I am reading a book that may be of great interest to Open Salon members:
"The Predator State" by economist James Galbraith (son of John Kenneth Galbraith)
In the first chapters, he presents the idea that for the American economy to function as it was structured in the early Reagan administration, the middle class must shop as well as save as their contribution to a thriving supply-side economy. For the past eight years, deregulation, greed, and excessive profits have worked to create an imbalance so great that consumers cannot participate enough to keep the old economy working properly. Previous economic tenets have been dumped by the Bush administration for alternate policies so extreme that the failure of the supply-side theory of economy set in place in the Reagan years was inevitable.
By allowing government to be influenced by a coalition of lobbies doing the bidding of their clients in "oil, mining, military, pharmaceutical, agribusiness, insurance and media industries", they have built a "Corporate Republic" on top of the ruins of a "Populist Democracy".
Galbraith's premise is that the Bush administration has created
"a predator state, not intent on reducing government but rather on diverting public cash into private hands".
Is there a better description of the intent of the $700 billion bailout than this sentence?
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My understanding of the situation follows with a mix of Galbraith's ideas and my own about the economy in which we find ourselves today:
If both shopping and savings are required for the supply-side economy to work, consumers have been unable to hold up their end for some period of time. The only way to shop now for most people is by using credit. With price increases to products and services that we use with regularity -- health care, homeowner's and health insurance, property taxes, gasoline, and all the goods and services effected by gasoline price hikes -- there is not enough income to support past lifestyles and spending practices.
The corporate sectors, especially the oil companies, have worked to pull every last dime of cash from the consumer's pockets. In order to survive what most hope is a temporary situation, consumers are using credit cards to stay afloat. There is a finite amount of credit available to consumers, however, and we have reached a point where discretionary spending is completely focused toward necessities and debt service.
Many consumers are NOT shopping just now -- certainly most have not been saving. The end result is that the economy is completely out of balance. Small businesses are closing, restaurants are folding right down to the larger chains, banks/other financial institutions are struggling. There are little savings to support the financial institutions that need them to keep credit flowing. In combination with the glaring reality that consumers have too little money to pay back their bank-owned debt, notably their mortgages, there is no doubt that banks and the entire financial sector would be struggling along with consumers at this time.
BushCo got exactly what they have wanted -- an increase in wealth for the ever-prospering elite moneyed class while pushing most of the middle class into the a new class of "working poor". Although the moneyed are insulated from an economic downturn (for the most part), the overall economy, as it was designed to be supported by consumerism, is failing.
The basic theory of free market supply and demand has been undermined by its accompanying reliance on the economic myth of money "trickling down". There has been little to no trickle down. The greed of the corporate sector, and their enabling deregulating government, have allowed too much money/disposable income to be redirected away from the mass of consumers that are necessary for the supply-side economy to function properly.
In result, we are very likely to experience the necessity for a complete reorganization of our economy. In my opinion, what we are being presented in the bailout package is just "more of the same".
Economic repairs need to be made at the base of the pyramid, not just at its top. That is why I am 100% against the bailout as it has be written. That package is NOT the best overall economic solution except for Bush and his cronies as it is writtten.
A moratorium is needed IMMEDIATELY on home foreclosures. Unless the wording has been changed, the bailout solution to the mortgage crisis was to be tasked to the discretion of the Treasury Secretary with no timeline for implementation. Where is the incentive for this Treasury Secretary to do anything to on behalf of the tax payer? It is likely that nothing will happen on behalf of the consumer within this lame duck administration unless mandated.
On the other hand, an immediate moratorium would allow banks enough time and resources to rewrite mortgages into instruments that can be repaid with today's wages and today's home values. Of course, banks will need funds to rewrite these mortgages and this is where American taxpayers could make a profit -- on the repayment of "good loans".
If the funds are sent to the financial houses with no timeline to repair the basis of their low value securites, the method to increase the value of the securities is unclear. If the old "trickle down" from Wall Street is the intended mechanism, we can be assured that it will not work, In the end, the bailout will truly be a forced "gift" from Mainstreet to Wallstreet, who will then spend the gift while continuing to cause more economic downturn at the expense of Mainstreet.
My belief, which of course may be biased by my association with the real estate industry, is that there is NO other way to fix the economy than to repair the housing sector first. Without a gold standard, gold is a good investment, but nothing like it has been in the past. This leaves consumers to invest in real estate or the stock market.
The real estate market has been decimated and the stock market devalued. If there is taxpayer money with which to jump start the economy, the over-arching concern is where should these funds be placed?
If the choices are gold, real estate and the stock market, what is working just now? Unfortunately, if you say none of the above, it makes people think about stuffing cash under their matress. This is NOT one of the options, people.
BushCo wants to place the money back into the stock market by bailing out the financial houses.. What about the housing sector which impacts as many as if not more Americans? There is an inherent physical need for housing that supercedes investment by those that are forced to choose. Without a SOLID plan for rebuilding the housing sector, the economy will remain out of balance. My premise is that only the solvent and the wealthy can benefit from a bailout of the financial houses. Is that what America needs? Or, should it be a mix of the two?
A timeline for immediate action to stem foreclosures is MANDATORY language within the current bailout package. If not, the $700 billion plan will be nothing more than a patch. At best, as written, it is a lop-sided effort to prop up only one side of the economy, that will need be redone within no less than six months for the housing sector.
Why the rush to approve? BushCO is likely to moving out, hopefully never to return. The Bailout may be their last opportunity to gift to the wealthy, at the expense of the masses.
Update: October 3, 2008 8:30 PM
I have copied the portions of the Senate Bill, signed by the President, that are related to efforts to stem foreclosures:
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Michael Rodgers
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Comments
I have started to post several more stories of innocent people in danger of losing their homes. Something must be done and I am afraid the bailout is a waste of our tax dollars. I guess we will see!
I just hope someone GETS that not only is the behavior immoral, but it is bankrupting the rest of the company. What do they plan to do about that??
Beam me up...........I need to zone out.
Thanks for your post.
Did you have the opportunity for a reply?! OUCH!
Why do we need to import labor to do farm work? Or pay the Chinese to make our clothes and consumer goods? What about the role of companies like Walmart who produce nothing in the US but low paying, non union jobs? We need to take back power from corporate interests that is decreasing the quality of life for the average American. Laissez faire economics truly is a race to the bottom.
Thanks for your post, you bring up good points but I think average Americans should take some of the responsibility too.
Kent wrote me that I had a very bad typo that I had overlooked. I meant to write "Lame duck administration" but typed something else instead of duck. Easy to do, but I am more than a little embarrassed. Thanks for alerting me, Kent. Perhaps a little Freudian although the "i"and "u" are next to each other on the keyboard...Again, my apologies!
I think the predatory part is right. I mostly think the foreclosure thing is right, except that there needs to be something that forces a person who is just living in a house and doesn't want to pay the rent to act. I think making foreclosure require a lot more work or time would be adequate. I agree that arresting the nearterm issue would give banks a reason to negotiate. Then again, if the borrower says "no" to legit attempts at negotiation, what will the bank say? So that's the balance to be struck. But the pendulum is too far to one side right now for sure.
Just remain in your house until the sheriff comes to forcibly eject you. That may be soon or late, depending on the mindset of the local constabulary, and the willingness of the lender to be seen as heartless.
I attempted a long response to BB yesterday that answered both Lori Mac and Wayne' s concerns. I have to work this morning, will try to retype the response that OS "ate" with a few additional thoughts. In the meantime, thanks for the discussion!
And let's set the record straight. People who have defaulted on their mortgages are not "bad risks." They are our fellow Americans, and all they wanted was what we all want and most of us still get: a home to call their own. But during the Bush years, millions of them lost the decent paying jobs they had. Six million fell into poverty. Seven million lost their health insurance. And every one of them saw their real wages go down by $2,000. Those who dare to look down on these Americans who got hit with one bad break after another should be ashamed. We are a better, stronger, safer and happier society when all of our citizens can afford to live in a home that they own.
This does not refer to speculators, or one other sub-class of whom I will post in the near future. Thanks!
Many consumers took out mortgages they simply could not afford to maintain, with little or no "skin in the game" to incentivize them to buy within their means, at terms they could manage effectively within reasonable budget boundaries. Either they did not (or didn't want to) understand the fine print of ARM's and "resets" (if it meant they had to buy below their expectations), or they were made offers they couldn't refuse, such as no money down, interest-only, no income verification, etc., allowing many to purchase homes way above their income range of affordability. Bank branches and mortgage broker offices around the country were festooned with signage and literature, and sales tactics, that drove home the marketing propaganda for a "free lunch" where owning a home was concerned; that getting a large mortgage was as easy for almost anyone, with or without a steady, well-paying job, as obtaining a credit card or car loan. The pre-deregulation vetting process, determining ability to pay, creditworthiness, net worth, etc., was dumbed down or simply evaporated in a frenzy to move product(thanks McCain and Phil Gramm, Bob Rubin and Larry Summers and Bill Clinton).
Federal law making it easier for non-traditional consumers to seek and obtain a mortgage was a major driver of the de-regulated system, and it has nothing to do with racism to state that reality. In this regard, Moore's contention that people wanted a home of their own is valid, even if in too many cases, the buyers did not adequately understand the risks or consequences of default, could not handle the costs, and simply never asked themselves the core question before they signed on the dotted line, "Can we afford this long-term"?
We don't live in a world of duality, even if political rhetoric would make it so for the cynical purpose of manipulating the electorate's ignorance and fear. The front and back of this out-of-control money machine were operating in parallel processing mode. Add to the distorted consumer psychology and front-end retail carnival the back-end arcane securitization of packaged mortgages up the line to Wall Street and beyond--along with magical derivatives like credit-default swaps that insured/hedged buyers if the securities went south or their underwriters defaulted, in effect de-linking the stakeholders of these swaps, to the tune of many billions of dollars, from the accounting rigor and financial health of the banks--and you have the makings of the toxic stew that is the current implosion.
We elected these guys. Rubin and Summers and Clinton went along with de-regulation; Clinton repealed Glass-Steagall, not least because Sandy Weill, former head of Citigroup and a Wall Street legend, was one of his major fund raisers and financial gurus. Where did Bob Rubin end up when he left the Clinton administration? Citigroup! None of the major players in this disaster is blameless, on either side of the aisle, and there's plenty of responsibility to go around. It is true, however, that Bush and his crew responded to this climate like zoo animals at the lunch bell. The rape of the homebuying citizenry has proceeded apace.