Newsvine Q&A: John Schoen on the global financial crisis

The reason for this so called economic " crisis " [which is miss-leading description] is that the economy has not been fueled by another industry other than real-estate and consumer goods. Now that the credit cars and real-estate loans are exhausted there is a crisis?

Where is innovative industries?

Yeah, you're right... Microsoft, Adobe, Amazon, Coca Cola, Proctor and Gamble, Boeing, Shell, Mobil, AT&T, Motorola... None of them have any effect on the economy, it was all real estate. None of those other companies I mentioned export to other countries. Sure, that's gotta be it!

This is why I believe the description should change to economic " miss-management " as in president Bush suggesting we should all go shop after 9/11 or the Bush administration sending out small tax rebate checks to tax-payers.

Always easier when you have a boogeyman to blame rather than addressing a complex issue as a complex issue.

Had president Bush called for a green technology revolution, made it easier for business to move away from fossil fuels and implemented public works infrastructure projects to fix our crumbling bridges, highways and power grid. consumer goods spending would not have been fueled by a finite source, the real-estate market!

So Congress (a Democrat conrolled one), who is responsible for passing these kinds of bills, shares no blame? Yep, the shortcuts to thinking are in FULL SWING TODAY!!!

Personally, I like seeing the investment banks punished for their lack of leadership and economic foresight. If government wasn't going to spur on industrial innovation like the green technology revolution, then the senior management of investment banks should have stepped up to the plate of patriotic responsibility and sound investment judgement.

So you want to penalize them for doing their job?!?! Their job is to address the needs of the shareholder. The investment brokerages thought they had their money in secure, long-term debt. Most of the blame for this actually goes back to the Fair Housing Act and several subsidiary programs that required banks to make a portion of their loans to minorities (based on race instead of financial capability to repay the loan). Consequently, to make their numbers, the banks made a larger number of unsecured loans in order to secure these figures. The Harvard Business Review has a case study called "BayBank Boston" that describes how this happens in great detail.

In the end, all the wall street risk management departments, wall street economical strategists and wall street executive consultants completely missed the boat! All the out-sourcing to lower cost regions in the name of share-holder value fostered unprecedented numbers of new middle-class citizens in other countries. The result over drove consumer spending, more consumption than the global economy could handle.

Now we are left at least in the United States without any industries prepositioned for the next technology innovation to fuel the economy. weak automotive, weak green technology, weak telecommunication, weak transportation and all this supported by a weak infrastructure supporting more natural disasters in recent times and an education system that ranks far below our competitors.

... and you can back up these claims of an inferior US with verifiable statistics, right?

If this isn't miss-management of a massive scale, I must be dreaming a nightmare scenario!

Mismanagement? Yes, but not for the reasons you cite.

It is not like we haven't seen this mortgage stuff before either, I guess we did not learn our lesson from the Savings & Loan miss-management in the 1980s, or maybe, some people that enough time had gone by to give another try?

Fool the American public once, shame on them, fool us again, shame on us.

Too bad this isn't a very good parallel to draw. The S&L crisis was caused by singular corrupt individuals (such as Neil Bush) at the highest echelons of the Savings and Loans institutions, while this was precipitated by a large number of people at the lower levels fudging numbers and hedging bets.

Isnt it true that CONGRESS required the lending institutions to make a certain percent of so called Risky loans.....Or be out of compliance?

Congress also gave the MACS approval to buy the loans.....Sooooo....It wasnt all greedy lending....These lenders were required to give loans to people who would otherwise not qualified.....

Believe me....I just went through a new loan process in the Spring...and we were required to show everything but our underwear to obtain it.....

Why dont we tell the truth?

Right on! You've got it right.

You are absolutely correct!!
And there is one bad reason all of your great ideas: energy alternatives, new technologies, new jobs, building and rebuilding our infastructure could not be done, and that is that we are spending 10 billion a month on a war which never should have been waged!!!

Why not bails out the taxpayers with the $7billion, and let them save the economy by paying off their debts? Why do I have to bail out the financial gamblers with my tax dollars? Let them fall of their greedy faces, and give the money back to the people who earned it, us. We'll save our mortgages. We'll be ok. The financial gamblers might not, but they caused this. They deserve to fall, because that's fair and just.

Boo hiss at the speculators who lost their bets. Boo hiss at those that encourage the Federal Reserve. Boo hiss at Americans who can't think critically enough about their situation.

WRITE IN RON PAUL FOR PRESIDENT

Seriously people, this discussion whether the Bush administration is to blame has nothing to do with Bush's direct activities, it has to do with the fact he is the CEO of our economy on top of all his other titles. Anyone who makes policy or direction was put into place by the Bush Administration. This isn't a conspiracy, greed is natural and without control by the people greed will prosper. The tax payer will pick up the tab for this mess once again because we don't hold our leaders accountable for their leadership.

Here we are 2008 picking between two candidates we hand selected to run for the highest office in the land. Obama v McCain. We get to pick between our prejudice and a man who was front and center of the Keating scandle during our last massive financial fraud.

Seriously America, we can't change America until we change our views and make those responsible accountable. If you don't, the only person you need to blame these taxpayer bailouts on is yourself.

I agree where are the industries to replace the dying factories that hard working people used to have jobs at here in the good ole USA? Why are we so fast to invest money in everyone but ourselves? Doesn't the American public deserve better than we have gotten and wasn't our leader going to bring us to the promised land?

We need to start pumping tons of money into our own self interests, like clean energy, high technologies, new food sources, making things for a better life for a hard working nation. We are always so generous except when it comes to helping our own nation out.

I'm of the belief that companies that commit fraud on the American people should be in jail or deported to a remote island to rot and die. We need accountability back in vogue. We need to get the crooks out of office and put people in that are looking out for OUR best interests and not their own.

I note Jay mentioned Microsoft innovative. You'll be glad to know their next OS is in 2009 (Vienna). Innovation or planned obsolesance?? They also sell their products cheaper in foreign countries while we pay the full price. A trend perhaps?? Currently you can buy medicine in Germany , Canada and India four to five times cheaper than here. Same medicine , often the R&D paid by the american taxpayers . What remains constant is the screwing of main street by wall street.

Don't Spin Me Bro is absolutely right,nothing has been ivested in anything tangible with a market value,we're supposed to watch our jobs evaporate and our houses devalue,and food and gas go thru the roof ,but buy a bunch of stuff that comes from other countries. We should have been investing in green businesess that make a difference here,and well as products made by us for us. Now it's wallstreet wants some money or it will hold it's breath til it turns blue? This is the usual fearmongering as proven by the do it quick rhetoric,it's code for do it before they catch on ,I think the market should have to ,pull itself up by it's bootstraps,and take responsibility for it's own decisions ,after all it's a resilient resourceful market. What will change when we give them their money? Ever hear an alchololic say one more drink and then I'll quit?

Any bailout is doomed to failure. Nothing less than the announcement of N.E.S.A.R.A. into law will help this economy. The eyes of the World are on America, to see if we will do the right thing. This is a Golden opportunity for America to shine, to take back leadership and act responsibly. Every American should become familiar with NESARA immediately and insist that it be announced NOW!

All I can say is that your article is excellent. Maybe you should be President, and not some dumb ass socialist like Obama.

You're blaming Bush who should take part of the blame but so should the oversight committees who were warned this was coming years ago. Congress should also take some blame. They have had a majority for the past four years and what have they accomplished that helps the working blue collar and middle class? NOTHING!!! They have spent all their time and energy going after Bush and his administration as pay back for the Kerry-Bush fiasco. It is time to get some people in Congress who are there for the patriotic reasons they should serve and if they are there to make deals and make money - vote them out. Obama who stands for a lot of rhetoric and no substance has a lot of connections to organizations and people who are involved in this bail out and will profit from it passing. Economists say that there are other ways this can be cured, let's look at them instead of making the middle class (who pay their mortgages and work two jobs if necessary) pay for others (many others) mistakes! McCain is a little more patriotic in my opinion but he needs to pin point alot of these inconsistencies and questionable actions by Obama since he was an 'important community organizer'.

You are right, I am neither a Dem nor a Republican, but I have to look back and say this mess started with the Clinton administration. His administration pushed Fannie and Freddie in to giving out more mortgages to less qualified people. Not only that, when the then Republican controlled congress passed a bill allowing mortgage backed securities to be bundled and sold, he approved it, which is where the real problem started.

Look, there is enough blame to go around, but at some point the finger pointing has to stop and we, Americans, need to be more responsible with our investments and our practices.

If you are trying to find blame, and you are targeting the President, take 535 sets of handcuffs with you and stop on Capitol Hill.  These guys and gals can't do anything but find new ways to spend money. Neither candidate (both of whom are legislators) will acknowledge that restraint is needed in govt. spending.  What kind of leadership is that?

My question is "Who at Fannie Mae & Freddie Mac and in Congress pushed for lowering the qualifying standards so that unqualified people could get mortgage loans"?

Second question "Who on Wall Street dreamed up the Mortgage Backed Securities (MBS) idea that allowed these Investment Companies to package bad loans and pass them off as Safe investments"?

These are the real culprits, and it's too bad they won't be exposed until AFTER the election.

Don't spin me bro!...you have useful insights.

Yes, lots of ideas for us blog readers, on the illnesses in the economy/politics at large, and the protected banking elite...

who on the one hand, preach the laissez faire gospels of Adam Smith, Friedrich Hayek, Milton Friedman ...(as do their "scholarly" elite universities) but, on the other hand slap the "free market" invisible hand when they face the music from legal receivership/insolvency/bankruptcy courts/orders which is a very visible hand, for us non-elite.

But they have access to a "third hand"...where tax payers funds, from the government sector (an evil enterprise in their scriptures), provides corporate welfare, which avoids them the human hardship that goes with bankruptcy.

In logical hypocrisy to their very own ethos of NOT relying on government, to correct "free market" disfunctions, they lobby behind closed doors in Congress, for yummy welfare handouts, as role models of pure laissez faire capitalism. They spend that money, and them go on preaching, as if they did not use the grace of taxpayers to peddle their economic fantasies.

That's the banking elite's "New Deal", in contrast to FDR's New Deal in the 30's Depression (a nightmare for those who queued for a bowl of soup to feed their family).

( But of course "spin" is not just a fashion statement, the tool of language is crafted, not to taint the banking elite with "welfare handouts" ...reserved entirely for ALL walks of life... lower in the food chain...

for bankers, they in their self righteous lingo deserve the dignity & necessity of a label called a "bail out", because the $values are gi-normous...their "economy" needs them, and we are in their "economy".

Was it Kevin Phillips (the former aid to Nixon) who was worried that the USA had squandered its manufacturing industry because the banking elite, together with the industry elite, have sent their manufacturing know-how off shore, to access cheaper labour? The manufacturing sector as a % of GDP in the USA has sharply fallen over the last few decades ( its halved, as Kevin laments). Globalisation carries great risks, even to "DEMOCRACY", when USA manufacturing skills are less valued than "office banking skills"! Tell that to a banker or their political cheer leaders.

When people want to make stuff, they can, in their own garage. But hey, the captains of industry want to run away off shore, with modern, hi tech, large scale production investments. Is that what the people want, who signed off on the "bail out"?

Way too many questions here...too much "information"!!! for the curiosity of media outlets and their employee gate keepers who spin the headlines for "our benefit".

Thank you to the search engine Google, ...where we can do our own research.

Did you read on wikipedia who owns newsvine ? Check it out.

most realize this is going to be a major depression so why not be upfront with the American people??????

Um, are you asking the Bush Administration to be honest, and upfront, about something?

HelLOooooooooOOOOOOoooo??!!??!!

Banks bite like some dogs, and banks are after the bones when Joe Public is disadvantaged.

I think this bail out is just another affirmation of how deceptive the money managers are, and how they are un-American.

Just think. Selling off to foreign entities is absurd. It's like owning a KIA car. Killed In Action.

Are these people even thinking about the economy? More is at stake than meets the eye!

Bank Charters should be revoked, and made to pay for distractions to cover up incompetence;
They freeze individual accounts in cases of hardship. This is happening!!!!!! God is watching!

I'm against the $85,000,000,000.00 bailout of AIG. Instead, I'm in favor of giving $85,000,000,000 to America in a We Deserve It Dividend. To make the math simple, let's assume there are 200,000,000 bonafide U.S. Citizens 18+. Our population is about 301,000,000 counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up.. So divide 200 million adults 18+ into $85 billion that equals $425,000.00. My plan is to give $425,000 to every person 18+ as a We Deserve It Dividend. Of course, it would NOT be tax free. So let's assume a tax rate of 30%. Every individual 18+ has to pay $127,500. 00 in taxes. That sends $25,500,000,000 right back to Uncle Sam. But it means that every adult 18+ has $297,500.00 in their pocket. A husband and wife have $595,000.00. What would you do with $297,500.00 to $595,000.00 in your family?

Pay off your mortgage housing crisis solved. Repay college loans what a great boost to new grads. Put away money for college it'll be there. Save in a bank create money to loan to entrepreneurs. Buy a new car create jobs. Invest in the market capital drives growth. Pay for your parent's medical insurance health care improves. Enable Deadbeat Dads to come clean or else. Remember this is for every adult U S Citizen 18+ including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back; and of course, for those serving in our Armed Forces. If we're going to re-distribute wealth let's really do it...instead of trickling out a puny $1000.00 ( 'vote buy' ) economic incentive that is being proposed by one of our candidates for President. If we're going to do an $85 billion bailout, let's bail out every adult U S Citizen 18+! As for AIG liquidate it. Sell off its parts. Let American General go back to being American General. Sell off the real estate. Let the private sector bargain hunters cut it up and clean it up.

ONCE AGAIN YOUR NUMBER ARE INCORREC ITS 425.00 not 425000. Stop posting that junk

The cause of this "crisis" is very simple - all this complex stuff is to not explain how the system works. There are Three Problems that have brought us here:

1. Modern Banking / Monetray system used in all "Capitalist" companies that uses Private for Profit corporations (Banks) to issue fiat currency on behalf of their citizens in the form of debt. The Ultimate business model uses our deposits and our "promises" to repay the debts to "create" money - this represents 90% of the currency in circulation. The problem is that through deregulation, manipulation and fraud the fractional reserves (actual assets on deposit) that support the money "created" are no longer sufficient. The real problem is that ofr this business model to work requires an EVER EXPANDING LOAN PRINCIPAL since interest is created only by ISSUING NEW DEBT. So the guy above is correct, we MUST keep borrowing more and more to keep the whole thing going - as soon as we stop borrowing the system FAILS - Crisis. Lets not forget the why - banks make money as a percentage of the money lent - more money loaned out = more profits.

2. Government is involved in this because when m,oney is created by debt, it also allows them to create more and more money for all of the things they can spend it on. The problem is as we create more and more money(=debt) the actual value of the currency decreases (inflation) since the basis on which the currency has value (the GNP of the country = all the things we produce) is reduced. And heres the complicated part: the actual production or work that we do doesn't decrease in value - the money created by the Banks does. Therefore, you can think of inflation as a measure of the drag that government and banks have on the economy - since it is only through this process that inflation is created. For much of the 20th centruy politicians hadn't learned how to manage the debt/inflation/economy relationship. During the 50's & 60's we had strong growth and low inflation - then with a few price shock we had high inflation and low growth for almost 20 years. In the 90's they thought they had figured it out - use debt instead of income to disguise inflation - inflation is primarily driven by labor costs and staples - borrowing keeps these prices low since people will almost allways use as borrowed money as easily as actual money especially when they feel that they have fixed assets to back it up. Therefore, they beat the inflation / deflation problems of the 70s and the 30s by a slight of hand trick below. Why: Good times with free money and low inflations = happy voters!

3. Collateralization: This is the final part of the puzzle. We need to find a way to increase the money supply without raising prices (ie. wages/staples) and therefore create growth without inflation. The way to do this is to increase the "market value" of assets that almost everyone owns to create "equity" which can be used as collateral. Originally we all had to live within our means - if we didn't have money for a car we had to "save" to buy one. Therefore, to sell cars Henry Ford said: it is the duty of the industrialist to make the best product possible for the lowest cost possible paying the highest wages possible." Today cars sales are based more on availability of a loan based on the "value" of the car. As this financing of cars became a practice the price of cars no longer depended on production costs and savings rates - but how much loan they would give us. The same practice was applied to housing, stocks, tvs, etc. now how does one determine what these things are really worth? The Bush supporters would likely tell you that supply and deman determine the value of these items - but thats not the case. The value of this collateral is mainly based on  two things - government / business collusion and ability to make payments. Housing costs for instance which are typically thought to be tied to things such as location, finishings, etc. are really based on items such as developer zoning and regulation costs, financial terms worked out with banks, and market collusion with lenders, Realltors and appaisers. The problem is that we all need a place to live - the conversion of a home into collateral, and the manipulation of its value is like shooting fish in a barrel, they can't lose - except whe it goes to far - a housing bubble. The the problem is what do you do when a large portion of the population (in a democracy) can't afford their mortgage ....

I'm against the $85,000,000,000.00 bailout of AIG. Instead, I'm in favor of giving $85,000,000,000 to America in a We Deserve It Dividend. To make the math simple, let's assume there are 200,000,000 bonafide U.S. Citizens 18+. Our population is about 301,000,000 counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up.. So divide 200 million adults 18+ into $85 billion that equals $425,000.00. My plan is to give $425,000 to every person 18+ as a We Deserve It Dividend. Of course, it would NOT be tax free. So let's assume a tax rate of 30%. Every individual 18+ has to pay $127,500. 00 in taxes. That sends $25,500,000,000 right back to Uncle Sam. But it means that every adult 18+ has $297,500.00 in their pocket. A husband and wife have $595,000.00. What would you do with $297,500.00 to $595,000.00 in your family?

Pay off your mortgage housing crisis solved. Repay college loans what a great boost to new grads. Put away money for college it'll be there. Save in a bank create money to loan to entrepreneurs. Buy a new car create jobs. Invest in the market capital drives growth. Pay for your parent's medical insurance health care improves. Enable Deadbeat Dads to come clean or else. Remember this is for every adult U S Citizen 18+ including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back; and of course, for those serving in our Armed Forces. If we're going to re-distribute wealth let's really do it...instead of trickling out a puny $1000.00 ( 'vote buy' ) economic incentive that is being proposed by one of our candidates for President. If we're going to do an $85 billion bailout, let's bail out every adult U S Citizen 18+! As for AIG liquidate it. Sell off its parts. Let American General go back to being American General. Sell off the real estate. Let the private sector bargain hunters cut it up and clean it up.

425000 * 200000000= 85,000,000,000,000 get a calculator num nutz 12 zeros = trillions

Put the blame where it belongs on Senator Gramm who rammed through the repeal of the Glass Stegnall Act. PS McCain voted for it.

It was the Congress that eliminated the honest appraisers and deregulated the federally insured banking industry in the 1980's at the bequest of the Realtor and mortgage lenders PAC's.

Freddie and Fannie helped to eliminate the honest appraisers so to artificially inflate the home price for higher profit, The Office of Thrift Supervision knew it, FHA/HUD had a HUGE hand in it. Mortgage Guaranty Insurance Corp. knew it.

In the late 1980's the House Government Operation Committee said: "If sound valuation practices are not followed, HUD"S risks are increased." Yet they continued deregulating. Why? Because instead of being punished, everyone gets bonuses.

I was put out of business because I tried to protect the public from exactly what is happening now, I have spent the last 20 years trying to get the MEDIA and Congress to address this issue.

I cannot print a web site but go to appraiserspetition .com.

How can a problem that was blamed for over 1/2 of the LAST taxpayer bailout of these crooks STILL be a problem today? Your Congress and the MEDIA.

This is a letter I received when trying to get help as an appraiser in Texas.
Our Congress not only knew this second bubble would bust they created the whole thing.

Forgive my simplistic view, but if a mortgage has adequate collateral there would be very little to no loss to all, so why did Congress eliminate the honest appraisers that refused to succumb to the pressures to hit the "right numbers" in the 1980's after the last bailout?

HENRY B GONZALEZ, TEXAS. CHAIRMAN
BRUCE F VENTO. MINNESOTA CHARLES E SCHUMER. NEW YORK KWEISI MFUME, MARYLAND JOHN J. UFALCE. NEW YORK MAXINE WATERS. CALIFORNIA HERBERT C. KLEIN. NEW JERSEY CAROLYN B. MALONEY.NEW YORK PETER DEUTSCH, FLORIDA LUIS V. GUTIERREZ. ILLINOIS BOBBY L RUSH, ILLINOIS LUCILLE ROYBAbALLARD. CALIFORNIA THOMAS M. BARRETT. WISCONSIN ELIZABETH FURiiE. OREGON NYOIA M VELAZQUEZ, NEW YORK ALBERT RUSSELL WYNN. MARYLAND CLEO FIELDS. LOUISIANA MELVIN L WATT NORTH CAROLINA U.S. HOUSE OF REPRESENTATIVES
SUBCOMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
OF THE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
ONE HUNDRED THIRD CONGRESS B303 RAYBURN HOUSE OFFICE BUILDING WASHINGTON, DC 20515-6052 MARGE ROUKEMA. NEW JERSEY DOUG BEREUTER. NEBRASKA THOMAS J. RIDGE. PENNSYLVANIA RICHARD H. BAKER. LOUISIANA CRAIG THOMAS. WYOMING JOE KNOLLENBERO. MICHIGAN RICK LAZIO. NEW YORK . ROD GRAMS, MINNESOTA SPENCER T. BACKUS III. ALABAMA MICHAEL N. CASTLE. DELAWARE DEBORAH PRYCE. OHIO TOBY ROTH. WISCONSIN
BERNARD SANDERS. VERMONT (202) 225-7054

May 18, 1994 Mr. Steve G 4820 Westgrove #2205
Dallas, Texas 75248

Dear Mr. G:
I am writing in response to the recent letter regarding your unfortunate experiences as an appraiser in the past few years. First of all, I commend your meritorious honesty as a certified appraiser in the state of Texas. I sympathize with you and find it a shame that the fiduciary relationship you attempted to maintain with your employers went unnoticed and unrewarded.

Unfortunately, the Congress cannot legislate honesty throughout the banking and appraisal industry. I am confident that there are many respectable banks and mortgage companies who are in great need of an appraiser with your integrity. Rest assured that I always fight to uphold the FHA guidelines and I will continue to maintain the most effective way to protect borrowers and deter unfair lending practices. Thank you for contacting me personally on this matter. With every best wish I remain, Henry B. Gonzalez, Chairman --------------------------- Of course they couldn't regulate HONESTY in the industry, the PAC's and lobbyist's were paying them to de-regulate it. Again, how can something that was declared; "a serious national problem costing taxpayers billions..." by a Congressional subcommittee in 1987 still be a problem TODAY?

One real simple question:
How does one:
"maintain the most effective way to protect borrowers and deter unfair lending practices. "
If one cannot regulate HONESTY in the banking and appraisal industries?

Why (sorry, I lied about one question) when a Congressional subcommittee, chaired by Con. Doug Barnard, Jr, said:

"...that it is extreme pressures on appraisers from real estate lenders and borrowers that MOST often cause bad appraisals."

"Alarming numbers of lending institution officials regard appraisals as an obstacle to be overcome or a rubberstamp..."

"While appraiser ineptitude is occasionally responsible for inadequate appraisals, MOST abusive practices result from explicit or implicit threats against appraisers, by real estate lenders and borrowers, that their services will be discontinued if they fail to provide the "right" numbers."

did FHA/HUD enact the direct endorsement program allowing lenders to hire in-house staff appraisers, in 1985?

They just took an independent entity and made him an employee of someone who viewed him as an "obstacle to be overcome"

If the lenders had such a strong adverse effect on appraisers when they were independent contractors, what are they going to do now that the CONGRESS made them salaried employee's?

Again go to the petition, HOW is this STILL a problem TODAY.

YOUR Congress and a media owned by big business.

For if all mortgaged home loans had ADEQUATE collateral and not backed by an artificial market this wouldn't / COULDN'T happen, That's the whole point in having an independent appraisal. To make sure the bank, the borrower, the secondary markets and MOST important the TAXPAYER is protected from unnecessary losses.

IF IT IS FEDERALLY SUBSIDIZED AND INSURED IT SHOULD BE FEDERALLY REGULATED.

— Steve-543647

House of Representatives
COMMERCE. CONSUMER. AND MONETARY AFFAIRS SUBCOMMITTEE
OF THE COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING, ROOM B-377 WASHINGTON, DC 20615 August 3, 1987

This is in response to your letter of July 28 enclosing a copy of the July/August 1987 issue of Residential Valuation magazine and its editorial addressed to me entitled, "You're Barking Up the Wrong Tree". You may use this response as a reply to your editorial.
Your editorial agrees with the finding expressed in my subcommittee's report on appraisal abuses that "faulty and fraudulent real estate appraisals have become an increasingly serious national problem whose effects are widespread, pervasive and costly."

Unfortunately, the editorial distorts and thereby misstates the report's conclusions as to why real estate appraisers too often engage in shoddy appraisals.

Your editorial mistakenly attributes to our report the conclusion that abusive appraisals are due to appraisers who "are unqualified and unlicensed". We reached no such conclusion.

To the contrary, our report found that highly qualified appraisers are as often responsible for shoddy appraisals as those with less training; and that it is extreme pressures on appraisers from real estate lenders and borrowers that most often cause bad appraisals.

Even a superficial reading of the report would have found the following language:
"Responsibility for [the appraisal] problem rests with those who...base lending and related mortgage insurance/investment decisions on appraisals they know or should have known were improper or inaccurate. Equally culpable are the Federal agencies that regulate or oversee lending and mortgage insurance/investment activities and programs." (Report, p. 4.)
"Alarming numbers of lending institution officials regard appraisals as an obstacle to be overcome or a rubberstamp necessary in order to make a real estate loan under consideration. Loan officers are particularly suspect in this regard, since they are typically under explicit pressure to book as many loans as possible."

"Many lending institution officers, directors, and managers are demonstrably more interested in up-front fees and other tangible benefits accruing from a completed loan transaction, than they are with being assured that their institution's risk exposure is minimized by an accurate assessment of the actual market value of the loan's underlying collateral."

"Appraiser ineptitude, negligence, and misconduct are widespread. Of greatest concern is "client advocacy appraising, wherein large numbers of appraisers willingly agree, or otherwise succumb, to pressure brought to bear by lenders, borrowers, and others involved in the loan origination and underwriting process." (Report, p. 8.)

While appraiser ineptitude is occasionally responsible for inadequate appraisals, most
abusive practices result from explicit or implicit threats against appraisers, by real estate
lenders and borrowers, that their services will be discontinued if they fail to provide the
"right" numbers.

Doug Barnard, Jr. Chairman

The simple fact of the matter is the regularors were the FED and The secretary of the treasury. Greenspan and the idiot Bush had as sectretary of the treasury. His present secretary used to be the head of Goldman Sachs who will relly benefit from this package.

Steve,

I've been making the point that bad appraisals were only partly to blame for the bad mortgages, the other being inflated and unverified income claims by borrowers. I remember having to sign testimonials on re-fi docs that the information provided by the borrower is true and factual, under penalty of law. the loan officer was also bound by legal requirement to do due diligence to verify accurate information. Therefore, many of these mortgage contracts were fraudulent, and that fraud was against the law. Had the anti-fraud laws been being enforced, and violators caught and punished, these fraudulent practices would have stopped, the market would have cooled down, and we wouldn't be in this mess today.

The FBI had the authority to go after the scammers and chose not to.

The credit market is a result of the Democrats…. This is all public record
The Ninety-fifth United States Congress met from January 3, 1977 to January 3, 1979, during the first two years of the administration of U.S. President Jimmy Carter.
Both chambers had a Democratic majority.
The Community Reinvestment Act (CRA) was passed into law by the 95th United States Congress in 1977 as a result of national grassroots pressure for affordable housing, and despite considerable opposition from the mainstream banking community. Only one banker, Ron Grzywinski from ShoreBank in Chicago, testified in favor of the act.[ The CRA mandates that each banking institution be evaluated to determine if it has met the credit needs of its entire community. That record is taken into account when the federal government considers an institution's application for deposit facilities, including mergers and acquisitions. The CRA is enforced by the financial regulators (FDIC, OCC, OTS, and FRB).
The bill encouraged the Federal National Mortgage Association, commonly known as Fannie Mae, to enable mortgage companies, savings and loans, commercial banks, credit unions, and state and local housing finance agencies to lend to home buyers. It also encouraged the Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, to buy mortgages on the secondary market and sell them as mortgage-backed securities on the open market.[ Due to massive financial losses, on September 7, 2008 the Federal Housing Finance Agency (FHFA) put Fannie Mae and Freddie Mac under the conservatorship of the FHFA. Clinton Administration Changes of 1995
In 1995, as a result of interest from President Bill Clinton's administration, the implementing regulations for the CRA were strengthened by focusing the financial regulators' attention on institutions' performance in helping to meet community credit needs.
These revisions with an effective starting date of January 31, 1995 were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low- and moderate-income borrowers for home loans. These changes were very controversial and as a result, the regulators agreed to revisit the rule after it had been fully implemented for seven years. Thus in 2002, the regulators opened up the regulation for eview and potential revision.
Part of the increase in home loans was due to increased efficiency and the genesis of lenders, like Countrywide, that do not mitigate loan risk with savings deposits as do traditional banks using the new subprime authorization. This is known as the secondary market for mortgage loans. The first public securitization of CRA loans started in 1997 by Bear Stearns. The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent. Other rule changes gave Fannie and Freddie extraordinary leverage, allowing them to hold just 2.5% of capital to back their investments, vs. 10% for banks. By 2007, Fannie and Freddie owned or guaranteed nearly half of the $12 trillion U.S. mortgage market. George W. Bush Administration Proposed Changes of 2003
In 2003, the Bush Administration recommended what the NY Times called "the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago." This change was to move governmental supervision of two of the primary agents guaranteeing subprime loans, Fannie Mae and Freddie Mac under a new agency created within the Department of the Treasury. However, it did not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enabled them to issue debt at significantly lower rates than their competitors. The changes were generally opposed along Party lines and eventually failed to happen. Representative Barney Frank (D-MA) claimed of the thrifts "These two entities—Fannie Mae and Freddie Mac—are not facing any kind of financial crisis, the more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing." Representative Mel Watt (D-NC) added "I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing.

Criticism
Some economists have claimed that the CRA encouraged risky lending.[Federal Reserve chairman Ben Bernanke has stated that an underlying assumption of the CRA – that more lending is always better for local communities – is questionable. Economist Stan Liebowitz has expressed his opinion that banks were forced to loan to un-credit worthy consumers with "no verification of income or assets; little consideration of the applicant's ability to make payments; no down payment." However, the chief executive of Countrywide Financial, the nation's largest mortgage lender, is said to have "bragged" that to approve minority applications "lenders have had to stretch the rules a bit", suggesting that, rather than being compelled to do so, Countrywide itself was responsible for relaxing its own standards. Congressman and 2008 Republican presidential candidate Ron Paul has partially attributed the ongoing subprime mortgage crisis to legislation such as the Community Reinvestment Act . A Wall Street Journal editorial recently argued that the law compelled banks to make loans to poor borrowers who often could not repay them, and that this contributed in part to the sub-prime crisis. Robert Gordon who has pointed out that approximately half of the loans were made by independent mortgage companies that were not regulated by the CRA, and thus had no government obligation to offer credit to minorities. In the later part of the crisis, these mortgage companies made subprime loans at twice the rate of CRA banks. Another third of the major subprime lenders were regulated, but had very little CRA involvement. Gordon also makes the argument that the weakening of the CRA in 2004 was followed by intensified subprime lending. Austrian economist Thomas DiLorenzo counters Gordon's statistic by arguing that even if half of the subprime loans were made by non-CRA companies, the CRA had still caused tens of billions in defaults on mortgages by unqualified borrowers. He also argues against Gordon's three main propositions stating that Gordon's first two propositions flatly contradict each other, whereas the third is unequivocally false. One last note… OBAMA received over $105,000 in campaign funds from Freddie Mac and Fannie Mae. That is public record…. The Fox guarding the Hen House….. right

So the Democrats got us in this mess and they are paying the way out.. with our money again.... But you don't want to read that.... And OBAMA voted 97% of the time with the Democrates... Right he is good for the country......

NO WAY can we give the government a blank check for $700 billion. There has to be a bi-partisan oversite committee and preferably there will be some really well-known non-politicians on this committee, as well - like Warren Buffett, etc. The current administration has PROVEN that they can't be trusted to tend to the financial affairs of this country.

Let us not forget who has controlled Congress (Democrats) and all the oversite committess the last two years. The Republicans will get us out of this. One of the MAJOR reasons of the Real Estate meltdown (California) and Financial insecurities is the Democrats consistant over taxation and welfare attitude that everyone deserves something for nothing. Now the dems want to be able to buy the loans of those who couldn't afford them in the first place, oh yeah - - - there called voters....

Amazes me that the Dems haven't figured out with a little hard work, "We The People" can fix this by paying our fair share. Stop taxing the buisnesses to death, the jobs will stay in America as Republicans have been saying, the economy will grow and we will be stronger with the new Republican administration. Go McCain/Palin.. I will as an American worker and Republican be glad to help those who can't help them selves again. But McCain will make sure this never happens again. Free the Congress of Democrats, give line Item veto to the President, we will have more money then we know what to do with....

Please ... the administration has repeatedly tried to overhaul the two behemoths -- Freddie Mac and Fannie Mae.

And Senator Dodd, the current chairperson of the Senate Banking Committee, and others (both Democratic and Republican) blocked the administration's efforts.

So based upon your logic whenever Congress blocks an administration the blame still belongs to the administration.

Have you ever asked yourself why Congress never accepts blame for anything that goes wrong in this country, but they take credit for everything that goes right.

There are over 500 Members of Congress -- who are paid over $169,000 a year -- and yet they can't pass any legislation on time. Here it is seven days before the end of the fiscal year and where are the Appropriation Bills to keep the government running -- every year we go through this and nothing changes.

And yet we send them back every two or eight years so they can pontificate about how we are to run our lives ...

Well said Jim-547391.

Let us not forget who has controlled Congress (Democrats) and all the oversite committess the last two years.

This problem did not happen within the last two years.....this happened when the REPUBLICAN controlled House and Senate REMOVED those regulations and oversights on the banking (investment, savings, loans, etc) industry back in 2000 which LEAD TO THE GREEDY SPENDING AND DRUNKEN FINANCIAL ORGY we have witness since. The problem came as a result of the mortgage industry (Ameriquest was one of the first) that HAD to file for bankruptcy because they granted housing loans to individuals who were only interested in "flipping" what real estate they could get their hands on. THIS WAS THE START OF THE MESS. By this time, the industry was so drunk with financial wealth they let EVERYBODY that wanted to buy property think that it was possible with little or no money down. Who ever heard of a INTEREST ONLY mortgage??? ARM's used to require a large deposit, something like 20/25%; Conventional or Fixed Mortgages required at least 10% and a guaranteed 33% salary cushion in order to qualify....THOSE REQUIREMENTS WERE ELIMINATED when the Republicans took control of all Houses of the Government (Senate, HR and White). Don't delude yourself into thinking that this is a Democrat instituted problem - it isn't. This administration has spent us into the 22nd Century and WE have nothing to show for it except a shrinking middle class, taxes up the ying-yang, a crumbling economy, no updated infrastructure, a health care system that doesn't heal, an education system with failing marks, a transportation system that is only steps above those of the third world, and a Military/Industrial Complex that has grown plump, fat and hungry for more.
Get real people.....WE are no longer the leaders of the free world....WHO DO YOU THINK IS BUYING OUR DEBT?????? The Chinese....go look it up.

Lynnie - 547772 hit the nail on the head. If you think this process of bad loans started two years ago when Democrats took control of Congress than I have some land in Florida to sell you...cheap, with an Ajustable rate mortgage.

John:
As you say Congress is focused on this week is a financial system that is broke and it seems as though everyone is trying to divert attention from How it got broke.

Notice how the entire problem centers around mortgage home foreclosures?

Can you explain how the median price for a home rose from $80K to well over $200K when the median income of Americans has been stagnet at $40 to $44K during the last 20 years?

So I ask how were these people affording more expensive homes when they were earning no more?

How do we have a $500B bailout of the S/L's 20 years ago and the exact same problem that caued that one is the same problem now?

An overvalued real estate market that was artifically inflated for 20 years with everyone watching and knowing it would bust.

Only after the bill passes and is signed. WHy nobody put a review in it is beyond me

Our Government didn't bail the banks out back in the 30's, why are we now?

Because the banks crashing CREATED the Great Depresssion, and from what I hear, it was really crappy to live through.

Our Government didn't bail the banks out back in the 30's, why are we now

Because we don't want this downturn to be as steep or to last as long as the Great Depression. Do you think it should, and why?

If everything works out like it should we should not lose a dime on this. Remember we wasted a trillion on Iraq for nothing.

I hate the fact that our nation is trillions of dollars in debt to other countries. The dollar used to be the defacto standard of measurement for all other countries. Now it's practically the EURO. This is so wrong. We need to balance our books, pay off our debt and live within our means. The businesses and people who made the poor decisions need to live with the consequences. It's that simple.

Bryon Fessler, Irving TX

This is true why are they always emphasing that the only way we can have a world economy is if we continue to spend?... Why is this the focus all the time? We should be saving and we tried this with buying a home and building equity. Why were these real estate investment vehicles were even dreamed up? Any one knows that real estate is the least liquid investment and therefore can not be treated like a liquid investment. WHO ARE THESE BRILLANT JACKASSES ON WALL STREET? DONT GIVE THEM A DIME.... WE HAVE ALREADY SPENT $391 BILLION AND $700 BILLION WOULD BE $1, 091 TRILLION, 91 BILLION DOLLARS WITH NO GUAREENTEE THAT WOULD BE THE END...MAYBE IT NEEDS TO CRASH SO THAT THEY CAN BUILD A WHOLE NEW WAY OF INVESTING WITH SAVINGS BEING THE DRIVER...BUY GOLD THE US ECONOMY BASED ON THE US DOLLAR IS HISTORY

I just think Bush is pushing so hard for this because he doesn't want to totally ruin his legacy as President. He doesn't want to go down as having been the President that led to the financial ruin of the United States.

I just think Bush is pushing so hard for this because he doesn't want to totally ruin his legacy as President.

Too late. That happened a long time ago.

He doesn't want to go down as having been the President that led to the financial ruin of the United States.

Ain't that just too bad? I wish all we had to worry about was Bush's widdle feelings. He will go down as the worst President in history and one who allowed this to happen, along with a lot of other stains on him name. History will judge us for 'electing' this venal idiot, and then re-electing him. And the judgment of history will be very, very unkind.

Amen! I can't even stomach looking at his mug or listening to a word he says...I immediately turn off the radio or TV. But then, I have been doing that for years now. What a clueless wonder he is...how can American citizens have been so duped?

To Linda J. Nelson,

It's become almost forgotten fact, that some bad guys now engaged in fight with the United States professional army far away from the American soil' and we, indeed, are lucky today to discuss the ways of doing business, not how to survive, God forbid, another terrorist attack.
As somewhat an outsider (I am Ukrainian) who saw some hard stuff in a world, I do consider this fact as Pres. Bush's true legacy.
But the question is about economy - somebody smart designed this amazing structure of modern slavery pumping money out of people's pockets. They contribute to candidate's campaigns, etc, and nobody is going to ask those guys, all-knowlefeable CEO's, some hard questions. Why?

Man these fiscal conservatives spend more than any Liberal in the world so I cannot wait to see Liberals control the government. Look at it this way pay now or pay later. pay now you pay a dollar pay later you pay a dollar plus interest for 20 years compounded.

I, too, have worked and worked to make my mortgage and my bills every month; but, I am also a Dem, and I believe that if we all don't pitch in as Americans we will be worse off than ever; and that is mostly thanks to the administration at hand who did nothing in the past years because they're only interested in themselves; it's called that ugly work.......GREED!!!!!!!!!!!!!!!!

Why does everone blame the homeowner. My neighbor down the street is an older Gentleman who paid his bill for his house every month. When interest rates went down he refinanced the house with a lower rate but instead of a fixed rate the guy suckered him into a variable rate. Interes rates went way u and he lost his house because he could not pay for it and live. Sure there were people who made mistakes but in the fourth quarter of 2007 there almost a million foreclosures on the books. Only a small part of them were low income families and people who were abusing the system.

I agree that the forclosures are at the heart of this financial crisis, so why not try to stop as many as possible before it comes to that? Why not force these lenders to stand up and take responsibility for what they have done as well as allowing the borrowers to do the same? Many of the forclosures are due to these variable rate loans that increase so much the home owner can't afford the new payments. The worst part is now that they realize they have made a huge mistake it's too late. They can't refinance or sell the home because the home value was inflated so much it isn't worth what they owe (right now). Why not force the lender to modify all these "risky" loans to a fixed rate of around 6%. This should allow the middle class to keep their homes and even though they are not worth what they owe now, they will gain in value over the years. These home owners also need to take responsibility and cut back on their expenses...do they really need that flat screen tv inaddition to the other 6 that they already have, the new car, a cell phone with internet, that vacation in Hawaii, a timeshare in Cabo, those $300 designer jeans. CUT BACK!! It has become too easy to just walk away rather then sacrafice their lifestyles.

No -- I think the proposal is, if a homeowner is in bankruptcy, the bankruptcy judge would have the power to rewrite the homeowner's mortgage terms.

That proposal did not make muster the Repubs did not want it.

Home prices have already dropped 35%. There is no reason to think that the market has bottomed out.

When you say home prices have dropped 35%, where, or in what area? I live in Illinois and if the value of my home has dropped 35%, then it would stand to reason that my mortgage would decrease when taxes that are in escrow would be lower. Is this correct, or will it inflate?

The only stabilizing thing I see in the market is credit will be tighter so housing prices should stabilize but then to offset that there is going to be a lot of foreclosure houses on the market and when that happens it drives the prices down.

Joanne 0258-I don't where you live, so not sure of the current affairs in your market. With that being said, you should call the loan officer that did your loan back in 2005. Rates have come down, it might be worth it for you to refi now instead of waiting. Also refinancing with the same lender saves you some money, or at least it does when my clients come back to me. If you used a broker, that may not apply. If the lender they sent it to is no longer in business then I really doubt it will. Also if the market continues to drop, then your value will drop. If you have no equity in 2010, you will not be able to refi. You may not have any now, I don't know.

Your ARM may reset sooner if your loan value (principal plus interest) reaches 110% of original loan value. Check your paperwork. If you have been paying interest only you may be in for a reset sooner than 2010 and a much larger payment.

You mean the guy who is asking why executives at the companies being bailed out have gotten billions in bonuses over the last 4 years and are allowed to walk away scott free with that money??? Yeah he seems to be smarter than most in this situation. As an accountant I can tell you these executives are fleecing each and everyone of us if this goes through without Executive Comp oversight. Think about it this way...when an exec gets a bonus for his company making millions off of these types of loans why shouldn't he have to pay back those bonuses when his company goes under because of the defaulting of these types of loans? Funny how "Conservatives" fight against this with every fiber of their being. God forbid the Rich executives who are donating to their campaigns have to give back the money they earned through gross negligence.

If you believe that only Republicans pockets are being lined by donations from big business CEOs, then you are truly naive. This is not an issue of democrat or republican, this is an issue of corruption in government as a whole. Also, there is a tendency to make judgment against businesses for being irresponsible in their practices. What about the individuals who signed their names onto these loans knowing they were getting in over their heads? The government of the U.S. has shown consumers that they will not be held responsible for their actions. I do not believe a bailout is what we need. People need to feel the consequences of bad decisions. Many who are ripping the government for bailing out the failing companies would be quick to offer a bailout to individuals who signed on for mortgages they could not repay. Every one involved deserves blame. The root problem here is greed. Everyone wants more for less and they are willing to do anything to get it.

I whole heartedly agree. All those people who took those teaser rate arm's had to be aware that they were taking a house that was out of there financial reach any other way. Also shame on america for allowing realtors to talk them into increasing the price for thier homes at increases never before witnessed. When a house is bought for only 150,000 and only two years later it is relisted at 225,000 to 250,000 I say someone is greedy. And everyone went with it. WE ARE ALL TO BLAME!!!

Tacoman-There were so many different types of loans that caused this. Liar loans are involved. Which means the buyer may have lied about income and didn't have to prove it, because they had a very high fico score. The loan officer may have turned a blind eye. The loan officer may have said well you don't qualify, but because you have a high score, we can inflate your income thousands per month and then you will qualify. Depending on what they do for a living, they could have lost their job, the could have had an ARM, they could have had an Option loan. Those are the worst. Rate starts at 1% for the first 6 months, then jumps to the real rate, which could have been 6% or 7% depending on someones fico score. So they could have paid 1k per month, then it jumped to 5k, sicko loan if you ask me. Who in their right mind would sell it much less sign the papers for that. I mean come on, you'll be kicked out in 6 months, so what was the point of it. Greed and stupidity on so many levels, but we get to pay for it all now. Letting the government take over with all the lawyers in there, we're doomed more so than we are at this very moment.

I myself almost fell into one of the 5/1 interest only arms in late '04. The loan officer was pushing the fact that I could refinance my home before the rate adjusted. At the time I was 21, so I never in a million years could have foreseen this mess. I ended up not taking the mortgage and went with a conventional mortgage through a small community bank.

I believe there are victims in the economic mess who have lost their home, business, or retirement. I don't think this government bailout is for those people. They keep talking about helping out the folks on Main Street, but I don't foresee that happening anytime soon. I work in a commercial lending department of a Bank, but we made good loans that were properly collateralized. We have seen our fair share of collections and even some foreclosures, but the Banks that are truly suffering were not conservative enough in their underwriting and may have made poort investment choices. Why should they be bailed out?

Lastly, I would like a more affordable mortgage. If I choose to stop paying my mortgage now, will the government adjust my rate?

The bankers don't deserve to receive that money from the poor stiffs they talked into buying more house than they could afford. Most people only buy one to three houses in a whole lifetime, not a lot of time to develop expertise in a very complicated process. A loan officer handles tens of loan every day. Of course, these buyers should suffer some severe penalty for being DUMB, but that's no reason to give them the money to reward the banker for being DISHONEST. IMHO the homeowners should be allowed to remain in the houses whilst paying rent at a reduced level until they can afford to take up the payments on a new mortgage, which may or may not honor past payments, but where the house is assessed at the new value. They would therfore be renters and caretakers of a property that would have gone into decline anyway with no buyers. (1) The buyer would be punished by receiving no equity during the time they are paying rent; and (2) The banking agency would be punished by having to sell their business at the new reduced price to the government housing authority, whilst having to pay interest on the loan they got from the bank to let them stay in business.

this is my questions also. What actually happens if the bailout does not occur?

The wording of the proposal sucks, especially the no oversight by any court of law or committee.

No blank check. it just is too quick to hammer out, we don't get the real picture of what these instruments are, and I don't agree with bailing out businesses that made bad choices.

This is probably way over simplified; however, if it is the extension of credit that got "us" into this mess what makes people believe that an extension of credit get us out of it? No where have I read that the lenders will be held to any higher standards of who they should/not lend money to. Only that this "fix" will let them begin lending money again. So really, it is no different than giving an addict $700 billion to continue their addiction while making their neighbors pay for it. Last time I checked, that's not the way to cure an addiction.

I don't care. I work (in whatever job is available) and pay my mortgage on time. My credit cards are paid off. My cars are paid for. My house is a 4.9 fixed 30 year loan because I have worked to secure my credit rating.

BOOOOOOOO HHHOOOOOO!!!!

Secure my border, stop @!$%#n about affirmative action (white is a minority now), get off your duff and drive a used car, vote the dam bums out of office, and stop being sheep. All of you that thought it would be a great idea to get the ARM because YOU could make a profit got burned. HA HA HA. Greedy and you got caught. You and the corrupt dilholes in Congress will get what's coming.

If I have to, I'll take my savings and move out of the NEW KOMMUNIST REGIME being created here. The fences aren't in place yet, but the concentration camp cops are on the WAY!

VOTE FOR CASTROtion of Congress, and you, the American CITIZEN might have a chance.

This is what you bleeding hearts get for your tears and handwringing. Good day losers.

EMPLOYMENT EDUCATION HEALTH and HOUSING

The reason for this so called economic " crisis " [which is miss-leading description] is that the economy has not been fueled by another industry other than real-estate and consumer goods. Now that the credit cars and real-estate loans are exhausted there is a crisis? (Q)

Where is innovative industries?

Yeah, you're right... Microsoft, Adobe, Amazon, Coca Cola, Proctor and Gamble, Boeing, Shell, Mobil, AT&T, Motorola... None of them have any effect on the economy, it was all real estate. None of those other companies I mentioned export to other countries. Sure, that's gotta be it! (A)

Again the person asking the above question is making the mistake of an all or nothing argument. Nevertheless the question was substantially correct. The rebuttal however is only a partial rebuttal. ("And all were partly in the right, and all of them were wrong.") That is to say, Microsoft, Adobe etc ... are contributing to our exports, yes, but the problem still remains that the country is not exporting ENOUGH. That is the root cause of the problem.

I also pointed out elsewhere that the problem of competition is not only the jobs that have gone overseas, but the jobs that have been lost because our overseas customers are buying from elsewhere. Let me summarize:- (1) We are buying too much from overseas, more than we sell.
(2) Our capital, including tax-cuts, is being spent overseas by some companies to set up plants overseas, so that what comes back is only SOME of the profits, and SOME of the goods, which we then have to buy. (3) The development plans of other countries large and small, from Curacao to China, are working so well that they are taking away international business from us. This may be a more significant loss than the actual jobs being sent overseas from here, which may actually be an attempt to deal with that problem.

It makes no sense punishing these companies for sending jobs overseas when they are merely trying to stay afloat. As a country we need to swallow our pride which says we are already developed and pay more attention to a comprehensive plan for economic development. Our Department of Commerce has a budget of more than 9B, one of its divisions is the Economic Development Administration (EDA) which has a budget of only 300M. That budget is too small to cover all the USA, so they target certain areas. Even so that agency alone created over 50,000 jobs in 2007. We need 100,000 new hires every year to maintain our workforce, we haven't met that figure in about 7 years. Education, Employment, Health, and now Housing are the areas where our economy has been struggling over the last few decades. It is a chain of cause and effect like a gunpowder trail. Housing is the last little mountain of powder that has blown up in our faces, but the match was lit way back.

The above paragraph is there simply to highlight the fact that we have to focus more attention, funds and executive energy on a national plan to improve our economy as a nation. How many people even know we have a Department of Commerce which spends about $10 billion of our tax money every year? How many people have even heard of the Economic Development Administration? Speaking about jobs, small businesses account for 60% of the jobs in the USA. Most people believe that these big corporations which received the bulk of the tax breaks are the most productive part of our economy. Why? They spend so much money on lobbying that they drown out the voices of the small guys who are doing the bulk of the heavy lifting. How many people even know that there is an agency of government called the Small Business Administration? Their budget was a paltry $500 million in 2006, why is the most important economic institution in the USA government struggling with such a paltry annual budget?