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Foreclosures Resulted from Blatant Search for Profits

Foreclosures resulted from the blatant search for profits by the business lobby when they found that during the last few decades their rate of takings had dropped. The methods they adopted made them more or less successful and they nearly approached the peaks of the 1960’s.

From the time of the last recession in 2001, profits have improved especially because of increase of productivity (4% to 5% annually) without any hike in real wages. This estimate is on the conservative side as USA production abroad has not been taken into account. It also excludes the multi million dollar remunerations given to top executives of the corporate sector.

One third of the total profits have come in from the financial sector much of which is fictitious. This means the figures have been inserted in the books anticipating profits but the current crisis will not support the figures.

The recovery of the profits has been made at the cost of the workers. However despite this there has not been any increase in investment in business and thus employment has not been created. These profits have been invested in other ways. Higher dividends have been paid out to stock owners – or in other words to themselves. They have bought back the shares of their own companies. This increased price of stock and consequently the compensation of their executives. Thirdly they loaned out the profits in the form of mortgages. This contributed to the speculative bubble of recent times.

The workers did not benefit even from a trickling down effect as with investment there would have been more jobs. Instead the profit takers spent their dollars on luxury items like luxury airplanes, cars, jazzy holiday homes and the like. A good portion of the profits they invested in areas of the world where wages were low.

As a consequence of having high profits in their pockets and continued disregard for investment, these financial bigwigs had plenty of money to lend out. The problem was that the non-financial firms did not need to borrow. Thus the financial group began to hunt around for borrowers.

The scene was perfect for the predator to prey on the victim. Workers stagnating with low wages had an urgent need to borrow to go on with life and buy a car or a house. Sometimes for basic necessities they needed money. From 1970 to 2006 bank lending increased from 30% to 50%. Where that dizzy lending led to is there for all to see today.

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