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The Last Hurrah
By David Glenn Cox
There is a cancer in our economy and it is bleeding profusely. The administration's standard policy is to at first ignore it, then to deny it, then blame the victims for it, and then to claim that intervention won’t be necessary immediately before it intervenes.
The pundits still ask the question, are we in a recession? Akin to the passengers on the deck of the Titanic asking, “Will this make us late in arriving?”
Eleven banks have failed this year in the United States and all for the same reason, the economy is bleeding. The value of the collateral held by the banks is spiraling downward. Seventy percent of all wealth is held in Real Estate. The bank lends you $200,000 for a new home and you default, but because there are no qualified buyers to repurchase the home, its value plummets. My mother used to say, “It ‘s only worth what someone will give you for it.”
That home is now worth $140,000 and the bank is lucky to sell it at that price. Now they are losing $60,000 and repeating the process a million times. In normal times the banks fall back on commercial loans and credit cards and car loans to keep capital flowing back in to the bank, but those sources are drying up as well. In the beginning it was called the credit crisis and President Bush blamed it on poor consumers, a funny choice of words because it was his economic policies that made them poor.
The sub prime mortgage market didn’t develop out of thin air; declining incomes meant less qualified buyers. Sub prime mortgages developed out of a survival instinct. There is no money to be made by a lender who says "no" all day! Builders need someone to help sell the product and will refer buyers to lenders that do. The trick after that is to pass the paper on to the unsuspecting. They buried their handiwork by mixing sub prime loans with prime loans into the bond market. These bonds are designed to be held for a long time and pay dividends.
The bonds can’t do that if the value of the Real Estate behind them keeps falling. So, what to do with a 25 million dollar, thirty year bundle that’s lost 25% of its value in the first two years? Pimco, the nation's largest buyer of treasury bonds, warned last week that they would stop buying if the treasury didn’t move in to rescue Fannie Mae and Freddie Mac.
Two months ago Treasury Secretary Paulson sought emergency powers from Congress to intervene in the mortgage finance companies. As late as last month he claimed intervention is unlikely but on Sunday, in response to falling prices overseas, intervene he did. But what he did amounts to taking the Titanic’s silver and running to the bridge. This isn’t a solution but a stopgap; all ballast is cut loose and all the chips are in and the freight is being thrown overboard. John McCain in his stump speeches calls for cutting spending to bring the federal budget into balance, as he says, so as not to leave some unfortunate generation with these bills.
We are that generation! Cutting federal spending will make the problem worse, not better. You can’t save your way out of poverty. The US economy is collapsing in on itself like a dwarf star. The World Bank estimates that the United States has outsourced almost half of its manufacturing industrial base. What made the United States wealthy in the first place? Name a country on planet Earth without vast raw materials that has a successful non-manufacturing economy.
By taking a few hundred dollars worth of steel, $2,000 worth of motor, $1,500 of transmission, a few hundred dollars in electronics and you create an automobile worth $30,000. Then, with financing you make thousands more. But if you offshore the production to save on labor costs, you also assassinate your clientèle. Houses in the one-time Motor City can now be purchased from the bank for as little as $50.00. A home that sold for $140,000 in 2001 is now available for $1,500. The bank has replaced all the copper pipe stripped by criminals after it was abandoned and still has no offers on this house.
That house might as well be at the North Pole; there's no jobs there, either. The alleged attack on 9-11 mobilized this nation to spend billions of dollars and has sent thousands to their deaths but has yet to figure out who it is that keeps hitting them! The arbitrage of labor to the lowest bidder not only exposes the dark, ugly side of capitalism but the face of national fascism as well. The Chinese economy is growing at 10% a year and General Motors is rushing to build more factories there, to abandon America as a whole as it abandoned Flint, Michigan two decades before.
We attack the countries that we claim harbor the perpetrators who knocked down two buildings yet ignore it as entire cities across the American landscape fall into ruins. The political party that promotes more of the same is polling forty plus percent of the electorate with slogans of “Drill, Baby, Drill!” and “USA, USA, USA!” with immense displays of flag waving and faux processions of patriotism.
When asked, “What about our neighbors losing their homes?”, "We've got to keep people in their homes,'' Republican presidential candidate John McCain said in an interview with CBS's ``Face the Nation'' program. ``There's got to be restructuring, there's got to be reorganization, and there's got to be some confidence that we've stopped this downward spiral.'' That’s not an answer, that is a hopeful anticipation. The boat is sinking, Captain; what do we do? “We try to get off!”
Paulson’s solution for Fannie and Freddie is their slow strangulation, prolonging life until after the election but almost certainly leading to their death. Another Bear Stearns sweetheart deal putting common shareholders last in line for assets, or heads I win, tails you lose. But they can only slow the bleeding with a tourniquet; the loss of wages is the root cause, and now they’ve put all the chips on a long shot. Not because they have a good hand but because they have no other choice than to keep the game going.
The masterminds of 9-11 have nothing on the corporate fascists who have crashed the American economy. As millions, once on high, crash into economic rubble their only answer to the problem is more of the same with a healthy dose of flag waving and slogans. This is their last hurrah. Come November the cold winds of economic reality will replace their wishful platitudes with short days and long nights of a long, cold, cold winter.
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