BusinessDaily.eu – By Mikkel Roland Egesberg – Hardly a day goes by, where we don’t hear about the socalled “Euro crisis”. Let’s say it from start, the economic crisis we see right now, did not start in Europe, but in the US housing market. So if this is really a US made crisis, why do we only hear about the EU crisis in US media like bloomberg and from US politicians? Well let’s take Obama for example, who on every public appearance blame the slow US growth on the socalled “Euro crisis”, conveniently forgetting the role USA played in this. So too does US media as Bloomberg TV and CNN e.g., all you need to do to witness this media war, is to turn on your tv.
This bias by english speaking media has been repeated soo often, that during the opening day of the G20 summit, a Canadian journalist asked European Commission president, mr. Barroso: “Why should North Americans risk their assets to help Europe?”, to which mr. Barroso rightfully replied: “Frankly, we are not here to receive lessons in terms of democracy or in terms of how to handle the economy. This crisis was not originated in Europe … seeing as you mention North America, this crisis originated in North America and much of our financial sector was contaminated by, how can I put it, unorthodox practices, from some sectors of the financial market.
Let’s look back at what happened. It was a bubble. The origins of this financial bubble lie in the unsustainable increase in the prices of houses. Housing prices in the US increased by nearly 90% between the beginning of 2000 and the beginning of 2006, and then declined by 30% from primo 2006 to primo 2009.
So why did this bubble occur? Overly optimistic expectations may have played its role, but the real reason is more likely to be found in the US Congress. To promote home ownership, US Congress created a secondary market in mortgages that made it easier for families to borrow money to buy houses. In the beginning (1990s) two US government-sponsered enterprises (GSEs) “Fannie Mae” and “Freddie Mac” sold bonds to investors, and then used these funds to purchase mortgages from banks. Later in the 2000s investment banks joined the party, and began buying mortgages, bundling large numbers of them together as mortage-backed securities, and began reselling them to investors. This became such a good deal, that the lenders began to greatly loosen the standards for obtaining these mortgage loans. In the end many mortgages were being issued to subprime borrowers with flawed credit histories, and borrowers, who stated, but did not document their incomes. In an attempt to earn even more money on this, US lenders began to create adjustable-rate mortgages, that allowed borrowers to pay a very low interest rate for the first few years, and then suddently see a rise in interest rates, also known as “Teaser Loans”.
In short, the average Joe took out mortgages, which he would have a hard time making the payments on, since he speculated in higher house prices, and US lenders happily granted them these loans, since they made money on it, and sold off these bad loans as “good investments”, since they has been mixed up with many other loans, to lower the socalled risk.
This did not happen, “Garbage in, garbage out”. Many EU banks trusted that the paperwork was in order with these loans they bought from US investment banks, but they newer should have trusted the US regulation, for which reason many ended up with “toxic” US assets. It is unclear how much of this bad debt was unloaded to European banks, but Joseph Stiglitz, economics professor at Columbia University, and winner of the 2001 Nobel Prize for economics, says Europe bought a lot of US toxic mortgages, and says some estimates put it at close to 40 percent. .
This is the real reason why European banks are in soo much trouble today, and why they dont have the money to lend out to troubled EU countries. Sure Spain had a housing bubble too, but it is nothing compared to what European banks lost on these economic scams made in the US. The whole socalled “debt crisis” in the EU, is, except from e.g. Greece, nothing compared to the USA. USA has higher debt to GDP ratio than EU, and it’s budget deficit is also higher, but somehow this is not focused on by the media. The difference is that the US has a printing press to print money, Eurozone countries dont, since they share their currency with other countries. So while EU countries have to make budget cuts or raise taxes, USA just prints more money, but you can read more about this in this article: Read here…