If you, your family or friends were negatively impacted by the financial crisis of 2007 to 2009 I recommend that you read Charles Gasparino's book, The Sellout - How Three Decades of Wall Street Greed and Government Mismanagement Destroyed the Global Financial System.  When I bought The Sellout a few months ago I was already familiar with Charles Gasparino's work.  I watched his reports when he worked for CNBC for a couple of years and I have been following his Twitter feed for a few months.  Gasparino now works for Fox Business Network, which I don't see on a regular basis.  I also was aware that Gasparino had previously authored books about Wall Street and worked for the Wall Street Journal where he had an excellent reputation as a reporter focused on the Wall Street beat.

I wasn't sure how much I would learn from the 500 pages in the 2010 paperback version of Gasparino's book that was originally published in 2009.  I was hoping to find new information because I had already read and reviewed several books about the financial crisis.  The Sellout was well worth the time and energy I invested in reading it from cover to cover.

From my perspective the most important new information from The Sellout is the history of Wall Street's love affair with mortgage backed securities and the series of financial crisis's that Wall Steet created in this segment of the financial industry.  The government's bailout of the financial industries' failure to properly manage mortgage backed securities risk during 2008/2009 was the fourth bailout of Wall Street due to mismanagement of this particular segment during my adult life.  The three previous bailouts occurred in 1986, 1994 and 1998.  Gasparino explains how the prior bubbles occurred, which Wall Street firms created the bubbles through their failed risk management process and who the individual players were that were responsible for the failures.

Gasparino does a very good job of leading the reader through the events of the 2007 to 2009 financial crisis.  If you desire to get a more detailed perspective on the day to day events that occurred during the crisis I suggest reading Andrew Ross Sorkin's book, Too Big To Fail.

It is very hard to read The Sellout without getting angry at a lot of people in our country.  There is a tremendous amount of blame to pass around.  There is no doubt that Bear Stearns, Lehman Brothers, Merrill Lynch and Citigroup managements effectively killed their careers, their companies and their investors through mismanagement of risk brought about by pure greed.  Other Wall Street firms deserve discredit as well but none of them reached the level of stupidity as the big four.  Let us not forget Bank of America and Wachovia and other non-Wall Street bank managements that wanted to be as rich as their New York industry cousins.  The credit ratings agencies proved themselves to be useless agents of Wall Street in their greed motivated search for profit.  After reading The Sellout I don't see how I can ever trust their judgement in the future.

The insurers of mortgage backed securities led by AIG are also to blame. Greed was the fundamental motivating factor driving the actions of the insurers.  The mortgage originators like Countrywide Financial and New Century Financial and their distribution channels down to the individual local mortgage brokers justified and provided mortgages to consumers that thew knew could not afford them.  Greed overwhelmed good judgement at every level.

The government is equally to blame for the financial crisis.  The SEC was absolutely not engaged in doing its job during the failed tenure of Christopher Cox.  Fannie Mae and Freddie Mac, as quasi governmental corporations, share as much blame as anyone in the creation of the problem a combination of management greed and Congressional mandate destroyed both firms.  The Federal Reserve didn't properly supervise the banking system during this period. Congress and multiple Presidents were big advocates of maximizing home ownership even for people that should never have been allowed to own a home for financial reasons.  There are probably more government agencies that I could list.  The government is an equal partner with the financial industry in creating the financial crisis.

Last, but not least, are the home buyers that knowingly bought homes they could never afford, and the scam artists that were trying to flip homes in hot markets  We should also include in our bad guys list those home owners that attempted to use the equity in their homes as an ATM by refinancing their homes with adjustable rate mortgages or taking out far too large home equity loans.  I am sure there are many people that were coerced into making bad decisions by unscrupulous mortgage brokers/salesman.  However, it is hard to feel sorry for someone that signed a mortgage for a home that was never affordable for them.  They never should have been in the market.

The US has yet to fully recover from the mortgage debt driven financial crisis.  The thirty years of ever expanding mortgage debt and the excess home construction that resulted (both number and size of homes) has yet to be worked off.  Our fearless political leaders are frustrated that the housing deflation that occurred after the bubble burst hasn't resolved itself.  They need to read The Sellout to understand how long this problem has existed.  It will take much longer than a few years to work off the housing excesses that built up over thirty years of mortgage debt mismanagement.

One of the saddest aspects of the whole situation is that the underlying problems that relate to Wall Street, the major banks, Fannie Mae and Freddie Mac and the government regulators haven't been resolved.  The actions taken by our government and the Federal Reserve haven't gotten at the heart of the problem, effectively controlling and regulating the greed that is the emotional underpinning for the people that manage the mortgage business at all levels.

Read The Sellout by Charles Gasparino if you want to really understand how greed and mismanagement almost destroyed the global financial system.  The final chapters on the bursting housing bubble have yet to be written.  Hopefully, we won't all be destroyed when it is finally over.

TPM

This afternoon President Obama presented his vision for a 12 year $4 Trillion reduction in the future deficits of the US government.  Today's outline was a complete rework of Obama's FY 2012 budget that he submitted to Congress just a few weeks ago.  It appears that our President is not taking our nation's financial problems seriously.  It appears Obama regards the federal budget as a political tool rather than as a measure of the financial health of our nation.  Obama finally came forward with a deficit reduction plan after Paul Ryan and the House Republicans presented their $4 Trillion 10 year deficit reduction plan a few days ago.

The problem with both plans is that the current deficit run rate is about $1.6 Trillion per year.  If somehow the US government were to reduce its spending by $300 to $400 Billion per year ($4 Trillion over 10-12 years) the government will have eliminated about 20 to 25 percent of its annual deficit and just slowed down the growth of the national debt.  Paul Ryan makes some meaningless extremely long term assumptions that result in elimination of our debt way out in the future.  Anyone that has ever done long term financial planning knows that there is no way to project financial outcomes accurately that result in dramatic directional changes.  It doesn't appear that Obama will even attempt to get close to a balanced budget.  His goal appears to be for the US government to run deficits that are a few percent of GDP per year and to let the debt compound indefinitely.

Neither plan addresses the impact of the ever increasing federal debt load on the future interest rates of new debt and rollover of existing debt.  Neither plan addresses the potential impact of foreign sources of capital changing their perspective and investment policies on the value of the US dollar and global foreign exchange rates.   The US no longer has control over its financial future.  Foreign sources of capital will determine how much US debt is financed and at what rate.  International trade in currencies other than the US dollar is accellerating quickly because everyone in the world knows that the US government is undisciplined.  Economic power is the source of political power in the world.  US economic and poltical power is waning as our deficits continue and debt builds steadily.

The only solution that is workable is a fundamental restructuring of the business of the United States of America.  This means that all government program costs must be slashed.  This includes all entitlement programs, DoD and other government costs.  I would not argue with those that suggest some tax increases.  There are rational ways to raise taxes.  However, our fundamental problem is current spending and promises for future entitlement programs that are not affordable in any scenario.  Every US government department, every program, and every entitlement program needs to be substantially cut or eliminated.

I realize that what I have suggested will be completely rejected by many if not most readers.  However, it is the only way the US can maintain control of its finances in the long term.  If we continue down the paths from the House Republicans or our President we will ultimately hand control of our fate to the world financial markets.  The world markets are compromised of governments, companies and individuals that collectively have the power to determine our fate.  For those that don't believe this to be true I suggest you think about this issue very hard.  Ultimately, world markets are bigger than any person, company or country, even the United States of America.  If we don't get our financial act together very soon, our standard of living will be at their mercy.

TPM

The details of last Friday's US government FY 2011 budget deal are now being revealed.  Check out the following article to get the scoop, http://yhoo.it/g9RC2B.  There is no doubt that the Republican House leadership failed to negotiate meaningful budget cuts.  The deal that is on the table accomplishes virtually nothing and should be rejected by the House of Representatives. 

Since Senate Leader Reid and President Obama are not serious about making significant spending cuts, it is time to shut the government down, if necessary, to demonstrate that major spending cuts are more important than any non-critical government employees.   There is no reason to approve the current budget proposal. 

The time has come for the US government to signficantly reduce its level of spending.  Dramatic action is required!

TPM

Are you as disgusted as I am about the inability of the US Congress to pass the FY 2011 budget?  The US government is currently on a path to shut down at midnight tonight.  What is the fundamental underlying issue of this great debate?  I believe it is a fundamental disagreement concerning redistribution of wealth in the USA.  Read my new article, Redistribution of Wealth, http://www.thepurplemuse.com/id46.html, to get my perspective on this issue.

Get ready for a shutdown of the US government in about 1 hour 50 minutes.

P.S. Guess what? John Boehner, Speaker of the House, announced a deal has been reached.  A continuing resolution will be voted upon tonight with a full year FY '11 budget vote next week.  After FY'11 is finished the Congress will move on to deal with the debt ceiling and the FY'12 budget, much bigger issues than FY'11.

TPM

The US government faces a shutdown at the end of this week, if the Congress can't pass its FY2011 budget or another continuing resolution during the next couple of days.  The Democrats failed to approve the FY2011 budget last September when they had complete control of the government.  This was the ultimate in failed leadership.  Apparently, the Democrats were afraid to approve another budget with a $1 Trillion deficit right before the November midterm elections.  They simply kicked the FY2011 budget can down the road to the new Congress.

The new Republican House of Representatives promptly passed its version of the FY2011 budget but the Democrat controlled Senate refused to bring the legislation to a vote.  After five weeks of continuing resolutions the Senate, House and Obama administration have been unable to reach agreement as of this hour.  I am very tired of hearing President Obama talk about Republican's failure to compromise on the budget negotiations when the Democrats had complete control of the process when it should have been completed.  The new Republican controlled House has shown some measure of responsibility and acted quickly when they took on the task while the Democrats continue to talk and talk some more and accomplish nothing.  The FY2011 spending cuts under discussion are very small in comparison to the overall deficit problem.  We are now in the second half of FY2011, there is very little anyone can do at this point to have a material impact on this year. 

I have never had a very high opinion of politicians of either party but I can't stop laughing at the Democrats that I see interviewed by the media.  Everyone that is speaking for the party is trying to justify their actions and it is a joke.  These clowns have turned the US government into the laughing stock of the world. 

Yesterday Representative Paul Ryan, House of Representatives Budget Committee Chair, presented his budget plan for FY2012 and beyond.  I personally don't think the Budget cuts that Ryan proposed were anywhere near what is needed.  However, the proposed cuts were massive in context to President Obama's FY2012 budget that was proposed several weeks ago.  Ryan's budget proposal is a start of a financial restructuring process that the US must accomplish one way or the other.  I am not holding my breath waiting for Congress and Obama to reach agreement on Ryan's budget submission. I would not be surprised if the House and Senate can't agree on an FY2012 budget by September of this year.

The US government has turned into the joke of the world.  We have a President that doesn't provide any leadership and a Congress that won't complete its basic tasks.   It may take another two years before we have sufficient leadership changes in Washington so that some semblance of responsible behavior can be restored.  Maybe we can stop laughing then and start making the hard decisions that must be made to restore responsible fiscal management in Washington.

TPM

To the best of my knowledge, the massive US fiscal deficits and national debt are being covered in depth for the first time tonight on a program called "Drowning in Debt" on the Fox News Channel.  Greta Van Susteren is hosting the show in her regular "On The Record" time slot.  I encourage everyone to watch "Drowning In Debt" on-line or possibly a repeat broadcast.

As I write this blog I have watched the first half of the program and it is very well done.  It presents views from both Democrats and Republicans.  It addresses the deficit and debt problem in a manner that everyone should be able to understand.  The problem is very real and the US is running out of time to get the problem under control.

I want to thank Fox News Channel and Greta Van Susteren and her team for their effort to educate the public about the deficit and debt problem.  There is no longer any reason for any US citizen not to understand the extent of the problem.

It is time for action.  The US can't afford to kick the debt can down the road any longer.

TPM