When it comes to financial matters, most Americans know very little about how the financial markets work, let alone their own checking account. If you try and explain the derivatives market to the average Joe, you will get a deer in the headlights look from them. That is really no surprise because of the complexity of the derivatives market. People shouldn't feel stupid because this was set up so people can't understand it, except for those who created it. In fact, back in 1999 the Glass-Steagall Act was overturned just so the megabanks could trade with no regulation. The bad thing about this is, it's our money these guys are playing with. When they lose money, bankruptcy is not in their future as they are bailed out by the government. What people don't understand is when the US financial markets collapse, the economy comes down with it. Looking back to 2008, the economy went into full cardiac arrest because credit became unavailable to consumers and businesses. This financial debacle was caused by a real estate bubble that was created by the same banks that we bailed out. As many Americans ended up filing for bankruptcy and losing their homes to foreclosure, banks got bailed out with trillions of taxpayer dollars.
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The easiest way to describe the derivatives market is that it is nothing more than a Wall Street casino that allows the banks to bet on the future value or performance of a currency, commodity, stocks and even how the interest rates will perform. Some of these bets are controlled by the same folks that are betting on it. They believe there is nothing wrong with what they are doing and it works fine as long as there aren't any wild swings in the economy. Most recently, MF global had to file bankruptcy because of bad derivatives trades it made against European currencies. It is become the Wild West out in the banking world with MF global admitting that it diverted money from customer accounts that were supposed to have been kept separate. Currently, these guys are betting like drunken sailors and being bailed out by the central banks. The Fed is printing $85 billion a month to give to the banks so they can buy back US mortgage-backed securities. The media keeps pumping the economy saying that the foreclosure crisis is over and now is the time to buy real estate. At the end of 2012 there were over 5 million homes in the US in distress and on the road to foreclosure. Many experts believe the exposure to the global derivatives market to be anywhere from $600 trillion all the way up to 1.5 quadrillion dollars. This doesn't sound like recovery to me, but a category five storm brewing.
After the financial meltdown of 2007, when banks should have had to file bankruptcy for bad management, they were being rewarded with huge bailouts. These banks have now grown to gigantic proportions of what they were in the past and now control the entire economy. Recently, the federal government reported that the four largest banks in the US represent 93% of the total banking industry and 81% of the industry net current credit exposure. I thought that our government was supposed to protect us from this kind of consolidation of power. They have become so powerful allowing them to collapse would collapse the US economy. One thing that would stop the craziness immediately would be bringing back the Glass-Steagall Act. This would bring credibility and accountability back to the banking industry.
As all this is going on, Americans need to be aware of their personal circumstances and find a way to become debt free even if it means filing for bankruptcy. The average American now has more than $16,000 in credit card debt and rising. As the income of the middle class continues to decline with indebtedness rising, people need to figure a way to eliminate their debt. Now is not the time to wait for the economy to return. It's best to live in the here and now and deal with the sure thing. A study recently reported that the average American is only three paychecks away from filing bankruptcy. This is frightening because it shows how much the average consumer is relying on their credit cards for their security. We need to wake up, set our pride aside and consult a bankruptcy attorney if necessary. It's time that Americans get back to a debt-free lifestyle and don't be enslaved to these megabanks.
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