How investment banks turned housing and student loans into a toxic and financial disaster – Middle class largest asset coopted by banking sector to raid and speculate on. Financial sector nearly 30 percent of all corporate profits in U.S. In the 1950s it was under 10 percent.

MyBudget360.com

October 7, 2011

Most Americans pull their net worth from their investment in good old housing.  It is the biggest purchase most will ever make.  And because of this, after the Great Depression, housing was a boring yet stable investment class.  It had to be.  This is the cornerstone of wealth for most Americans.  Banks used to do their due diligence by verifying income and typically having a say in their local communities.

All that changed starting in the 1980s.  The first foray into banking corruption in housing came with the S&L Crisis.  Thrifts largely gave out money with unsustainable interest rate schemes and when the market imploded, the taxpayers had to step in to bail out the banks.  Yet during the process, many Wall Street financial firms made out like bandits on junk bonds and other “financial innovation” which was nothing more than sugarcoated robbery.  Then in the late 1990s the depression era Glass-Steagall act was repealed and all bets were off.  In a debt based system, housing was the largest debt class for Americans and investment banks decided to turn it into one giant casino.  

This financialization of our country is at the core of the disappearing middle class.  Financial firms are largely wards of the state and operate to suck out rents from the productive economy.

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