REACTION PAPER
THE MEN WHO CRASHED THE WORLD

I. SUMMARY
THE FINANCIAL AND stock market meltdown of September-October 2008 is unlike anything that the vast majority of us have seen in our lifetimes. Americans would have to be old enough to remember 1929 and the onset of the Great Depression to have seen a crisis of this magnitude. People in Japan, it’s true, know all about the “lost decade” after the late 1980s bank crashes – but the late situation is a disaster on a global scale. Great Depression is actually, the outcome of this crisis and is unpredictable. Among other differences, the 1929 stock market crash and subsequent credit crisis led to the Great Depression of the 1930s in part because governments responded with “tight money” policies until too late, an act of suicide which central banks and governments today definitely will not repeat. Quite the contrary, extremely energetic state interventions in Europe and the USA – very much against the recent ideological free-market “run of play” – have halted the fears of a total global banking collapse and the short-term stock market panic.
It’s indeed instructive how quickly the entire ideology of “unleashing the free market” and financial deregulation could be thrown aside in order to rescue giant banks that are “too big to fail.” The U.S. Treasury will not only be purchasing (at above-market rates) the “toxic assets” held by these institutions, but pumping hundreds of billions more into them by buying “preferred shares” in them. This means “non-voting shares,” so that the bailout of these collapsing banks still leaves them under private control. There’s the bailout for the corporate and Wall Street incompetents and crooks who helped drive the economic ship into the ground. The obvious question becomes, then, where’s “the rescue package” for working people who are losing their homes, their jobs, their credit, their health insurance and their hopes for security in retirement? What can, or should, government do to confront our emergency?
What happened in reality, as everyone now knows, was the combination of a housing bubble, those subprime loans imposed overwhelmingly in poor and communities of color, massive increases in personal and corporate debt, and the proliferation of “derivatives,” based on the packaging and recirculation of debts. Banks throughout the world economy made enormous paper profits by selling each other the equivalent of casino chips. In the end, they have wound up sitting on uncounted trillions of dollars in fictitious value (those “toxic assets” consisting of loans that will never be repaid). No wonder they stopped lending money even to each other – because each bank not only feels the need to hoard its own cash, but also suspects all other banks of hiding their real conditions just as it’s hidden its own.
The current wave of government intervention was essential in order to prevent the threat of a complete shutdown of credit – the oil in the engine of global capitalism – a threat that had caused stock markets to plunge in few weeks. The political tide in the United States is also turning toward re-regulation, not only cosmetically in reducing the obscene pay of Wall Street CEOs but placing some controls on the behavior of finance capital.
Regulation in itself, however, does little to address the real catastrophe facing tens of millions of working class families. And yet the measures that need to be taken in this emergency are quite clear, including these: * Immediate ban on foreclosures. Not only homeowners are being thrown on the street, but renters who didn’t even know their landlords were in foreclosure! Thanks to some popular struggles, the Cook County (IL) sheriff has suspended eviction of renters – an example that needs to spread. But no one should lose their home until there’s a – * Rewriting of mortgages to their real value. There’s no point in pretending that homes in today’s market are worth their paper value in the housing bubble. Mortgages on primary residences, not only those now in foreclosure, need to be written down by 30-40%, with interest payments reduced to abolish those subprime “adjustable-rate” schemes that were jammed down the throats of lower-income people and communities of color. (There are many cases where African-American women in particular could only get these extortion-rate loans even though their income and credit rating should have qualified for standard-rate mortgages.) * The government should take over these mortgages, paying the banks no more than their actual – not paper – value, and the more subprime lenders that go out of business in the process, the better. Further, no family should have to make mortgage payments exceeding 15% of household income. This will also have the effect of a serious “stimulus program” for working class America.
Change government priorities to what we need and eliminate what we can’t afford. At a time when federal, state and city budgets are choked by debt, “what we can’t afford” is obvious: the cost of empire. That means the Bush gang’s $3 trillion war in Iraq has got to go. U.S. military bases in 150 countries; hundreds of billions for weapons in space; those bloated contracts for Halliburton and private mercenary forces like Blackwater – all those expenses need to be zeroed out, and the world as well as our own society will be better for it.

II. ANALYSIS
Before deregulation, a bank only sold mortgages to customers who were good risks and could pay them back over time. With deregulation, obscure financial instruments were developed and promoted whereby high-risk mortgages could be packaged together and re-sold to large, speculative institutional investors. (Most of these investors never even attempted to understand these complex instruments or question their underlying value. All they knew and cared about was that they generated short-term profits.)
With their own exposure thus diluted, banks started selling mortgages with little regard for risk. It was like printing money: the more mortgages they could generate, the greater the short-term gains. Hence the housing bubble, built on mortgages sold to people who likely could never pay them back.
As this dense, elaborate house of cards gradually built itself up, the rich got richer, and the poor got set up. And when it all finally imploded in 2008, the reverberations were felt globally. The biggest victims in financial downturns are in fact our poorest citizens, not the people who caused the whole mess to happen. It's also frustrating to hear that warning bells were sounded, but with so many people focused on getting filthy rich, they were simply dismissed or ignored.
But here's the worst part: there has been virtually no accountability for this disaster. Why? Because the ties between government and business have been so closely linked for so long, that to pursue real justice would be an incredibly ugly and disruptive affair.

III. REACTION
The September, 2008 financial downturn lead the global economy to its greatest depression. Everyone was affected, not only the Americans but the global economy. Thereafter, many Filipinos have lost their jobs especially those who worked abroad. Just like any other country, as seen in the video, the situations were very frustrating, I was saddened by the big companies’ decisions that affects thousands or even millions of workers who lost their jobs, and was not able to provide their family even the basic human need; those who lost their homes because they were not able to pay their mortgages.
This Video documentary opened my eyes what really happened during that time of great depression. I just realized the even the biggest companies of the world have also a weakness that they became blind to see the impact of their decisions, a weakness that can tremendously affect all its workers and worst, the global economy. It is indeed, risk taking gave great opportunities for businesses but if not analyzed well and been under estimated may cause someone’s business a total downfall. The government decision of bailout may be the best way to save the global economy, but many lives were affected badly, it is very unfair for thousands of families but a favor for millions of families around the world; but ofcourse it is much favor for private companies. But if the US government did not do that, probably. until now, the global economy is still in its total mess. Hopefully, just a lesson learned from the past, the giants businesses may not commit the same mistake, but remember
Risk is always there and opportunities as well… let’s just hope and pray, that the same mistakes, may not come our way!
(S. Mayor)

Reaction Paper
INVESTMENT MANAGEMENT
The Men
Who Crashed
The World