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There has been a lot of argument, speculation, along with the usual spate of media pronouncements on the state of the economy these days. A lot of argument, but not much truth
telling. For the last six months we heard the “green shoots” meme repeated in various forms, then knitted through in recent weeks with technical arguments about the definition of a recession, all
buttressed by opinions of “economists.” At the same time there has been an ongoing fire and ice debate about whether our immediate future is headed for crushing deflation or the demise of the dollar with
runaway inflation. Meanwhile, the banking system has been hobbling along, reporting profits created by accounting rules changes and truck loads of free money from the Government and Federal Reserve. While cash for
clunkers provided a temporary 30 day boost to the auto industry, “cash for trash” has enabled banks to offload some of their toxic CDOs to the bloated balance sheet of the Fed in exchange for near
zero interest loans. The Fed, like other institutions such as Fannie, Freddie, Ginnie Mae and the FHA, has become just another great landfill where the banks are burying all the broken securities schemes they
concocted the over the last decade, toe tagging them all with an IOU that will be sent to taxpayers for generations to come.
It is so easy to see what has really happened. So easy a cave man could do
it—if he could only read the blogs that so doggedly report on the economy these days. An old Indian saying might sum it up: “Follow cigar smoke—find the fat men there.” The bloggers smelled
the smoke years ago, and followed it to find the fat men of Wall Street bankrupting their companies, the nation’s financial system, and breaking the budgets and lives of millions. They predicted this crisis so
accurately that I’m amazed that the mainstream media doesn’t regularly feature their posts now as op-ed columns.
Yet on a personal level, most Americans have no idea what has really happened in
the financial world, and little understanding of the things sketched out above, because they don’t read much, and get their depiction of “reality” from TV. And some reach their view of “the
economy” based on the condition of their own personal finances. If they have managed to keep their job, home, and have some savings or stock options that are still worth anything, they feel relatively secure
and can’t really grasp the full measure of what has been happening to the country. To them, the world looks like it is functioning pretty much as usual. Yes, they notice the empty store fronts here and there,
but really, they suffer no tangible hardship and can live the same comfortable life they had before Wall Street imploded last year.
For others, however, the situation is not quite so rosy. If you are one of
the 7.5 million people who have lost a job since the crisis began, you are struggling along with a meager monthly stipend from your unemployment insurance and, as the weeks tick off and your savings dwindle away,
you have a sense of increasing desperation quietly building up in your gut. If you have other mouths to feed, children to provide for, there is a sense of added shame that overlays your situation. And if your job
loss has seen you falling behind of your credit card and house payments, then your world looks dramatically different now. You feel the full weight of the “great recession” on your back, with jobs scarce
and bill collectors ringing the phone every half hour. You wonder what in the world the pundits on MSNBC are talking about when they pronounce the recession is now “over.”
All this gets at the old
maxim: when the other guy loses his job or home, you call it a recession. When you lose your job or home you call it what it actually is—a depression. So people’s perspective on this crisis will largely fall in line with their own financial condition, and the damage done to the Main Street economy and Middle Class has been severe. With the loss of jobs, credit standing, homes and equity, the dwindling of their retirement portfolios, the American Middle Class has been hemorrhaging wealth at an unprecedented rate. The most severely afflicted hear about the bonus money and phony profits in the banks, read stories of the big bank CEOs quietly retiring with their golden parachutes sewn with millions and millions of dollars, and a quiet rage begins to smolder within.
One way in which it has shown a tangible backlash is in credit card spending. Marketwatch reported that credit card debt dropped over 13 % last month as consumers, furious at the banks, closed accounts and paid off balances, ending their long love affair with the plastic. I long ago argued that, even as the entire real estate lending crisis was entirely created by the banks, their abusive policies in the credit card sector would again create a major problem there. Banks have been raising interest rates to dizzying heights, slashing credit lines, hiking fees ahead of the new rules changes they fought so hard to forestall. People are fed up. We are witnessing a major change that will affect this banking “profit center” for years, if not decades. Blogger Charles Hugh Smith commented: “Thus this is no "dip in consumer spending"—it is a generational sea change with no end in sight.” People have finally realized the debilitating and destructive nature of carrying debt. While it has stopped short of a full debt rebellion, 10% of all credit cards balances are now “delinquent.” Consumers are just stubbornly refusing to pay.
The banks are striking back with more ridiculous fees. USA today reported that Citigroup is assessing an annual fee if you don’t put at least $2400 on your card each year. “Other banks are charging inactivity fees if customers don't use their credit cards during a specific period of time. You heard that right: You could be spanked for staying out of debt.” Faced with new fees, people have the choice to either pay them or close the account, but “analysts” say closing accounts could hurt your credit score. Who cares? The idea is to get out of debt and wisely revert to an all cash system, paying only with money you actually have.
From my perspective, the banks can take their FICO score and shove it. How dare they brand us with these scores to monitor how well we follow their rules when their own behavior is borderline criminal?
Beyond this, however, the rage has taken no other outward expression. The country remains largely complacent, somnambulant, running on an inertia of long instilled lifestyle habits. The trips to the malls
may be thinning out, cash may be replacing credit, but people still keep to their old routines, and there is hardly a whisper of real social protest beyond the occasional tea party. Are they fooled by the media
happy talk and the propped up market rally, where stocks now trade at P/E ratios of over 140 on the S& P 500? (Yes, 140). The typical man on the street doesn’t even own stock, and cares little
about the markets. I think people are just so absorbed with the struggle to make ends meet that they have not been able to take any collective action aimed at forcing the political system to do their will. For the
moment, however, we are still hobbling along. But that could change, and change suddenly.
A big rally was planned in Chicago for Oct 25-27. To quote the organizers of Showdown Chicago: “The same
financial institutions that caused the economic crisis and took billions in taxpayer bailouts are back to earning incredible profits. Meanwhile, Americans face shrinking pensions, rising foreclosures and
unemployment, state budget cuts, predatory lending, outrageous overdraft fees, and sky-high credit card interest rates. The American people want oversight, accountability and common-sense financial reform NOW. This
is the classic David vs. Goliath fight, with Wall Street spending millions and millions on lobbying to defeat reforms that would protect the American people and our economy.” Here’s the link. Thousands marched carrying signs reading: SAVE OUR HOMES - PUT PEOPLE FIRST - STOP THE ROBBER BANKERS - HOLD BANKS ACCOUNTABLE. Of
course, CNN, MSNBC and FOX didn’t cover the protests. They had more weighty news to deliver such as: “Polygamist sex trials set to begin....Man arrested with half a beard...Bow Wow Pups Don Halloween
Duds... (All front page news items on MSNBC). But tucked away in a corner on MSNBC was “US Eyes Reining In Too Big To Fail Institutions.” Don’t hold your breath.
Hiding the Truth
The worst thing about this crisis has been the lack of real transparency and truth telling—in the mainstream news media, on capitol
hill, in our so called “regulatory” agencies, and to ourselves as a nation. We’ve accepted instead the layers of lies and deception all talked up in tortuous language…the suspension of
“mark to market,” (what market?)…the “quantitative easing,” the “off balance sheet assets,” the toxic time bomb securities being “held to maturity.” It was all
done to prevent the real truth from ever being faced and dealt with. And that truth was that the banking system was so permeated by fraud and driven by overleveraged mechanisms few really understood, that it was
actually insolvent, bankrupt, kaput.
The best and brightest had squandered a generation of wealth with bad securities bets, and then they deftly evaded responsibility for their incompetence and greed while
passing the bill on to Uncle Sam. And the beat goes on. Wall Street still taps its foot to the daily trading ticker, gambling, shorting, front running, skimming, and discussing how best to “play” the
weakening dollar that the rest of the country tries to desperately stretch from one paycheck to another—if they still have a paycheck. While Wall Street bonus payouts are up 40% for 2009, each and every day an
average of 7,000 workers see their unemployment benefits end. The last safety net beneath them sheers away, the credit available on the plastic evaporates with their savings. There is no work out there for them.
MSNBC, after stupidly telling us the recession was over, ran a piece on tent cities springing up in Sacramento, Reno, Las Vegas, Seattle, Nashville, all filled with now homeless former Middle Class workers, out of
work. What will they do next?
It was no wonder that social prophet James Kunstler commented on the potentially explosive nature of this scenario—saying that a homeless man sleeping in his car has lost
just about everything but his gun. He picked up on the latest Hollywood movie about Zombies, and wondered when the pain in the gut of millions of Americans might finally motivate them to take a baseball bat to the
zombie banks that caused all this mayhem in their lives. And through it all, the most aggravating and frightening thing about the crisis is that we have a vacuum of leadership in Washington.
For all his
polished eloquence, and in spite of his hopeful attitude and likeable aspect, President Obama has really done nothing to truly define the crisis we face, and set the country on a course correction that promises any
real recovery. Instead we have seen the government compliant and supplicated to the banking system. The executive branch is infiltrated and “advised” by a host of ex-Wall Street gurus, the key
posts held by men who have only one thing in mind—the continued viability and profitability of the companies they came from. So we have ex-Goldman Sachs employees all through the Treasury Department, heading
up the SEC, and in any number of other key posts. We get Obama making speeches about the tough new consumer watchdog agency while congress quietly passes an “exemption” to the act’s provisions for
8000 of the 8200 banks in this country. And then First Premier Bank of South Dakota gleefully celebrates by issuing a new credit card with an annual interest rate of 79.99% !!! (No typo. That’s seventy-nine
point nine, nine percent).
You put facts like these together in a string and it is not hard to quickly reach a conclusion that the world is crazy. All sense of right and wrong seems to have been destroyed.
The notion of fairness, equality, justice is nowhere to be found. We send our brave young men by the thousands to fight in Iraq and Afghanistan so a handful of “terrorists” won’t cause any more
trouble over here. In the meantime we ignore the legions of terrorists in three piece suits on Wall Street that have literally taken a wrecking ball to the American economy, ruining businesses, destroying homes,
gutting neighborhoods, bankrupting cities and states, ending marriages and careers, and dimming the future prospects of the nation for a decade to come. What in the world was George Bush thinking about with that
Red-Orange-Amber warning code for potential terrorism, when all the while men like Bernie Madoff, John Thain, Angelo Mozillo, Ken Lay, Kenneth Lewis, and so many others were devastating the financial systems of the
nation? Where was the SEC, the FBI, and where are the prosecutions and perp walks for the men that did so much damage to our society? Only a few have faced justice, while thousands more just get back to
“business as usual” in the broadly manipulated bear market rally.
Ilargi of the popular blog “Automatic Earth” made a very cogent statement in his Oct 22 post: “If you let market participants free to pursue what is
in their best interests, without forcing them to give priority to society's best interests, they will eventually figure out that the best single investment they can possible make is to buy the government. That
allows them to make the laws. Which is detrimental to the rest of society, and leads to the sort of mess we're in right now...”
The men that run the de facto bankrupt banking system, and exercise
such enormous influence and control over our government, continue to draw some of the highest salaries ever paid. They look eagerly forward to the annual Christmas bonus binge, while so many others will face the
holidays with empty pockets. More money has been committed to the banking sector (over $26 trillion in direct giveaways, Fed programs and backstops) than in all past US national endeavors, including the combined
cost of all our wars and great national programs. Yet still the banks remain open and running only because of FASB accounting rule changes that allow them to pretend “assets” that have near zero market
value today are still worth what they were at the height of the boom. In reality they have negative equity positions that would mandate their seizure by the FDIC—but the FDIC is also bankrupt, and so the laws
are simply ignored. If written down to today’s fair market value, the toxic portfolios of Wells Fargo, Citigroup, Bank of America and JP Morgan Chase would bankrupt those institutions at once. Which means that
only tricks of accounting and willful disregard for existing laws now allow our banking system to function at all.
The same can be said for the real estate market itself, where the bloated Fannie and Freddie
now underwrite 70% of all mortgages in this country, with the rest backstopped by Ginnie Mae and the FHA. Stock in Fannie and Freddie was recently traded just above a dollar, and thought to have an actual real value
of zero. That’s what all your hard earned tax dollars bought this year. Nothing whatsoever.
The astounding fact that a person simply cannot get a mortgage without this government backing is damning
evidence in and of itself of the basic bankruptcy of the whole real estate lending business. Put simply, and even after a near 40% drop in value from the peak, houses still cost too much. Instead of being homes for
families to live in, they were sold as “investment opportunities” where the Rich Dads of our society would run deals through “straw buyers” and then flip properties for profit. The result was
a speculative boom in housing that was great for banks while it lasted. They diced up all their mortgages and sold them off as securities, but enough remained in the system to bring it all to a choking halt last
year. Boom became bust and concepts that worked only in a rising market were found to be enormous liabilities in a falling market. Now the government, in a desperate effort to stabilize things, backstops the entire
real estate market in this country. It could not function at all without Uncle Sam’s tax money on the line to take the losses.
I once thought that the government had to recapitalize the banks to staunch
this crisis. I was wrong. The big bank balance sheets are a black hole of bad debt. They remain insolvent. What the government should have done was take the hard medicine now, let these bloated institutions fail,
and used the trillions that vanished into the bank balance sheets instead to back up depositor balances while they supervised an orderly process of transferring those deposits to thousands of healthy savings &
loans, thrifts, and credit unions that did not partake of the Option ARM and interest only lending and securities fraud game. Yes, we would suffer a severe shock, a sharp depression, but then it would be over.
Instead, we have chosen denial, illusion, and a policy of sustaining the big institutions at any cost, and this will lead to a “lost decade” here in this country. Don’t ever expect housing values
to again reach their 2005 peak in that timeframe. Don’t ever expect job loss to halt and recover 2005 levels next year either. So we are facing a long, drawn out depression in this country while BofA CEO Ken
Lewis retires with a cushy severance package that is 1460 times greater than the average annual wage of the typical American worker. Feel like shopping? Ken Lewis can spend $12,500 per day for the next 16 years with the money he takes with him from Bank Of America. At age 62 now he can spent that way for the rest of his useful life.
Where is the outrage Bill Bennett was writing about when he got all huffy about Bill Clinton torpedoing “American Values?” Where is the outrage? Blogger MISH Shedlock asked the question, as have so many others, yet to no avail. Why do Americans remain so complacent in the face of such egregious criminality, the grand heist of a the nation’s wealth to fill the coffers of a select wealthy “investor” class? You will find outrage in the Blogosphere, which not only accurately predicted the financial collapse, (while “economists” had no clue), and which now is the only source of truth telling in the world. Bill Bennett, and the whole Republican Right, was so worried over Monica Lewinski’s afternoon visits to the Oval Office that they conducted an 18 month witch hunt and impeachment trial of the only president to deliver a balanced budget and funding surplus in our modern history.
But what do we say now about the men who saddled millions of Americans with unsustainable debt at high interest, sold them a raft of exotic mortgage products all designed to explode like an IED, caused the collapse of banking principles, the demise of companies that have stood for generations, speculated wildly with their depositors money in over leveraged securities, swaps, and derivatives, then caused a tidal wave of foreclosures, sinking their own rancid loan portfolios in the process? What do we say now as millions of Baby Boomers, who have lived lives of largesse and who have never known want, all begin to retire without adequate funding to sustain them in their “golden years.”
The outrage, my friends, is out there, held in check only by the thin veil of apparent normalcy that still holds our society together. Soon Americans may do more than simply close their credit card accounts or walk away from an underwater home. I hear all sorts of talk on the web predicting a bad moon rising, and talking about social unrest that is sure to follow the perdition delivered to us by the banking industry. Netizens claim that we are therefore heading for a locked down society that will become a police state. This is ludicrous.
We may eventually see major social unrest in this country, but no police state could possibly be enforced. The cream of the United States Army, Air Force and Marines, (and lavish naval support)—the most powerful military force the world has ever seen, could not impose order and even the slightest modicum of law in Iraq over a 7 year period until the Iraqis decided to stop killing each other on their own—and Iraq is a nation of only 26 million people, all accustomed to rigid autocratic oppression under Saddam. What makes anyone think that the U.S. Government and that same army could impose martial law in this country of 300 million people who are used to doing exactly what they please, whenever they please? You can forget the “Police State” and the silly notions of a new World Government, the sinister haunts of the Bildeburgers and all the rest. If social order ever does break down in this country it will only be restored when the people decide to create some new order and civility out of the ashes. Eli Wiesel said it best: “peace is our gift to each other.” But piss off enough disgruntled, out of work, homeless folks and all bets are off.
Thomas Freidman of the NY Times was fond of using another old Indian expression. “If we keep heading in this direction, we just might get where we’re going.” And the direction we’re heading is plain enough to see for anyone who reads or thinks these days. The Powers That Be, have decided to ignore their own self-made insolvency and simply pump massive amounts of new debt into the system. We now have unprecedented annual deficits, staggering national debt that is becoming more an more unserviceable with each day that we must borrow two billion dollars from Asia just to pay the interest. We have lost our manufacturing base. We suffer enormous annual trade deficits. And now that the hocus pocus trading games of Wall Street have been exposed for the frauds and Ponzi schemes they have always been, we have lost our credibility and standing in the world, which mostly thinks of the US as a source of instability now. How long will other nations continue to finance the games our Wall Street wizards devise and play with their pixilated money each day?
In just 18 short months we have passed quickly to stage three of Dimitri Orlov’s crisis timeline. Stage I was financial collapse, which we have clearly seen. Stage II was the inevitable commercial collapse, which will endure for a generation in spite of Goldman Sachs and their bogus profit making schemes. We are now at stage III, where the first two crisis points become a political crisis. The credibility of the government is wafer thin, and, more and more, the people are coming to see that the political systems they once believed in are equally bankrupt, and now serve only the interests of the wealthy few. If we keep heading in this direction the place we are going to next is political collapse, a full blown stage III crisis that could quickly lead to stage IV—social collapse. This is the stage where we lose faith in each other, and we stop giving each other that gift of peace that keeps our communities functioning with some semblance of normality these days. It is a crisis Orlov, and any sane person, would say we must avoid at all costs.
But as that wise old Indian on Freidman’s lips might say: “If we keep heading in this direction, we just might get where we’re going.” And to quote a popular character from a Saturday night comedy show: “You can believe me now or believe me later.”
Article By: John Schettler
October,
2009
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