12 10 2008

It was a blackmail scheme, for sure.  “THIS IS A SERIOUS CRISIS!  Give us what we want or we’ll trash the economy, (and maybe declare martial law)  THIS IS A SERIOUS CRISIS,” was the mantra of all the talking heads in the Bush junta–hardly the way to calm a serious crisis, more like the way to fan the flames.   Congress blinked, and gave them the money, and agreed to overlook the fact that Paulson and Bernanke (and their godfather, Alan Greenspan) were the ones who ran the economy into the ground in the first place.

If Bernanke and Paulson had a shred of integrity, they would have offered their resignations.  If they were traditional Japanese, they would have committed seppuku….(hey, I can dream, can’t I?) but no, they’re neocon men from Wall Street, aka American Fascists, so they just asked for more money. That’s a fundamental rule in the neocon playbook–never, ever, ever admit that you screwed up.  No way anything they did could have been what trashed the economy, nossir.

They admitted that $700 billion was a number they pretty much pulled out of their asses. They even admitted that this was something they’d seen coming for a while.  But somehow that didn’t matter when they said, “pay up NOW, on THESE TERMS or we’re all screwed!”  (even though they’re not actually going to start handing the money out until mid-November!)  They had America by the short hairs and everybody knew it, and so the Senate and ultimately the House  squawked and grumbled and grew the proposal from three pages to over four hundred, with a few half-assed conditions thrown in, plus a lot of bribes to get people to feel a little better about the whole ugly mess–a hundred and fifty billion dollars worth of tax breaks for everything from toy wooden arrows to solar panels.  Talk about perversion!

But hey, if they didn’t, Bush might declare martial law–after all, Congress gave him the power, since he was gracious enough to ask for it, and a brigade of US Army regulars has recently been reassigned to the US from Iraq, and are busy training in “non-lethal crowd control”–rubber bullets and tasers, which have proved lethal to plenty of people in their time. Uhh..anybody seen the Posse Comitatus act lately? Hmmm……but there’s no significance to that, no, none at all….just give us the money in small, unmarked bills, like what you gave us for Iraq…..

And what did these neo-con artists propose to buy with our seven hundred billion dollars?  Worthless assets that banks created and got stuck with in the course of the Ponzi scheme that has been the American economy ever since Bill Clinton crammed NAFTA down our throats and America’s manufacturing economy literally went south.

Seven hundred billion dollars worth of bad mortgages.  Seven hundred billion dollars for overvalued, trashed-out, abandoned houses, many of which would not sell for a dollar at public auction.  Houses that it will cost money just to tear down.  Actually, the financial instruments are so Byzantine that owning the debt on the house may not convey title to the house, so that means we’re not even getting the lot under a trashed-out house, we’re just getting a piece of paper, and good luck ever selling it for anything besides making “Save your CDO certificates/The United States Will Rise Again!” posters.

Hank and Bill will be generous with our money, giving the poor bankers whatever price they claim those mortgages are worth, but basically, Congress voted to spend seven hundred billion dollars on–nothing.  We couldn’t afford thirty-five billion for childrens’ health care.  We can’t afford to take proper care of Iraq war veterans.  We can’t afford to rebuild our country’s infrastructure in a way that will mute the effects of climate change.  We can’t afford health coverage for all.  None of those things we really need will cost seven hundred billion dollars, all would have a clear payback, and in fact will save not only our money but our asses to the tune of far more than seven hundred billion dollars, but we can’t afford them.

Seven hundred billion dollars is what we spend every year on imported oil, and we can afford that.  Seven hundred billion dollars is about a quarter of what the war in Iraq is likely to cost us, maybe less than a quarter. The tax cuts for the wealthy that the Bush junta pushed through have cost the government about four hundred billion dollars a year since 2003, for a total of two trillion dollars and counting, but none of the high muckamucks in our government seem to have any qualms about the cost of any of that.  Hey, that’s all money into (or at least not out of) their pockets, and besides, they own the presses, they can print more dollars if they need ’em.  Sure, they’ll be worth less (worthless?  or just worth less?  who knows!), and foreign governments and other investors may be a lot less interested in taking them, but the asses of the wealthy have been covered, and that’s what counts to the neo con-men.  They will all be going off to someplace safe, leaving you and me to go down with the ship–and the bills.

Oh, and just in case Obama gets elected and has any ideas about doing anything creative, this will tie his hands, just like his pledge to continue the “war on terror” by escalating in Afghanistan will tie his feet.  Smooth move, Mr. Rove!

There are a few sops thrown into this bill.  Some of them could mitigate the chilling effect this bill will have on our national budget, if Obama’s government is progressive and courageous and not just a replay of the Democratic Leadership Council-led Clinton years that set us up for this mess.  Now, maybe I’m crazy to expect courage from the Democrats at this point, but if Obama’s Secretary of the Treasury has the nerve, he can, instead of buying bad bank assets at high prices, buy preferred stock in the banks, so that the government will then own them in exchange for bailing them out.  As bank owners, the government can change bank policy–and fire the scheming, selfish jerks–I mean executives–who got us into this mess.  Paulson has this option, too, but you can bet he won’t take it.  He’s not gonna sell his banker buddies down the river.  From all indications, Obama is going to feel the same way–his main economic adviser is Jason Furman, who thinks Walmart has been great for the economy and free trade is a wonderful thing.  La-la land stuff, y’know?

The bill also suggests that banks could renegotiate their nonperforming loans and mark them down to the real value of the homes involved, but that’s like asking Dracula to pretty please quit sucking the blood out of people.  He ain’t gonna do it.

If they wanted to provide some real relief, they could have outlawed eviction, directing banks to negotiate a reasonable rent with folks who can’t make their mortgage payments.  They didn’t do that.  They could have loosened up our country’s newly draconian bankruptcy laws, which Joe Biden championed and which make it all but impossible for individuals to get out of debt,  but they didn’t.  Individuals need to take responsibility for their actions, but big rich banks can count on having the government to fall back on.  That seems to be the lesson here.

Oh, by the way, one of the main reasons people fall behind on their house payments, besides losing their jobs due to corporate downsizing, is falling into debt and out of work due to serious illness or injury and consequent serious medical debts, even with insurance.  But we are not going there, people, we can’t afford to do anything about that, no way–we got rich bankers to bail out–they’re more important than you common folk, dontcha know?

Congress capped the income and bonus payments to the top five executives in companies that accept a certain level of federal help, but you can bet there are loopholes in that provision.  They also kept in most of Paulson’s original bid for dictatorial powers, saying that he could only be challenged legally if Constitutional grounds are involved.

What the bill does not admit is that home prices in this country are seriously inflated, and need to come down to reflect reality.  The other thing this bill does not admit is that there are going to be more economic crises after this one, and the government has just used its last ammunition.  In fact, as I write this, the headlines tell me the Down Joe average is, yep, down seriously, and that more economies around the world are in trouble.

Whatever comes next, we as a nation are now too strapped to do anything about it.  Make sure you’re stocked up on food and have a way to cook it, and get set for some real fun.

music:  James McMurtry, “We Can’t Make It Here Anymore


30 01 2008

Two good stories about why the economy is just going to get screwier…

The black box economy

 …there’s a collective confidence that the market is strong enough to correct itself, and that experts in charge of the financial system will understand how to mount a vigorous defense.

Should we be so confident this time? A handful of financial theorists and thinkers are now saying we shouldn’t. The drumbeat of bad news over the past year, they say, is only a symptom of something new and unsettling – a deeper change in the financial system that may leave regulators, and even Congress, powerless when they try to wield their usual tools.

That something is the immense shadow economy of novel and poorly understood financial instruments created by hedge funds and investment banks over the past decade – a web of extraordinarily complex securities and wagers that has made the world’s financial system so opaque and entangled that even many experts confess that they no longer understand how it works.

US slides into dangerous 1930s ‘liquidity trap’

By Ambrose Evans-Pritchard in Davos

Last Updated: 12:29am GMT 25/01/2008

The United States is sliding towards a dangerous 1930s-style “liquidity trap” that cannot easily be stopped by drastic cuts in interest rates, Nobel economist Joseph Stiglitz has warned.


Professor Stiglitz, former chair of the White House Council of Economic Advisers, said it takes far too long for monetary policy to work its magic. This will not gain much traction in the midst of a housing crash.

“People have been drawing home equity out of the houses at a rate of $700bn or $800bn a year. It’s been a huge boost to consumption, but that game is now up. House prices are going to continue falling, and lower rates won’t stop that this point,” he said.

“As a Keynesian, I’d say the biggest back for the buck in terms of immediate stimulus would be unemployment assistance and tax rebates for the poor. That will feed through quickly, but set against the magnitude of the problem, even a fiscal stimulus package of $150bn is not going to be enough,” he said.

As Ted Koppel asked on NPR today, “Where is this $150B coming from? Are we going to borrow it from the Chinese or just print it up?”




13 01 2008

I was driving to Nashville with my 18-year old grandson. We had about an hour on the road; it was the first time we’d been alone together in a while. I was curious to see what would arise between us, but I was a bit surprised when he asked me, “What is the deal with these subprime mortgages?” It’s just not the question I expected from an 18-year old, but I was gratified to know he was interested.

“It’s about human greed, stupidity, and shortsightedness,” I said. “The bankers figured that if they could sell the loans they made to somebody else, they wouldn’t have to worry about collecting on them. And the people they sold the loans to figured the same thing, and so on up the ladder. It’s a pyramid scheme, a hot potato.”

My grandson was amazed and dismayed to discover that so many supposed adults could be that stupid. I have to agree. What were they thinking? Well, if they were thinking that they personally could get away with it, so far they’ve been right. To pick the most egregious example, Countrywide Financial, which is responsible for a big chunk of the bad mortgages that are clouding the financial air these days, was just sold to Bank of America, and Countrywide’s CEO is getting not just a golden parachute but a whole golden airplane out of the deal, in spite of the likelihood that BoA was nudged by the Fed to buy Countrywide in order to avoid the beginning of a domino-effect chain of bankruptcies that would have left the US ecomony bleeding to death in short order.

What a world for my grandson to grow up into. How could so many people have believed that the value of their homes was going to go up forever? That’s why they signed on the dotted line for all those adjustable-rate mortgages–they figured that by the time the rate went up, their home would be worth more, so they could just refinance, pay off the old mortgage, and be sitting pretty. Meanwhile, savings plummeted and debt soared. There was always going to be somebody to borrow from when it was time to pay the piper. Then, one day, the bubble burst and housing prices started to slide. Oops.

The bubble was still inflating when the junta, with copious assistance from the Dimocrats, passed a bankruptcy bill so draconian that anyone filing for bankruptcy is pretty much opting for a lifetime of indentured servitude, not freedom from debt. Hey, bankruptcy is for deadbeats, right? Well, it’s also for people with overhwhelming medical bills and people whose jobs get outsourced. Banks don’t go for hard luck stories and good intentions. They want cash, especially when they’re not the hometown bank but some mutual fund in Germany that’s trying to make a fortune in CDO’s.

CDO–Collateralized Debt Obligation. In theory, it makes a certain amount of sense. I loan you money, but instead of waiting around to collected it back as you make payments, I sell the debt to Joe, who gives me a lump sum and collects your payments. In practice, several other things happen, leading to unintended consequences. One is that huge numbers of debts are bundled up and sold, with the buyer pretty much having to take the seller’s word that all the apples in the bag are good. Another thing that happens is that these bundled debts are in their turn bundled and sold, and then we have another round or more of that, which leads to a complete disconnect between the bank that holds the mortgage and the person who is paying it off. If you are talking to your local bank about the possibility of defaulting on your mortgage, your local bank is interested in making sure the community in which it does business stays healthy and viable, and is more likely to try and work with you to keep you in the house and making some kind of payment. If your debt is owed to some bank overseas somewhere, they could care less about what’s happening to neighborhoods in Cleveland, or wherever you happen to be. Furthermore, they are not in much of a position to do anything with the house they have kicked you out of, because the house is not worth the value of the note they are holding on it, so the house is likely to stay empty and gradually be vandalized until it really is worthless.

And, speaking of “worthless,” anybody or any institution that bought these rotten debt securities finds, as the mortgages go bellyup, that they have a worthless piece of paper on their hands instead of an asset. So that means that hundreds, maybe thousands of governments, retirement funds, banks, and other institutions wake up one morning and discover that they are worth a lot less than they thought. Bye-bye municipal services, welfare payments, salaries. Bye-bye new loans. Bye-bye pensions and medical insurance.  Good luck, run of the mill business credit!

If this were taking place in a country that was financially healthy, it could be contained and repaired, but the US is not a financially healthy country. Just as the Ottoman Empire was once “the sick old man of Europe,” so the US is now everybody’s sick, needy Uncle Sam, constantly borrowing from Peter to pay Paul (or, all too often, borrowing from China to pay China), making a little money from arms sales (the last intact chunk of our manufacturing sector), but not really paying our own way in the world. It is only because the US owes so much to so many that we stay afloat. It’s the last big bubble. Everybody knows that we’re in over our heads, but nobody wants us to drown fast, because we’d pull them down with us; so, they’re going to let us slowly sink. As peak oil kicks in further, we will be outbid for fossil fuels; as Europe’s saner fiscal and social policies keep it afloat, the Euro will supplant the dollar as the international currency of choice, and US bond offerings will go begging. When everybody knows the only reason you’ve got money to spend is because of the printing press in your basement, they get shy about doing business with you, y’know? Well, kids, that’s where the US dollar is headed. From the government’s perspective, the only way out of this mess is massive inflation. Visualize a shopping bag full of money…to pay for a shopping bag full of groceries. That, in my crystal ball, is where we are headed.

And what will this do to our vaunted world hegemony? You can expect to see the civilian sector get squeezed to maintain the military, whether “hundred years in Iraq” McCain or “invade Pakistan” Obama is elected, but things are going to get thin for the military, as well. Right now they’re just taking it out of veterans’ benefits, but you can bet that sooner or later lack of equipment and fuel will hinder the government’s ability to bully the world. You can see it looming in all the National Guard equipment that has been abandoned or destroyed in Iraq, and has not been replaced.

These are the realities that the next President of the United States is going to have to deal with, although it is certainly not what is getting talked about on the campaign trail. Expensive health care plans? Fuggedaboutit. The next president will either be cleaning up the Bush Junta’s mess or making it worse. In either case, he or she will be increasingly constrained by the twin choke chains of internal financial collapse and international moral and financial bankruptcy.

There is a certain perverse upside to this. The worse the financial situation in the US becomes, the less demand on the world’s resources we will make. With no loan money available, suburban development will dry up–but, with money tight, there may be an even stronger pull to harvest any natural resources–from forests to coal–that can be easily turned into cash–but there will be less demand for them. My crystal ball gets a little cloudy on this one.  Sorry…

If I were the financial adviser to a Green President of the United States, with a solidly Green Congress to back me up, what would I advise? Where would I begin to unravel this fine mess we’re in?

I’d start by repealing the bankruptcy act that Bush passed, and go back to the status quo ante coup when people really could write off their unpayable obligations by declaring bankruptcy. I’d pass a law that forbade mortgage holders from evicting people except under extenuating circumstances. I’d make stockholders liable for the misdeeds of the corporations they own, to encourage corporate responsibility. I’d institute a corporate death penalty for irresponsible corporate behavior, and replace big chunks of the banking, insurance, and health “industries” with credit unions, co-ops, non-profits, and single-payer health insurance. I’d pull the US out of all so-called “free trade” agreements and work to encourage local, sustainable self-reliance in all sectors–food, clothing, housing, manufacturing, transportation, communication, entertainment…what have I left out? And I’d demilitarize the US and unlock all the resources we have tied up in world domination to meet the multiple threats of global warming and peak oil. And one last thing…me and Dennis Kucinich are gonna carry this snowball through hell!

Yep, that’s about the chance we have of making the right moves in America, unless millions of people have a road-to-Damascus moment and something even more pervasive than the fall of Communism takes place here…the fall of Capitalism! It has a nice ring, but it won’t be an overnight phenomenon. The revolution, as Gil Scot-Heron famously said, will not be televised. On television and in the corporate media in general, there will be an insistent drumbeat that things are fine and all our problems are about to be solved. There will be increased security against “terrorism,” increased focus on trivial news (BRITNEY HAS HOT FLASHES, STRIPS NAKED AS THOUSANDS WATCH)….now, what was I talking about? Gee, let’s go to Walmart…they just sent me a credit card…..as long as I keep both my job at MacDonalds and the 7-11, I can keep up with the interest on one more card…maybe we can find somebody else to live here, with ten of us in this apartment the rent’s not bad….

Is that the future? Maybe, maybe not. Maybe it will be stranger than we can imagine. Maybe there will be a lot of self-reliant, interconnected people taking care of each other under the government’s radar, and “the government” will become increasingly irrelevant until it just fades away. Sooner or later, we’ll find out. I wish I had a better situation to leave to my grandson.

music: REM, “Fireplace”

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