Reckless Behavior

The subprime crisis is the result of reckless behavior by U.S. banks and negligent career politicians and bureaucrats in Washington. The U.S. Federal Reserve’s larger-than-expected interest cut in 2007 resulted in a sell-off of U.S. Treasury bills and a drop in their value to help bankrupted American homeowners, hedge funds and investment banks. It was a kick in the face to China and other foreigners who own U.S. bonds because rising inflation weakens the dollar. China, like other foreigners, trusted America and built up their safety net by buying American assets and are now being asked to pay for the burst U.S. property bubble.

To make matters worse, the U.S. announced it would “freeze” some subprime loans to help the beleaguered banks amid news that foreclosures rose to a record high. Why do reckless borrowers and their irresponsible lenders have to be bailed out at the expense of We the Apathetic Maids? People and banks should be punished for their mistakes, not rewarded. Otherwise people and institutions that benefit from such protection tend to allow it to influence future decisions and chances are they will repeat their mistakes ─ again at the expense of We the Maids.

The U.S. in effect decided to rob foreigners, including China, to pay for its lending sins. The U.S. current account deficit has been the primary cause of global financial imbalances. Since 2002, the U.S. has been sucking in more than $2 billion a day from China and other countries’ savings to provide easy credit to U.S. consumers that allowed We the Apathetic Maids to spend more than we earned. Foreigners only way to fight back was to sell U.S treasuries which immediately increased bond yields and depressed the U.S. property market and economy.