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Before Hurricane Katrina in 2005, the state of Louisiana asked the Bush Administration several times to fund the Southeast Louisiana Urban Flood Control Project, resources that would have gone toward building up drainage and flood-protection infrastructure in New Orleans. Instead, the federal government cut its funding every year, starting in 2002. A January 2005 memo from the Office of Management and Budget (OMB) denied their last request before the storm, explaining that flood protection was not one of the administration’s priorities; at the time, “fighting the War on Terror,” “strengthening our homeland defense,” and pro-growth economic policies took precedence, the OMB explained.
Even after New Orleans and other parts of Louisiana and Mississippi were under water, the federal government’s focus abroad kept it from responding effectively: 8,200 National Guard troops whose job it would have been to respond to just such a crisis, along with two brigades’ worth of their equipment, were stuck in Iraq. The financial cost—not to mention the cost in human lives—of Hurricane Katrina weighs in at around $100 billion. “It is undeniable,” says Anita Dancs, an economics professor at Western New England University who writes on the economics of war, “that we would not have had such a poor response had we not been in Iraq.”
The Financial Crisis Inquiry Commissions (FCIC), the bipartisan group asked by Congress to determine the causes of the crisis, wrote in its final report that in that during this time, “Money washed through the economy like water rushing through a broken dam. Low interest rates … helped fuel the boom.”
One of the consequences of money flowing through the economy, combined with low-interest rates, was that banks were able to entice homebuyers with adjustable-rate mortgages that had low interest rates in the short term. But the Fed couldn’t—and didn’t—keep rates down forever. When they shot up starting in 2005, mortgage payments followed. Then the defaults began, and soon banks’ balance sheets were wiped out. After September 2008, the economy lost $648 billion to slower economic growth; the Troubled Assets Relief Program (TARP) cost taxpayers $230 billion; declining home-values cost homeowners $3.4 trillion; and the stock market lost $7.4 trillion in value.
“This is a ‘connect the dots’ situation,” Bilmes wrote in an email. The instability in the Middle East, she says, ” was one of the factors that led the Fed to lower interest rates so much which was one of the factors that contributed to the housing and credit bubbles, which were part of the reason for the financial crisis.” The point for Bilmes is that the wars had an impact on the economy beyond just increasing the Pentagon’s budget.
NEW YORK, June 16 (Reuters) - Software widely used in China to help run weapons systems, utilities and chemical plants has bugs that hackers could exploit to damage public infrastructure, according to the U.S. Department of Homeland Security.
The department issued an advisory on Thursday warning of vulnerabilities in software applications from Beijing-based Sunway ForceControl Technology Co that hackers could exploit to launch attacks on critical infrastructure.
The more recent troubles for Carlyle Capital came one week after the Carlyle Group tried, without success, to hold off margin calls and the liquidation of its mortgage assets. Lenders, which reportedly included Deutsche Bank, Merrill Lynch & Co., Bear Stearns Cos. and J.P. Morgan Chase & Co., proceeded to sell the fund's assets, and by March 11, $5.7 billion had been sold.
As of March 12, the fund had defaulted on approximately $16.6 billion of its loans, and expects to default on the rest.
The demise of Carlyle Capital is yet another example of how the credit crunch affects far more than just subprime mortgages. Carlyle Capital's portfolio consisted solely of AAA-rated mortgage backed securities issued by Fannie Mae and Freddie Mac.
In the beginning, the investment strategy for Carlyle Capital looked simple: the fund would exploit the difference between interest earned on its mortgage securities investments and the costs of financing the investments. But as with several hedge funds lately, Carlyle predicament began to unfold when it borrowed too much money. The fund had $670 million in clients' money, but it used borrowings to increase its bonds portfolio to $21.7 billion. That means, before dealers began selling the fund's assets last week, it was about 32 times leveraged.