How did They Lose Your Retirement Nest Egg?

You may well ask how did Wall Street, Governments and the wealth management industry make your nest egg disappear.

You should know how it happened so you do not repeat the same mistake of trusting people who never had your best interests at heart in the first place.

Your money was your fund managers to risk so they could make themselves rich. Remember when money is passed from hand to hand the emotional attachments between the owner, the money and the Fund Manager does not exist.

That means that to them it is only money they have to invest in order to pay their bonuses, mortgages and life style. The fact the money belongs to you is not in their conscious mind. I’m sure it is not intentional, I believe it just is.

In short order here is what happened courtesy of Fox News, “Saving Our Economy What’$ Next?” and Professor Robert Wright from New York University;

  • Fannie Mae was created to help people buy houses after the Great Depression with an implicit government guarantee.
  • Lyndon B Johnson privatised Fannie in the 1980’s to try and make it more competitive.
  • Carter passed a bill to ensure anyone could buy a house. The banks had to toe the line.
  • Acorn Community Group acted as unofficial enforcers to make sure banks provided low cost loans to low income earners to buy houses.
  • The idea to Support Affordable Housing was actively promoted through Congress.
  • Sub Prime Loans had low interest rates initially and no down-payment.
  • Banks packaged mortgages up and sold them as Mortgage Backed Securities (MBS of $100M each) to Life Insurance Companies, Pension Funds and Investment Banks.
  • The MBS’ included differently rated mortgages from AAA (low risk/low return) to B (high risk/high return) to BBB-(<25% defaulters)
  • Investment Banks packaged the MBS up as Collateralized Mortgage Obligations (CMO’s of $2B each) and sold them to Institutional Investors (Your Mutual Funds I am assuming) and other Investment Banks to hold on to. Even China purchased them I believe. They spread worldwide. Aussie Local Council have some from Lehman Bros.
  • I understand European and other International Banks financed the Investment Banks and leveraged them up just as the US Banks did.
  • As long as House prices rose these CMO’s were fine. When House prices dropped the sub prime mortgage owners with no money invested and their house worth less than they bought it for, stopped paying their mortgages.
  • The safety net was credit insurance. But it failed as more and more sub prime mortgage owners stopped paying their mortgages. The insurance company took on more risk than it could handle once the defaults began to grow.
  • This resulted in the Investment Bank melt downs and the banks stopped lending to each other because they didn’t know who was exposed to the CMOs and by how much.
  • Also the value of the CMOs could not be assessed as house prices kept falling.
  • With $1 Trillion of sub prime on their books they all froze. The credit business virtually came to a standstill.
  • In 2003 John Snow told House Financial Services Committee that Fannie Mae and Freddie Mac were becoming a major problem.
  • Barney Frank said Fannie and Freddie were fundamentally sound and stressed the need to keep housing affordable.
  • Fannie and Freddie were found to have cooked their books to make things look less risky.
  • Greenspan said there was a need to strengthen the regulations governing Fannie and Freddie. He said this need to be done urgently or it would, ” put at risk our ability to preserve safe and sound financial markets in the US.”
  • In 2005 Republicans tried to get a regulation to stop Fannie and Freddie acquiring more bad mortgages, but Democrats blocked it.
  • In 2006 Republicans tried again but it was defeated.
  • In 2007 the bubble started to burst with two hedge funds failing in June.
  • Between 2007 and now Investment Banks have failed, AIG the insurer has been bailed out, Paulson has a $700B war chest and the World appears to be guaranteeing everyone’s bank deposits.
  • The stock markets are down 30-40%.
  • Retirement funds may well be down 25% or more so far this year.
  • The credit crunch is still to play out.
  • They say when the US sneezes the rest of the world catches cold. If the US goes into a severe recession, the rest of the world had better watch out.

As a precaution start accumulation cash to live on, just in case.

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