Tuli Can't Stop Talking

These are just my thoughts on contemporary issues and an attempt to open up a dialogue.

My Photo
Location: New York City

A citizen who cares deeply about the United States Constitution and the Rule of Law.

Sunday, August 03, 2008

Greider Gets It: Natch!

Once again our man Mr. Greider has put out an analysis of what went wrong and what the government “of the People by the People” is doing about it and should do. Interestingly it is very important to know exactly who the “People” are, and it ain’t you or me. Apparently the “little People” aren’t “Too Big to Fail.” So, we don’t get socialized risk, only the “Real People” get socialized risk. You know the “Free-Market” types.

So here is a snip-it from his article and do read the whole thing. It is so well worth it:

Let's review the bidding to date. After panic swept through the global financial community this spring, the Federal Reserve and Treasury rushed in to arrange a sweetheart rescue for Bear Stearns, expending $29 billion to take over the brokerage's ruined assets so JPMorgan Chase, the prestigious banking conglomerate, would agree to buy what was left. At the same time, the Fed and Treasury provided a series of emergency loans and liquidity for endangered investment firms and major banks. Investors were not persuaded. Their panic was not "mental," as former McCain adviser Phil Gramm recently complained. The collapse of the housing bubble had revealed the deep rot and duplicity within the financial system. When investors tried to sell off huge portfolios of spoiled financial assets like mortgage bonds, nobody would buy them. In fact, no one can yet say how much these once esteemed "safe" investments are really worth.

The big banks and investment houses are also stuck with lots of bad paper, and some have dumped it on their unwitting customers. The largest banks and brokerages have already lost enormously, but lending portfolios must shrink a lot more--at least $1 trillion, some estimate. So wary shareholders are naturally dumping financial-sector stocks.

Most recently, the investors' fears were turned on Fannie Mae and Freddie Mac, the huge quasi-private corporations that package and circulate trillions in debt securities with implicit federal backing. Treasury Secretary Henry Paulson (formerly of Goldman Sachs) boldly proposed a $300 billion commitment to buy up Fannie Mae stock and save the plunging share price--that is, save the shareholders from their mistakes. So much for market discipline. For everyone else, Washington recommends a cold shower.

Talk about warped priorities! The government puts up $29 billion as a "sweetener" for JP Morgan but can only come up with $4 billion for Cleveland, Detroit and other urban ruins. Even the mortgage-relief bill is a tepid gesture. It basically asks, but does not compel, the bankers to act kindlier toward millions of defaulting families.

A generation of conservative propaganda, arguing that markets make wiser decisions than government, has been destroyed by these events. The interventions amount to socialism, American style, in which the government decides which private enterprises are "too big to fail." Trouble is, it was the government itself that created most of these mastodons--including the all-purpose banking conglomerates. The mega-banks arose in the 1990s, when a Democratic President and Republican Congress repealed the New Deal-era Glass-Steagall Act, which prevented commercial banks from blending their business with investment banking. That combination was the source of incestuous self-dealing and fraudulent stock valuations that led directly to the Crash of 1929 and the Great Depression that followed.

Long before I was introduced to the brilliance that is William Greider with One World Ready or Not, I had an inkling about the state of economic affairs (maybe that is why I was drawn to his analysis.) When Glass-Steagall was defanged I was horrified. When Wall Street started to demand quarterly reporting I was horrified (it seemed to me that it would engender finagling to meet quarterly projections which it did, see Enron.) But then I was very horrified when the decision was made to deregulate the Savings and Loans way back in the day. Of course what did I know I only had first hand knowledge of who the decision makers were in the business having worked there? The S&L scandals should have lead to lessons learned but apparently not. You know this stuff isn’t exactly brain surgery or rocket science just common sense. Apparently though, the Masters of the Universe don’t have very much common sense, because as one guy once said “it isn’t all that common.”

The bottom line, folks, is that we are fucked! I would say screwed but it is far worse than that. Maybe “raped” would be a better metaphor.


Post a Comment

<< Home