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Like everybody else, I’ve spent a lot of time trying to understand what’s happening with the economy. Over the next few posts I am planning to provide some insights I received from my financial planner Jay Bigman.
According to Bigman the trouble started in 1998 when congress told Fannie Mae that they would have to take sub-prime, non-conforming loans into their portfolio. The idea was to make it possible for more Americans to get loans and buy homes. This much is pretty familiar. The problem was and is that investors, not just homeowners, saw this as an opportunity to buy up properties with little or no money down. Then in 1999 the Glass Steagall act was repealed. This was not a good idea because now banks, insurance companies and brokers could get involved with each others’ business. Now before you conclude this is the standard right-wing line that tries to blame the whole thing on the Clinton Administration, continue reading.
After the repeal of Glass Seagall the huge financial services companies like AIG, Citi, Lehman, Bear Stearns and Goldman Sachs could each do what the other was doing and this created more competition and the need for riskier investments to continue making big profits. But there is much more to the story which I will explain in the next post.
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