Climbing Out of a Recession Part 1

Real Estate Agent with Keller Williams Realty

Well it's no secret! We're in the second worse recession in the history of America.  How did we get here? How long will we be in this recession? What will it take for us to get out?  In this 3 part series I will attempt to give my opinion of what ail's me today.  Sit back, relax and enjoy the bumpy ride we are in for!

According to the GDP (Gross Domestic Product) recorded in the second quarter of 2002, the Bush administration entered into office with the American economy already in a recession according to the declined 1st, 2nd and 3rd quarters of 2001 which would have begun with the Clinton Administration.  So lets step back a little further in history and find out what really started this.  We can all agree that Fannie Mae and Freddie Mac are the nations biggest underwriters of home mortgages securing over 50% of all home loans made in America.  So lets start there. 

Founded in the 1930s Federal National Mortgage Association aka Fannie Mae was created to encourage homeownership by purchasing mortgages from banks which in turn freed cash for the banks to make new loans.  This was a great idea and helped to pull America out of the Great Depression, however, this was not a single factor, job creation by WWII was probably the biggest influence of bringing us out of the Depression.  However, as we see now, Fannie and Freddie could lead to fraud if these companies which are set up by FEDERAL LAW and are allowed to act as private companies with profits and stockholders are allowed to dig their hands into the pockets of banks with LIMITED regulation.  

On November, 12 1999 Bill Clinton signed a repeal of the Glass-Steagall Act called the Gramm-Leach-Bliley Act.  This opened up competition among banks, securities companies and insurance companies.  The Glass-Steagall Act prohibited banks from offering investment, commercial banking and insurance services.  Well you might think this was a good thing by repealing this act.  Yes it creates competition but as we saw with Wachovia buying First Union, Citibank merging with Travelers Group to become Citigroup the worlds largest financial services network working with Smith-Barney and Morgan Stanley, you see that the great Competition that Bill Clinton signed has now back fired and the Bush Administration as well as the American people are now feeling the impact of such actions.  When competition of such a large industry such as banking takes place and opportunity to grow with more options such as being able to make commercial loans, investments and offer insurance it allows those larger banks to BUY and MERGE and eliminate smaller banks as well as no longer creating competition but verging on monopolization.  What does this do to the American Economy? It creates job insecurity with layoffs and ultimitely the down fall of our economy. 

Stay tuned for the Climbing out of a recession part 2

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