Was the 2008 Economic Crash the Work of Financial Terrorists?
What do you all make of this strange report, apparently written by a Pentagon contractor, suggesting that the crash was exacerbated by financial subversion carried out by terrorists or hostile nations such as China?
The unclassified 2009 report “Economic Warfare: Risks and Responses” by financial analyst Kevin. D. Freeman, a copy of which was obtained by The Washington Times, states that “a three-phased attack was planned and is in the process against the United States economy.”
While economic analysts and a final report from the federal government's Financial Crisis Inquiry Commission blame the crash on such economic factors as high-risk mortgage lending practices and poor federal regulation and supervision, the Pentagon contractor adds a new element: “outside forces,” a factor the commission did not examine.
The Pentagon report states that the evidence of financial subversion revealed that the first two phases of an attack on the U.S. economy took place from 2007 to 2009 and “based on recent global market activity, it appears that the predicted Phase III may be underway right now.” ...
The report states that federal authorities must further investigate two significant events in the months leading up to the financial crisis.
The first phase of the economic attack, the report said, was the escalation of oil prices by speculators from 2007 to mid-2008 that coincided with the housing finance crisis.
In the second phase, the stock market collapsed by what the report called a “bear raid” from unidentified sources on Bear Stearns, Lehman Brothers and other Wall Street firms.
I'd have to read the report, but my gut instinct is that it sounds implausible. I reckon we managed to do this to ourselves without any help.
But it's certainly an unnerving and spooky thought. Is the fact that I could even consider it evidence that I've been in Turkey too long?
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Nov '10
Re: Was the 2008 Economic Crash the Work of Financial Terrorists?
As I read Ms. Gelinas's book, the problem was an internal one produced by our failure to apply reasonable controls to the creation of credit and make the extent of the risk known to investors and was quite severe enough without outside interference. I don't know the author of the report, but I rather doubt that something so widespread and so apparently systemic could have resulted from the machinations of a foreign power. It sounds to me more like a novel than a work of expert analysis.
May '10
Re: Was the 2008 Economic Crash the Work of Financial Terrorists?
It beggars the imagination that the Chinese could have installed Barack Obama, Nancy Pelosi, and Harry Reid to deliver the coup de grace to the American economy. They simply don't have the imagination to have invented these characters. Without our feckless President Lite (no taste, had my fill) and his wacky co-conspirators, we might actually have recovered from these blows.
And if your Istanbulled sensibilities are up to that challenge, ask yourself whether the Chinese sense of humor is up to drawing the Barney Frank cartoon character, or his sidekicks, the Masters of Mayhem, Dick Durbin and Chris Dodd.
Nah, not the Chinese. George Soros, maybe, but not the Chinese.
Dec '10
Re: Was the 2008 Economic Crash the Work of Financial Terrorists?
The terrorists aren't that smart and we are not that dumb and foolish. The conspiracy theories have started.
The financial terrorists have already been identified. Their last names are Frank and Dodd. They had many home grown accomplices, including a few useful idiots on the other side of the aisle.
Edited on Mar 4, 2011 at 6:51pmOct '10
Re: Was the 2008 Economic Crash the Work of Financial Terrorists?
Well, the crisis was caused by external factors: global capital flows. But it wasn't malicious; no nation has survived a capital boom without a financial crisis, not since the monetary reforms of the 1970s, anyway.
Capital flows loosened monetary policy in 2004-2007, when the Fed (unsuccessfully) was trying to tighten. The result was predictable. In essence, 1-2 billion people were trying to invest in a country of 300 million people; there simply were not enough investment opportunities to handle the inflows.
The only thing we could have done is tightened fiscal policy or implemented capital controls. A tighter fiscal policy would have lessened inflows, by lowering interest rates and restricting the supply of U.S Treasuries (inducing central banks to diversify into something else).
Capital controls would have been helpful too (free trade and free capital are mutually contradictory), but as the reserve issuer we can't really do that.
Oct '10
Re: Was the 2008 Economic Crash the Work of Financial Terrorists?
It is not terroristic to to work within the established structures of the marketplace, though it could be said that those structures were terroristic. We had two organizations, Fran & Fred, with implied government backing pumping up the housing market. We had in place government strictures (the CRA) which undermined the value of the mortgages that F & F were selling.
On top of this, we had the largely unregulated dirivative markets that shielded from view the odds of the bets placed upon securities. That is, there was no way to know if the security you wished to insure was already insured to such an extent that payoff was unlikely if not impossible. In addition, by using the proceeds from the riskier tranches of securitized mortgages, it was possible to overinsure the more stable tranches which paid off handsomely if the security itself failed. Finally, the government had established the 'too big to fail' policy with the bailout of Continental Illinois National bank in 1984.
Given that there was essentially no risk to investors of massive failures in the markets, we had our meltdown wherein the market investors shared their losses with us.
Oct '10
Re: Was the 2008 Economic Crash the Work of Financial Terrorists?
To my simple mind, all of the above is both plausible and vague. We can never go back to simpler times, assuming that there ever were simpler, that is, more placid times. But, somehow, I can't get away from the suspicion that we have "ruled ourselves up" to the point that anything going wrong is almost instantly irreversible. Think of a bullet train at 300 MPH. Any little failure or obstruction, and there is absolutely no recovery possibility. Not like a plane, which at least, usually, gives the pilots an opportunity to recover, or at least the passengers a few moments of desperate prayer.
It seems that very few of the real problems plaguing modern America have effects that we ourselves haven't exacerbated to the point of making it easy for us to lose. Even the Islamists have a free ride, at our invitation.
Anybody care for a cup of tea?? It's time for the party to get really going.
Oct '10
Re: Was the 2008 Economic Crash the Work of Financial Terrorists?
High gas prices precipitated the economic crash in 2008.
Jan '11
Re: Was the 2008 Economic Crash the Work of Financial Terrorists?
I suppose that if one states that if one sees a large man on a thin rope walking across a long canyon holding only a small umbrella, and if a mischievous person tweaks that same rope, then yes one could state that the mischievous person could cause the man to fall
Jun '10
Re: Was the 2008 Economic Crash the Work of Financial Terrorists?
Claire, you have to go lightly on any conspiracy theory in markets for the simple reason that for every long, someone can take a short position, which is to say for every buy there is a sell. When you get into long bull runs (asset prices on a sustained rise), bears are lining up trying to predict the turn. I don’t know how inside baseball I should get here, because I don’t want to imply that most of the Ricochet audience doesn’t know this stuff, but a short allows an investor to make money when asset prices collapse. What the short seller or bear does is borrow say 1,000 shares of stock (this is a short or put) that he then sells at market at $100 per share in the hope of replacing the stock borrowed by buying it back at some future date at a lower price (cover his short). If the stock price falls, for example to $50 per share, the bear has just made $50K [(1000 X $100) – (1000 X $50)] [put - call] on the move. Given that millions of such trades are made worldwide daily, how would anyone prove a conspiracy?
Jun '10
Re: Was the 2008 Economic Crash the Work of Financial Terrorists?
The other problem with financial conspiracy theories is that investors are shrewd and know where their best interests lie. Here’s an example: You decide to go long on Chevron, because you anticipate the situation in the Middle East will impact oil prices. I, being a loyal Ricochet follower, read in one of your superbly erudite posts that the Middle East is on fire and decide to buy oil futures, because I think oil will increase in price. Have we formed a conspiracy? Does it look as if we have? This situation is analogous to you and me, in the same instant, spotting a Benjamin on the ground. As luck would have it we both bend to pick up the bill and bump heads. Could it be argued that we were in a conspiracy to bump heads? I know the question sounds foolish, but that is what is in effect being argued.
Jun '10
Re: Was the 2008 Economic Crash the Work of Financial Terrorists?
I think we balanced a great big economic boulder on top of a steep hill, and maybe, somebody with a lot of economic power (in the Middle East?) that doesn't like us very much, gave it a little shove at just the right time. I can believe that much. The sin was making it so easy for them to damage us.
Re: Was the 2008 Economic Crash the Work of Financial Terrorists?
Very interesting comments--Cas, your instincts sound right to me. I did violate Principle Numero Uno of Intellectual Hygiene, though, by posting this without reading the report in question. I'll try to scare up a copy of the thing. We shouldn't judge it based on a secondary interpretation of it. I'd be curious to know the details of the analysis.
Oct '10
Re: Was the 2008 Economic Crash the Work of Financial Terrorists?
If the details are available, I'd be interested as well. As a computer scientist, I'm torn between "never ascribe to malice that which can be adequately explained by stupidity" and this.
Dec '10
Re: Was the 2008 Economic Crash the Work of Financial Terrorists?
Accident or design..or perhaps a little of both? I like Paul's quote .. Barney Frank and Chris Dodd certainly fall into that category hands down!
Oct '10
Re: Was the 2008 Economic Crash the Work of Financial Terrorists?
Coming late to this party, it’s Occam’s Razor and a perfect storm of:
1. BAD LAWS
a) the Fed’s dual mandate, specifically the half giving them responsibility for full employment
b) Community Reinvestment Act – allowing/pushing unqualified people into home ownership
d) fostering crony capitalism between Washington and the mega-banks of Wall Street, especially allowing investment banks to fund their trading operations with public money
2. BAD REGULATION
a) the Fed’s keeping interest rates so low for so long.
b) forcing mark to market accounting rules on illiquid assets
c) Congress (especially Messrs. Frank and Dodd) pushing regulators and banks to loosen lending standards
c) elimination of the short sale uptick rule
3) MARKET RESPONSES
a) give a real estate developer $$, and he’ll build at every opportunity
b) the finance and support industries mobilize to fill a market need
c) individuals seek quick turns among assets best held for long periods
d) traders (speculators) do what they do
3. THE NATURAL BUSINESS CYCLE
a) Markets fluctuate
Read the classic “Extraordinary Popular Delusions and The Madness of Crowds” – it will happen again…without the need for macro-sized malevolence beyond Ponzi and his heirs.
Feb '11
Re: Was the 2008 Economic Crash the Work of Financial Terrorists?
Let's see, the Fed keeps negative real interest rates for a period of four years, and it was anybody else's fault other than the Fed's? Amazing. So in Phase III, the Fed is keeping negative real interest rates yet again, and we expect a result other than what has gone before? Again, amazing. But of course, let's blame it on the Chinese. Can't possibly lay the blame at the feet of any one with from inside the Beltway with the right connections.
Edited on Mar 5, 2011 at 6:50amNov '10
Re: Was the 2008 Economic Crash the Work of Financial Terrorists?
This appears to be the complete report, all 105 pages. I have not yet read it.
http://www.scribd.com/doc/49755779/Economic-Warfare-Risks-and-Responses-by-Kevin-D-Freeman
Nov '10
Re: Was the 2008 Economic Crash the Work of Financial Terrorists?
And this may be a better site, as it does not require a Facebook registration to download in .pdf.
http://snardfarker.ning.com/forum/topics/pentagon-sponsored-report
Re: Was the 2008 Economic Crash the Work of Financial Terrorists?
Wow--Ricochet is great. I have but to voice a hope of finding a document and next thing I know, it's delivered to my doorstep. Has anyone read it yet? I may have to put off reading it for a few days, I've got a few deadlines to deal with. But I'd be curious to see highlights if you find something interesting.
Re: Was the 2008 Economic Crash the Work of Financial Terrorists?
Claire, I think this is bunk. For one thing it is dated and much data has come out since then. For example, the $134 billion in fake Treasuries story was baseless: Treasury bills and bonds have been purely electronic issue since 1996. We knew that at the time. What one person calls "a bear raid" could just be stabilizing speculation by an investor who realized Fannie and Freddie were failing institutions, or that Bear Stearns was being run poorly.
I like Del Mar Dave's list, but when we tried to write one in my money and banking course two summers ago our list ended up with 26 explanations, all published by people with good reputations. Chances are there's a combination of a subset of those that mattered a lot, and no one was enough to do the job. Did speculators make money somewhere during the crisis? Absolutely, but without the bad fundamentals in place they wouldn't have.