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all gold bullion from the public. Those who refused to taxpayer funds to rescue half of the S&Ls. To do so, turn in their gold would be imprisoned for 10 years. By Freddie Mac was given the task of giving sub-prime the end of the year, the gold standard was abolished. What _—_ (below prime-rate) mortgages to low-income families. had been redeemable for gold became paper "legal In 2000, the "irrational exuberance" of the dot-com tender", and gold could no longer be exchanged for cash bubble burst, and 50 per cent of high-tech firms went as it once had been. bankrupt, wiping $5 trillion from their over-inflated Later, in 1971, President Nixon removed the dollar from = market values. the gold standard altogether, therefore no longer trading at After this crisis, Federal Reserve Chairman Alan the internationally fixed price of $35. The US dollar was Greenspan kept interest rates so low that they were less now worth whatever the US decided it was worth because than the rate of inflation. Anyone saving his or her it was "as good as gold". It had no standard of measure _—_ income actually lost money, and the savings rate soon fell and became the universal currency. Treasury bills (short- —_ into negative territory. term notes) and bonds (long-term notes) During the 1990s, however, replaced gold as value, promissory notes advertisers went into overdrive, of the US government paid for by the marketing an ever-more-luxurious taxpayer. Additionally, because gold lifestyle, all made available with cheap, was exempt from currency reporting easy credit. Second mortgages became requirements, it could not be traced— . eye commonplace and home equity loans unlike the fiduciary (i.e., based upon The financial industry were used to pay credit card bills. The trust) monetary systems of the West. H more Americans bought, the more they That was not in America's best interest. also believed that fell into debt. But as long as they had a After the Great Depression, private housing prices would house, their false sense of security banks remained afraid to make home . remained. Their home was their equity: loans, so Roosevelt created Fannie Mae. forever climb, but, it would always go up in value, and they A state-supported mortgage bank, it could always remortgage at lower rates provided federal funding to finance should they ever fall, if needed. The financial industry also home mortgages for affordable believed that housing prices would housing. In 1968, President forever climb, but, should they ever Johnson privatised Fannie Mae. In fall, the central bank would cut 1970, Freddie Mac was created to interest rates so that prices would compete with Fannie Mae. Both of jump back up. It was, everyone them bought mortgages from banks believed, a win-win situation. and other lenders and sold them on Greenspan's rock-bottom interest to new investors. rates let anyone afford a home. Minimum-wage service workers with aspirations to buy a half- million-dollar house were able to created an America flush with cash secure 100-per-cent loans, the and assets. Americans could afford mortgage-lenders fully aware that all the modern conveniences and exported its these workers would not be able to keep up the payments. manufactured goods all over the world. So many people received these sub-prime loans that the As a military—industrial complex, the USA profited investment houses and lenders came up with a new exponentially from war and, unlike any empire in history, | scheme: bundle these virtually worthless home loans and it shot to superpower status. But it failed to remember _ sell them as solid US investments to unsuspecting that, historically, whenever empires rise they fall in direct countries that would not know the difference. American proportion. lives of excess and consumer spending never suffered, and After the Vietnam War, the United States went into an __ were being propped up by foreign nations none the wiser. economic decline. But people were loath to give up their elevated standard of living despite the loss of jobs, with | Cashing in and crashing on derivatives the central bank would cut interest rates so that prices would jump back up. The descent into debt The post-World War II boom had production increasingly being sent overseas. A sense of It has always been the case that a bank would lend out delusion and entitlement kept Americans on the treadmill more than it actually had, because interest payments of consumer consumption. generated its income. The more the bank lent, the more In 1987, the US stock market plunged by 22 per cent in _ interest it collected—even with no money in the vault. It one day [19 October] because of high-risk futures trading, _ was a lucrative industry of giving away money it never called "derivatives". had in the first place. Mortgage banks and investment In 1989, the savings and loan (S&L) crisis resulted in houses even borrowed money on international money President George H. W. Bush using $142 billion in markets to fund these 100-per-cent-plus sub-prime the housing prices would forever climb, but, should they ever fall, the central bank rates so that prices would jump back up. Cashing in and crashing on derivatives It has always been the case that a bank would lend out more than it actually had, because interest payments generated its income. The more the bank lent, the more interest it collected—even with no money in the vault. It was a lucrative industry of giving away money it never had in the first place. Mortgage banks and investment houses even borrowed money on international money markets to fund these 100-per-cent-plus sub-prime 24 ¢ NEXUS The financial industry also believed that _ would cut interest www.nexusmagazine.com DECEMBER 2008 — JANUARY 2009