US GOVERNMENT KNEW ABOUT THE FINANCIAL CRISIS IN 2006

quote: "Success is a thought process"

The fundamentals of the economy is strong, John McCain the US presidential candidate said in 2008.

I think the US companies are probably one of the most competitive on earth. BUT the US economy is fundamentally strong?

US Trade secretary Hank Paulson visited China in 2006 at the behest of George Bush. During the visit to China, he addresses issues such as trade imbalance, and lectures China on over-saving and pressures China to re-value China's currency.

One of the issues was that China used it's massive savings to buy US treasury bonds. This in effect finances the US trade deficits, but on the other hand, it keeps China's Yuan artificially low as the reserves/surplus was immediately shipped out of China.

I remember (though I can't find the article, someone who has it, please send it to me) that Hank Paulson was asking China to diversify it's reserves. He was actively Touting Freddie Mac and Fannie Mae bonds to China, in that visit.

China said, thanks but NO Thanks.

Hank Paulson was the ex-CEO of Goldman Sachs, he has enough knowledge to know that Freddie Mac and Fannie Mae were time-bombs waiting to blow up. The US government was smart enough to ask China to buy those useless bonds as early as 2006.

In fact the problems of Sub-prime dated back to the early 2000, but over-leveraging, off-balance sheet risks and derivatives were probably started much earlier.

What I could not understand is that, what the US government saw was the "train" running out of tracks, but did not do anything to stop the Financial Train from crashing. Neither did it do anything to slow down the train.

Had China bought Freddie Mac and Fannie Mae bonds in large amounts (like Hank Paulson suggested China should do), these 2 over-leveraged companies would have been able to delay facing the "music" and continue to lend irresponsibly. The US government bail-out would not have been necessary and in case they go bankrupt, China would have been burnt the most.

So the key thing to do is, read more, learn more. Do not despair when it seemed hopeless (for hope is around the corner) and do not GREED when everything seemed perfect (Doom often follows greed). So many of these BOOM and BUST cycles are timed almost to perfection for the well-informed to get more wealthy while the rest gets burnt.

If you think that following the crowd is safe, then you would be happy to know that in the USA, 5% of the people control 90% of the wealth. If the crowd is right, then wealth would be distributed more evenly.

Now that things are very bad and it is set to get worst. But do not despair, people like Warren Buffet has begun to take biggest stakes in well run companies whose share prices have been beaten down. So controlling the emotions is the key to maintaining your wealth in this volatile market.