Why we are where we are

The Stock Market is on the verge of catastrophic failure as major stocks such as the Dow drops 777 points in a day, closing lower each day than it has in 4 years. The complexity of the economy is so vast that professors with doctorates in economics can barely comprehend and know all the factors that cause will economy and Stock Market to fluctuate. Predicting the outcome of the Stock Market relies upon analysis of history, and this year, history is in the making as the Global Market approaches a systematic meltdown; a crash back into the history of 1987 and the Great Depression. This immediate plunging of the Stock Market and U.S. and Global economy comes from a 10 year process of extremely risky speculation on mortgages and the housing industry, fraudulent companies, and the deregulation of banks in the United States. New proposals from the presidential candidates need to be associated with these problems that have now avalanched onto the economy so that hope for the world's market exists.

The 1987 Stock Market crash proved to be a fearful day known as "Black Monday" where, according to Jennifer Itskevich of the History News Network, "the Dow Jones Industrial Average plummeted 508 points, losing 22.6% of its total value. The S&P 500 dropped 20.4%, falling from 282.7 to 225.06. This was the greatest loss Wall Street had ever suffered on a single day." Just last Monday the Dow dropped 800 points and the S&P plunged 3%. The data is getting closer to the times it was in prior to 1987. Itskevich accounts for the 1987 crash through, "computer trading and derivative securities, illiquidity, trade and budget deficits, and overvaluation," as she follows with detailed economist quotations. But today's financial crisis expands into a global predicament as the U.S. mortgage and low housing costs have damaged the Market.

According to CQ Researcher online, Kenneth Jost writes that the giant Swiss bank USB, the "world's largest wealth management company," lost $38 billion because of risky speculation in the U.S. mortgage industry. On Wall Street, Jost writes, the investment house Bear Stearns was near bankruptcy as they only had "mortgage-based" security. JP Morgan gave an emergency loan after the Federal Reserve stepped in to give JP Morgan $29 billion of credit. "Much, but not all, of the blame for the financial dislocations at Bear and other institutions lay with the explosion of subprime mortgages: expensive, frequently high-interest loans hawked aggressively by mortgage brokers, often to speculators or home buyers with poor credit, and then packaged into mortgage securities for sale to banks or other financial institutions. Far removed from the borrowers, the financial institutions either could not or did not carefully evaluate the quality of the underlying loans." This led to hollowed out banks as they included the unpaid loans from poor credited borrowers as overseen assets. The source of the current Stock Market sprouted from the dangerous speculation of the housing market and then the crookedness of banks.

Fraudulent companies such as Enron had a significant affects on the Stock Market. After the company had crashed due to fraudulent activity, large investment companies had kept Enron's bonds which falsely raised the speculative rating of the Stock Market so that when the bonds were liquidated and worthless, the Stock Market suddenly, overall, dropped.

Deregulation for banks continued in the 1990's as lobbyists of the Republican party pressured Congress. According to CQ researcher, in 1994 the Interstate Banking Act lifts restrictions on interstate banking. Banking would become easier with other banks from other regions of the country, and so would investment banking and reaching out nationally to advertise consumers to purchase loans. The mortgage purchasing exponentially increased as banks and companies made billions of dollars of quick profits, but the consequences seen today are extreme because of the deregulation.

As banks turned into investment banks, it squeezed itself as a role in the global economy and Stock Market. These banks would pressure consumers to purchase loans way out of their paying capabilities which would generate quick cash for the banks; billions of dollars at a time. Stocks would rise and the risky speculation commenced. People would buy expensive houses with a loan in order to receive 200% profit on the house when they sold it if the housing market went up. But the housing market did not go up but in fact went down, and these often poor people could not pay the loan back; therefore walking away from it. The banks failed to recognize this lack of money and recorded it as assets to be recirculated through the banks and into consumer hands. The problem was that there wasn't any money there. Banks became hollowed out therefore Stocks declined, people panicked, and Markets fell.

What both fail to address in the regulation of banks which in turn would reverberate back to the mortgage crisis as loans will not be released so easily and instead would be based on good credit ratings. Both Barack Obama and John McCain agreed on the $700 billion bailout for consumer debt because of the naive and extremely risky speculation of the housing market and over use of loans and bankruptcy. Obama's policy on the mortgage crisis stands as urgent, and he proposes to "create a 10 percent universal mortgage credit to provide homeowners who do not itemize tax relief. This credit will provide an average of $500 to 10 million homeowners, the majority of whom earn less than $50,000 per year," as found on Obama's website. McCain only suggests to keep housing for people instead of addressing the failure of paying loans and the mortgage issue in general. "McCain is calling for aggressive federal action to help keep 200,000 to 400,000 families from losing their homes."

The election has focused on the mortgage crisis initially but then shifted to the declining Stock Market and now global economic crisis. The mortgage and banking issues are what need to be addressed in order to help stimulate the economy and Stock Market again as they are those are where the crisis began. Kenneth Rogoff, a renown Harvard economics professor, says in the British online newspaper The Guardian that the banks' have been running on taxpayers' credit, and the run is over. He theorizes that banks need regulation. "the financial industry now needs to undergo a period of consolidation and pruning. Weak banks must be allowed to fail or merge, so that strong banks can emerge with renewed vigour," Rogoff states. Jost writes in CQ Researcher that, "Subprime mortgage crisis leads to global credit crunch."

Mortgage, mortgage, mortgage. That's all I can say. The mortgage crisis is the epicenter of the entire wave of global economic meltdown. The mortgage crisis and consumer debt led to hollowed out banks, which led to a global credit crunch, with led to the declining of the Stock market, which leads to obliteration of pension plans, and the whole world is affected through the Swiss Union Bank and European Markets. Obama's economic plan is the best overall as he addresses the mortgage crisis more in depth than McCain. Obama states he, "will work to eliminate the provision that prevents bankruptcy courts from modifying an individual's mortgage payments. They believe that the subprime mortgage industry, which has engaged in dangerous and sometimes unscrupulous business practices, should not be shielded by outdated federal law." This comes as close as it will get to regulation of banks. If the mortgage issue can be fully addressed and focused, then the global economy has a significant chance of rebounding.