There’s something rotten in the state of finance

As I sit here watching Chelsea losing to ManU live, the AIG logo on the chests of the ManU team keeps reminding me of the dismal financial state of America. There are many causes, but mostly three individuals stand out for blame.

Bill Clinton
Phil Gramm
George W. Bush

In 1929, the US stock market crashed, causing a tidal wave of trouble around the globe. Hyperinflation in Germany, (and a speeding up of conditions that brought us WWII) market collapses in England and Asia, African turmoil, and of course, the horrible US depression of the early 30s was the result.

Certain safeguards were erected, including the Glass-Steagall Act of 1933. It established the Federal Deposit Insurance Corporation (FDIC) and created massive bank rules and reforms.

In 1980, the Federal Reserve lost the power to regulate interest rates in savings accounts. In 1999, Bill Clinton signed the Gramm-Leach POS which repealed the ban on bank holding companies from owning other financial companies.

Further deregulation took place after the election of George Bush.

To put it simply, the rules keeping mortgages and securities on a sound financial footing were erased. To make matters worse, financial giants could package bad loans, sell them on a margin to other investors, and those investors could insure those securities against any losses. There are stories of tiny companies, with little or no assets, insuring billions of dollars of mortgages, for larger securities companies.

Add to the mix Hedge Funds and Derivatives, and you have a completely unregulated mess, with massive wealth transfer, huge potential profits, and greed providing far more incentive than rational thinking. When your secretive hedge fund is limited only by the contracts governing the particular fund, unadulterated greed led them to complex strategies such as short selling, entering into futures, swaps and other derivative contracts and leverage.

Hedge Funds and Derivatives, added to margin trading, caused these markets to have an estimated $37 TRILLION (get used to that word. You will hear it a lot) in alleged assets, covering $2 trillions in real property values. So long as money was cheap, interest rates low, and credit was flowing, rising property values would make everyone in Wall Street extremely, extremely wealthy.

But remove any growth in property values, and this artificial house of cards collapses. In just four days, previously greedy, unregulated, privatizing, free-marketers went from the Ultra-Friedman capitalists, to the most ardent Socialists, demanding the Uncle Sam save their butts.

Bush, even with his political tin ear, knows who his real master is. (Hint – It ain’t the American citizen.) When Wall St. calls, he responds. He scared Congress into giving the Treasury unlimited powers to help his buddies, the “Haves” and the “Have Mores”.

Even though you are reading about $700 BILLION as the magic number, the real cost will be closer to $1.5 TRILLION, perhaps even 2, to the US taxpayer. Worst yet, NO STRUCTURAL changes will be demanded, no re-regulation will be done, no penalties or sanctions will be assessed against the financial leaders who caused this mess, despite many experts warning about this exact mess. Paul Krugman at the NYT is not only a trained economist, he writes today about just how bad a deal this “fix” will be.

http://krugman.blogs.nytimes.com/2008/09/20/no-deal/

4,000,000 households are in foreclosure. This deal does nothing for those 16 million soon to be homeless individuals.
Thousands of families declare bankruptcy each week because, despite being insured, they cannot afford paying their health care bills.

Instead of helping those who hurting the most, this bailout and nationalization of Wall Street’s greediest bastards will do nothing to help them, nor will it help with the underlying cause of the trouble.

Watch for the market to realize what a bum deal this bailout is next week. And when you do, remember that John Bush McCain promised to do to Health Care what deregulation did to the Financial Market. And then recall that John Bush McCain still demands that your Social Security be privatized and be controlled by the US stock market. Then ask yourself whose judgment you trust when it comes to this country’s future.

Comments

  1. pollchecker

    This is absurd.

    Foreign Banks Hope Bailout Will Be Global

    So now we are paying to bail out foreign banks but we don’t get any relief?

    What about the people who were taken advantage of by these unscrupulous practices and lost their homes, as well as took a hit to their credit rating?

    This is BS!

    In 2006, I had an unscrupulous lender suggest I falsify my tax records so I could show more income in order to get a mortgage. That was the end of that deal. But I’m smarter than the average Joe who for the most part doesn’t have a clue mostly because they don’t care enough to pay attention to the truth.

    The fascist state is alive and flourishing in America.

    Watch this from last nights 60 minutes interview:

    McCain Defends Deregulating Wall Street

  2. ekaton

    “This is absurd.”

    You are the master of understatement.

    When I heard Paulson on TV yesterday morning advocating bailing out foreign banks I totally lost it. Good thing my pistols are locked in a safe or I’d have surely assassinated the TV set.

    Its bad enought the taxpayers are being required to bail out these thieves in our own country. Let the citizens of other countries bail out their own thieves.

    THIS IS CLASS WARFARE, NOTHING MORE, NOTHING LESS!!

    Kent Shaw