Charlie: "Ray, it's a joke. It's a joke Ray."
Raymond: "Obama caused the Depression. yeah, Obama's a socialist."
Charlie: "No Ray. Obama's trying to fix all the damage done by the Republicans. That's the joke Ray. The Republicans CAUSED the disaster and now they are telling people the things Obama is doing to fix THEIR mistakes, is what's caused this Depression. He's on first. It's a joke, see?"
Raymond: "Obama's on first. The Government's the problem. He's caused the depression. .....He's gonna get me."
Charlie: "No Ray. Why do you think the TARP and the Stimulus were necessary? Actually the TARP was started by Bush. That's when the whole deregulation disaster began. The banks were all about to go bankrupt because many of their investments were dropping in value and they didn't have enough money to pay back all those people they borrowed money from. Bush HAD to bail out the banks or the whole economy would have collapsed because of a lack of credit from bankrupt banks. Then Obama had to enact a stimulus because banks weren’t lending to anybody and people were being laid off, losing their jobs. A stimulus spending program was needed to keep us from sliding into another Great Depression."
Raymond: "Bankrupt Banks, bankrupt banks, yeah. Because Obama regulated them so they couldn't make profits and that forced them to lose money."
Charlie: “No Ray. The banks were deregulated by the Republicans {
http://motherjones.com/politics/2008/05/foreclosure-phil">Phil Gramm’s Night Ride(r)} and the
Bush administration fought and stopped attempts by (50) State’s Attorney’s General to stop Predatory Lenders very questionable lending practices (which was later identified as a causal factor of the 2008 Credit Collapse). Republicans said you should not regulate businesses and should just get out of their way and that ”the market will police itself.” (A. Greenspan). And banks would make big profits and prosperity would trickle down on all us little people. “
Raymond: "And we all got rich?".
Charlie: "Well, not exactly. You see the banks invested in stuff they didn't understand. They thought it didn't matter what the risks were because they bought insurance policies (Credit Default Swaps) that would pay off if their investments ended up as worthless. The banks, because they thought their risks were largely eliminated by the CDSs, told the SEC that they didn't need to keep so much Money in reserve (against loss on their investments/loans) so the SEC let them invest/loan even more than they were allowed to before. This is called leverage.
They went from 12:1 Debt to Equity to 34:1 Debt to Equity. This multiplies your profits when things are going good but when their investments/loans started going bad this magnified their losses. When they went to collect on the CDSs they bought to protect them from loss on investments, it turned out everybody else was doing the same thing. The insurer who sold them the CDSs could not pay off on the CDSs it sold them. So the banks were in trouble. They were going to go bankrupt.
So the Bush administration had to bail them out with the Troubled Asset Relief Program. The Government saved them from going broke by loaning them money and buying stock in the Banks. This gave the banks money they needed to cover losses and pay off loans they had taken out. IF the government had not done this, banks would have failed and this would have brought the whole economy crashing down. As it was, the banks were in such bad shape that even with the Government help, they couldn't do too much lending anyway and companies and people couldn't get loans which almost brought economic activity to a complete halt.
Raymond: “And that’s what caused the Great Recession?”
Charlie: “Well, no that wasn’t all of it. In addition to that the Republicans had passed tax cuts that mostly went to the wealthiest 2% of the population. bacause of poor job growth and jobs moving overseas, the averagge income for people actually went down in the Bush administration while inflation took the price of everything else higher. So people began to borrow more to try to maintain the standard of living they were accustomed to. Then, mostly because of the tax cuts, the Republicans borrowed lots of money and ran up enormous deficits. These things contributed to inflation and to the housing bubble. It also meant that businesses sales were based upon a lot of borrowing which couldn't be continued once banks stopped lending. As businesses sold less, they began laying people off. As people lost work they began to spend less, which meant businesses saw their sales decline even more.
Ray: “Republicans create jobs by lowering taxes for the rich. The rich will invest all that extra money they get and that creates jobs. That creates jobs, yeah.”
Charlie: “Well, actually it works just the opposite Ray. By gradually increasing the tax burden on the middle income people and easing the tax burden on the highest income groups Republicans reduce job creation. For the first time in 70 years we had a decade of zero job growth
from December 1999 to Dec 2009. Wealthy investors are not going to invest in companies that don’t have growing income and growing sales. But people have to have enough money to spend to create the sales that enables businesses to gain more sales and make more profits. Without the growing sales and profits why would anybody invest in them? The sales and profits come BEFORE the investment.”
Ray: “So people have to have enough money to spend for businesses to make enough money to attract investment. “
Charlie: “That’s it Ray. Whenever we’re in a recession Conservatives always say that “the consumer represents 70% of the economy. When the consumer starts buying again then we’ll get out of this recession.”… But if you keep reducing the amount of money in the consumer’s pocket, sooner or later you will see the economy slow down, job growth slow and profit increases slow down. And that’s followed by less investment (and you’ll see more stock buy backs by companies and more Mergers and Acquisitions – signs of an economy with inadequate growth.)”
Ray: “Democrats don’t care about the Deficit. They are making the Deficit worse, yeah, by all their ‘reckless’ spending.”
Charlie: “Ray, all the spending the Democrats are doing now was necessary to get us out of the Deregulation Depression the Republicans gave us. If we don’t get out of this recession and start growing jobs more, we’ll never make progress against the Republican Deficit. What we need is Stimulus spending to get us out of this Deregulation-Trickle-Down
success and get us back to a healthy growing economy with real job growth. That’s the only realistic long term way to get the Republican Deregulation Deficit down.
Ray: “Obama’s a Communist, yeah. He’s creating lots of regulations to make banks and real businesses less profitable. Yeah, he’s a communist, yeah.”
Charlie: “Ray, the Financial Regulations the Democrats put in place were necessary to try to prevent another Credit Catastrophe, or at least enable us to cope with Banks getting themselves in trouble, so they don’t bring down the whole banking industry and threaten another Great ‘Recession’.
Actually, regulations help the honest businessman by keeping unscrupulous operators from driving them out of business. They also protect consumers from unscrupulous operators who are not really interested in making an honest buck anyway. And without regulations we would go through the cycle of boom to bust to boom again which in the long run is more costly economically and socially than regulated steady growth while avoiding the severe boom and bust cycles. Before Roosevelt instituted regulation of businesses we kept going through one boom followed by a bust over and over again. Once rational regulation was instituted it reduced the severity of the boom – bust cycles and lead to better long term growth than we would have had without regulations. “
Ray: “Obama’s a commie. Yeah, he's a Commie."
Charlie: "It's all a joke, Ray. Trickle down, supply-side economics is a joke, a pie in the face on you and me. A big fucking joke. "
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