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Why Ordinary People Should Care About Saving The US Economy
How can these economic guys tell us they didn't see this meltdown coming? Steadily increasing unemployment, a spike in petroleum futures that skyrocketed the cost of transporting everything everywhere by every means save donkey cart, banks refusing to loan on perfectly good real estate to businesses and individuals with excellent credit, and the surge in concentration of wealth to where the top 1% of wealthiest Americans own more than 90% of the rest of us. Bill Gates alone owns more than the bottom 40% of all US citizens combined.
Mortgage foreclosures jumped 79% from 2006 to 2007. Exactly how was that not a crisis? The guys in Washington asking for a bailout said at the time it was a necessary market correction in response to irresponsible sub-prime lending. I guess that's easier to say when you're a Treasury Secretary that walked away from investment banking with a half billion dollar nest egg and a lot harder to understand when you watch home values decline in nice neighborhoods for the first time in your life. It was a crisis and the regulators did nothing while the market kept doing what it always does, which is concentrating wealth, until it drove itself into a ditch.
The money is still there. The market didn't swallow all of it. There isn't a $700 billion hole we need to stuff. What has happened is that the billionaires who bet on real estate started getting burned because the folks on the edge of the bubble who didn't plan on $100 tanks of gas and $4 gallons of milk couldn't make mortgage payments, so the billionaires pulled out, dragging a whole lot of millionaires with them. The biggest players, the banks, then sat on their hands.
The old school banks, the ones that can't invest in derivatives and have to follow regulations on liquidity established to prevent another Great Depression, helped start the fires that created the fire sales on investment banks. This allowed them to swallow their good assets at bargain basement prices, creating a panic that may yet cause Great Depression 2.0. It also held a gun to the head of the Federal Reserve. Bail out the worst of the Wall Street bad paper or we won't lend. There are some banks that still have money but they refuse to lend it.
Fed Chairman Bernanke tried to blame this on borrowers and lenders in the housing when he testified before Congress, mentioning nothing about market deregulation, selling short, petroleum futures, mortgage derivatives, and the banks who have the money seizing up. That's because Bernanke and his crew created another part of the problem: the banks have had less incentive to loan to anyone but the folks with bad credit because interest rates have been held by the Fed at historic lows for a long time. They've been so low that the Treasury has been issuing bonds at 0% interest since May 1, 2008.
If you're a bank, you make money on interest, and rates are so low that money is being loaned at 0% by the US Treasury, isn't that a crisis? Why do you think the banks are sitting on their hands and forcing the Treasury to beg for a bailout? Because Paulson's and Bernanke's policies combined with market forces are literally threatening to drive them out of business. The people with money left need some fire sales and some grease in their wheels.
The most ominous of all is the run on accounts. A few big investors start cashing out, the stock dips, and everyone else panics and demands their full balance on the same day. No financial institution can survive mattress stuffing like that. None of them were designed to and if we start engaging in that, they will be forced to declare a bank holiday. That means no one gets any money and banks can't do business. Last time that happened? March of 1933.
Will the markets continue to lose value? Will property values continue to fall? Will the banks continue to refuse to loan money? Are more business going to fail? Yes. The only question is how fast and for how long. The reasons for infusing the system with cash by buying up bad debts are that it will cool the worst fires, make the bigger business failures more orderly, make it reasonable for the banks to start lending, and slow the tide of foreclosures. This isn't a bailout of some rich guy's sinking yacht you shouldn't care about. This is helping to put out existing fires in homes and businesses in your neighborhood so that their fire doesn't spread to your house.
An example of why we should support this? There are hundreds. Here's one. Many solvent, stable businesses rely on a line of credit to pay ordinary bills and payroll. They dip into it when cash flow is slow and pay it off the next month when the checks roll in. Your paycheck comes in like clockwork. Unless their line of credit dries up. No lending to employers, no paychecks some months. Then we all have fires to put out.
Is it really $700 billion? Nah. They made that up. Might be five hundred, might be a trillion. But the choice is to do nothing and pay big by allowing the market to free fall while millions of people lose retirements, inheritance, homes, jobs, and hope. Or we can take back the night by forcing on these greedy corporate criminals and no good very bad regulators some reasonable regulations that stop them from speculating with our futures, gambling on failure, and getting rich despite trashing the economy. You only get that power because you can shove a few reasonable rules down the throats of the most powerful deregulators on the planet in return for being their lender of last resort.
They told us that the people who wanted more market regulations were idiots and socialists until last month. They've been saying that my entire life. Some politicians still have the nerve to suggest the fix will be to keep government out of it when that, dear friends, was the cause. For once in our lives rich people need the rest of us. Let's not squander the opportunity to make this better. They may never give us another.