classes… (maybe).
That theory hasn’t worked out at all well for us hoi polloi, but the hoity toity are now learning that trickle-up economics actually does work, for they are seeing the financial stress of the “lower classes” rising up to swamp them. At issue is something called “subprime mortgages” – a banking phrase that’s mumbo-jumbo for “stealing from poor people.”
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During the past several years, a complex network of local flimflammers, Wall Street hustlers, and global greedheads deliberately pushed millions of lower-income Americans into unaffordable, high-interest, high-fee home loans. Wall Street used these risky subprime mortgages to underwrite fast-buck securities sold to wealthy investors. It’s a slick scheme – as long as hard-hit poor people keep making their monthly loan payments. Guess what? They’re not. More than a million have defaulted in the past year, losing their homes and the money they put into them.
With the bottom falling out of the subprime market, all of those slicks up above suddenly have no support, and the whole house of cards is crashing. More than 80 mortgage companies have gone under in the past six months, such giants as Bear Stearns are taking billion-dollar hits, and “a wall of worry” has surrounded Wall Street.
Now the crisis is trickling into foreign money markets, from London to Shanghai. “Once it affects the U.S., it has ramifications right through the rest of the system,” says one market analyst. “We really are just at the beginning of this.”
Once again we’re learning that greed is not only bad morals – it’s bad economics as well.
“Wall of worry about transparency takes toll on investment banks’ stock,” USA Today, August 2, 2007
“U.S. trouble extends to global markets,” USA Today, August 2, 2007
“Housing woes put a squeeze on corporate profits,” Austin American Statesman, August 2, 2007
“More Lenders Feel Pain From Defaults,” The New York Times, July, 31, 2007