If you have taken your eyes off the watch for gas prices rising at the end of the week, and the election warfare raging above and below the border, you might realize that most Americans have for the moment had their attention diverted from Sarah Palin (even before that interest waned of its own accord).

While the inability of opticians to provide copies of her frameless rectangular lenses might be one of the main crises of supply and demand for some people south of the border, many others have no doubt glanced at newspapers or accidentally landed on a news channel long enough to realize that their country stands at the precipice of what could be the worst financial failure since the Depression. According to some analysts, it could even be worse than the Great Depression, and with the global implications of the American economy in today’s world, it could be recession/depression almost worldwide.

I once heard the difference between Recession and Depression explained this way: when your neighbor loses his job, it’s a Recession. When you lose yours, it’s a Depression.

I spent some time yesterday researching the financial crisis on the Internet. It’s not an easy thing to do. You have to carefully check the site you are on for some indication of authority in the matter, since everyone is having a go at it (even me). I wandered through one site for a while, noting that it seemed to have a lot of emphasis on labor and the working man (sounds like a good perspective), until I noticed a little too much and after a few clicks found that it was an American Communist site. Certainly good to have a different view of things, but this was a little slanted.

After a few hours of research, and some prior knowledge, I don’t pretend to be any authority at this stage. It’s a complex matter, and most of us identify it only with what seems to be the “trigger” of the matter, the “sub-prime housing market”, rather than the core of things themselves, a core that soon got me into difficulty as I went down most pages.

There are some pages that lay a lot of blame. Certainly this crisis is not an “accidental” thing; at the very least it’s something that came about from years of bad financial policy, from people building houses of cards that are starting to fall. At the worst, as quite a few sites claim (I can’t fully evaluate their arguments, but they sound convincing), it might be the result of leaders in American financial wheelhouses steering things toward this direction, as extreme ways of gaining power over their adversaries. Some would suggest that to a few, the present situation is not a misfortune from big plans that went awry, but still, even in this crisis situation, it’s “things proceeding as planned”.

A number of people with credible resumes suggest that Alan Greenspan, the former Chairman of the Federal Reserve Board, seemingly heralded as the Oracle of Delphi for the American financial markets over the last couple of decades, who could trigger market fluctuations by twitching an eyebrow, might be responsible for a lot of the problem. Greenspan favored a very free financial market, with as little interference as possible by the government, and systematically worked to dismantle a lot of the control that government had put on banking and financial institutions, culminating in the 1999 repeal by Clinton of the 1933 Glass-Steagall Act. Now I know that just mentioning that, I’m starting to lose some of you to boredom, as some of the deeper financial sites lost me. Bear with me a moment.

A major factor in the Depression is a major factor in what is happening today, and the GSA (as mentioned) was designed to prevent it happening again. Under Greenspan’s leadership, this act was dropped. What the act had set up was that you either had to be a bank, or you had to be a financial institution that dealt in stocks, investments, etc. When the Great Depression was triggered, banks were getting into both, lending out the customers money into investments that were shaky at best (even convincing their customers to invest further in the companies the bank supported), precipitating an eventual fall when people stampeded to get their money and found that it was gone into the ether of poor investments.

What provided the trigger for today was much the same. Banks are supposed to take in the money of people willing to save. Then the bank lends it out as loans, mainly for things like cars and houses, and charges a little more for the loans than it gives out as interest. A normal state of banking affairs.

But the banks wanted to do more with the money, and they were in a situation where there were a lot of places to invest the money and perhaps make even more cash (for their clients who were “savers”? — I think not). There were credit cards to send out by the millions, there were people who would take loans for almost anything, there were bigger and better houses to build and move into. It was a golden time.

The banks managed to convince millions of people that this was their time. So what if the new home straps you? Here, we’ll give you a fantastic interest rate, and by the time your mortgage comes up for renewal, with the housing market taking off like a huge balloon, your house will be worth thousands and thousands more, and you can either sell it for a profit, or finance even more on the equity, or— let’s move into a bigger one! I have the papers all ready.

Unfortunately, the little fellows who were wandering into the bank with the sock of money weren’t providing enough funds to float this fantastic time. However, there were the bigger financial institutions willing to lend money to the banks, or there were investments that the bank could get into that would /could /might make them even more money to use (and thanks to the repeal of the GSA, they could invest directly in these, and encourage their clients (conflict of interest) to invest as well). And there were these Asian countries that seemed to have lots of money that they would lend the banks as well.

Let the good times roll!

The only snag was that the housing market didn’t keep rising. Things like 9-11 and the war in Iraq and a hundred other factors made people a little shy and when the mortgages came up for renewal, the rates were higher, and the equity wasn’t there, in fact they couldn’t even sell the fool thing except for less than they paid for it, because no one else was getting into this foolishness, and they were stuck with it, and the payment was too large, and the factory where dad worked was laying off people, and those who stayed were taking a cut, and the cost of living was going up, and did you see those bloody gas prices— how am I ever going to put gas in the tank of the SUV so Bunny can get little Samantha off to her ballet lessons, and who’s that at the door? —I hope it’s not that fellow that we bought the living room set from, he said we didn’t have to pay at all until 2007, ——what, it’s not 2007 already!!!!!!!!!!

And so it goes. Homes have been foreclosed on by the thousands and thousands, and the banks and financial institutions are tracking down who owes whom and who got money from whom, and they all are working with one eye on the window to see if the fellow in the next building makes a run for the counter to try and get his money back.

They all know that if they run after him, they’ll all start to run, and it will be 1929 all over again (gee, they said it couldn’t happen again).

So, the American government, in the dying months of the Bush years, is about to TRY to bail it all out with a 700 BILLION dollar buyout, propping up basically the loans of the millions of Americans who are in over their heads with mortgages and other borrowing, and propping up the banks and financial institutions who have money out that they can’t get back and don’t dare foreclose on.

That is a fantastic amount of money, but we have become softened to large numbers it seems over the years. Some say it will hit ONE TRILLION dollars by the time the dust settles. It’s unprecedented in world financial history. It adds tremendously to the American debt, and makes raising taxes and cutting programs (in spite of election claims not to do so) almost imperative. To think that this will not affect Canada and almost every nation in the world is naïve in this global economy.

And some say it might not work… just having to do the job might make people so nervous about the American economy that they won’t make a run for the teller’s wicket, but will slowly and quietly start pulling their money out as soon as they are able to see it in existence, slowly and carefully, cautiously… oops, I think he saw me—

I was first! Get back in line!

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