What happend

Simon Johnson explains the financial crisis for us in simple terms. There are several points which he could of added, though they might have ventured far afield of the central theme. The first major point not mentioned is the integration of financial sector leadership and political leadership, so that the financial sector is actually designing the economic policy of the Government. Conservative Republicans first made the term 'Civil Service’ a dirty Word, and started the draft of Private Sector Executives to run the Government, initially the Oil industry, but later from the finance sector. Johnson also did not bring up the term ‘Leverage’–a good definition of Leverage is Banker refusal to abide by the same level of collateral liability, as they demand from Those who would borrow from themselves. Bankers promise to pay Stockholders, Depositors, and cover the financial demands of Businesses; both without the residual Cash on hand, or any sound medium to raise that Cash. Their chosen option is to run a legalized Ponzi scheme where they take huge amounts of Investment Cash from Others, with the promise that they will actually pay back this huge amount with high Percentage of Cash Profits.

Here is where the problem became obvious. Interest, or Cash Profits, on Debt must come out of the Profits of Business operations or individual debtors. Individuals will not starve to pay off personal debt, and Business employees will not work for nothing. This means that payment of debt is totally dependent on the minimization of Production Costs to the degree that the sums necessary for debt service can be drawn from Business operations. It is the obtentially proscribed duty of financial lenders to ensure that this payment schedule can be realized without impediment. This was the downfall of the financial sector and cause of the crisis.

The leadership and employees of the financial sector were paid to make loans on a Bonus basis, while they were paid nothing to ensure that the loans could be repaid. Leverage, which is basically borrowing against previous loan obligations made by the financial sector, relies upon all loans being repaid from the ground up; with leverage sometimes 35-40 the amount of initial capital. This constitutes multiple points where Production Costs must be maintained in line to pay the required debt service, or the whole framework would start to unravel. Leverage decreed that diligent care be exercised in the issuing of loans due to the greater assumed Risk, but bankers and employees sought the bonuses rather than Safety. This is Why the American Taxpayer gets to pay off bad loans made before the Taxpayer Wages and Profits made the funds liable for the Tax. It is not pretty! lgl