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LETTER TO THE EDITOR: The financial crisis and John McCain
To the editor:
The current financial crisis in the U.S. (the worst since the Great Depression) was caused by a dereliction of duty by the current administration and the Republican Party that is behind them and behind John McCain.
So far the crisis has resulted in:
Collapse of market for many mutual funds resulting in many Americans unable to access their savings;
Damage to the U.S. economy that is fueling growing unemployment;
Collapse of Bear Stearns investment bank, resulting in a government guarantee of funds for JP Morgan to purchase the bank;
Bankruptcy of many banks including IndyMac in California;
Federal government takeovers of Freddie Mac and Fannie Mae, putting the government and the taxpayer in the business of providing mortgage lending.
It is likely that more bank failures are on the way. Lehman Brothers will either be sold or go bankrupt. Washington Mutual, the largest mortgage bank in the U.S. is on the verge of bankruptcy.
So, what caused this crisis? The shrewd bankers on Wall Street invented a new financial instrument called a CDO, (collateralized debt obligation), which allowed banks to buy your mortgage and those of others around the country and use them as collateral for a CDO that they sold to other banks, with promised interest from your mortgage payments and those of others.
These CDOs were often bought with borrowed money creating several tiers of debt starting with your mortgage, each tier increasing the risk tenfold or more. While the bankers made money on these transactions, the risk to the U.S. economy increased to catastrophic levels. The Treasury Department and the Republicans who staffed it stood by and cheered Wall Street on, instead of investigating and stopping the creation of CDOs that threatened the very security of the U.S. When housing prices started to fall, it was the high inherent risk of CDOs that drove the crisis.
This inexcusable negligence was compounded when in 2007, the Treasury Department stood by again when Wall Street created a new type of mutual fund called APSs (auction preferred securities). These were sold to people as money market funds that were tradable weekly, when in fact they were not really money market funds but a fraud. The market for these funds froze in January 2008 ,and since then many people have been unable to access their savings for much-needed healthcare or college expenses.
To date the U.S. government has done nothing to help these people. Only Andrew Cuomo, attorney general of the state of New York, has negotiated settlements with some of the firms as a plea bargain to avoid prosecution. More than $350 billion of savings remain frozen, more than
$1,150 per person in the U.S.
If the Republicans are allowed to continue, they may well bankrupt the country.