Pen Truth Contributor
Do you remember? I don’t know how many remember just where this recession began. This recession began in the commercial lending market, otherwise known as “Commercial Paper.” You may scratch your head and ask; “‘What’s Commercial Paper?” Well, I’m glad you asked. ”
“In the global money market, commercial paper is an unsecured promissory note with a fixed maturity of 1 to 270 days. Commercial Paper is a money-market security issued (sold) by large banks and corporations to get money to meet short term debt obligations (for example, payroll), and is only backed by an issuing bank or corporation’s promise to pay the face amount on the maturity date specified on the note.” – (from a Wikipedia entry on Commercial Paper.)
In 2007, commercial paper dried up. The loans that small companies and corporations depended on disappeared. So what did these companies do? They trimmed their workforce. Why did the commercial paper dry up? The lenders discovered that they were in deep poop with a little things called credit default swaps and mortgage backed securities, i.e. derivatives. These lenders exacerbated the situation by freezing commercial paper.
This act freezing commercial lending was the first domino to fall, or I should say first domino to be tumbled by the “Too Big To Fail” institutions. Domino one; commercial paper dried up. Domino two, companies laid workers off. Domino three, laid-off workers could not pay their mortgages. Domino four, banks raised interest on those, “No Down, Easy Financing, Low Variable Rate” loans. Domino five, the housing market responded by loosing value, (the bubble began to burst.) And the dominoes still fall, and commercial paper is drying up again.
So, who is paying for the folly of the “Too Big To Fail” institutions? This recession is a corporate caused recession. It should not fall onto the poor, elderly and average tax payer to shoulder the burden of the recovery. The government wants to create jobs? Easy, proclaim Supply Side Economics dead and institute “Demand Side Economics.” “Demand Side Economics”? That was the subject of an earlier post.