Unfortunately, the financial crisis may not be over, and it
is to be hoped that, this time, it can be handled correctly.
The bailouts did not fail, but the cost was enormous and
unnecessary. It was probably the least efficient possible
means of correcting the situation.
The crucial mistake was made by the Bush Administration when
it began providing gigantic cash infusions to destroyed
banks. Unfortunately, Obama was in no position to change
this policy, and he has continued it.
It was a mistake from the beginning because it does nothing
to solve the root problem, which is that people have
mortgages that they cannot afford, and they cannot afford
them for these reasons: 1. a lack of jobs and slow to no
jobs recovery; 2. dangerous, foolishly designed mortgages;
3. organized looting of the economy by the credit card industry.
What should have happened in the beginning was that the
federal government should have guaranteed all mortgages,
then conformed them to a rational and consistent structure.
This would have been far cheaper than the bailout, because
it would have had to pay out only on the mortgages that
actually defaulted, instead of buying vast numbers of
mortgage backed securities because nobody was able to
determine their value.
Federal guarantees would have immediately revalued those
securities and ended the uncertainty. Mortgage
reconstruction would have saved millions of homes from
foreclosure and resulted in a gradual decline in housing
prices rather than the collapse that, in fact, took place.
There are now two more types of mortgage that are in
trouble, and together they are liable to ignite another
major fire in the banking world. These are commercial real
estate mortgages and payment option adjustable rate home
mortgages. Large numbers of the latter are coming due for
substantial payment adjustments, just as many subprime
mortgages did last year. Millions of people are going to be
receiving mortgage bills they can no longer afford to pay on
houses that they cannot afford to sell.
At the same time, the commercial real estate mortgage market
is turning into a basket case.
To save the situation with another bailout is probably
fiscally impossible. The dollar has survived huge increases
in federal indebtedness because there is no alternative
currency. However, should another financial crisis erupt, it
is likely to become the victim of panic selling unless the
Treasury dramatically increases the interest it is paying.
Ways urgently must be found to save the situation without
the country incurring more debt, not because it is at or
beyond a sustainable limit economically--it isn't--but
because of the short term danger to the currency, and the
catastrophic consequences to America and the world of the
fall of the dollar.
What needs to be done is what should have been done in the
first place: these mortgages need to receive federal
guarantees and they need to be restructured along lines that
fit our country's current economic situation. Otherwise,
another enormous basket of mortgage-backed securities is
going to come under pressure almost immediately.
Another way to inject liquidity into the economy is further
regulation of the credit card industry, which has been
rapaciously sucking dollars out of the pockets of debt-laden
consumers, largely in order to provide banks with liquidity
that was compromised by their own greed and incompetence,
not by any
significant problems in the consumer credit area.
What problems exist in that area have largely been created
by the banks themselves. When you double and triple the cost
of money to cash-strapped consumers, you create problems
that were not there before.
Rigorous and immediate regulation of this out-of-control
industry is not only needed, it would have the effect of
injecting large amounts of cash back into the economy
without the government needing to take on another penny of
debt. It would also actually improve the condition of the
banks, by reducing the amount of bad credit card debt, bad
debt that they have themselves created by challenging their
customers' liquidity at a time of extraordinary economic
fragility.
Another essential is that jobs absolutely must be brought
home. If you drive across the midwest from city to city, you
would think that you're driving through a war zone, or a
planet that has been mysteriously abandoned.
It has been abandoned. It has been abandoned by
short-sighted and foolish managers and a government that has
spent the last 30 years helping them do it.
You cannot expect a country where people who were building
appliances are now lucky to be flipping hamburgers to
continue to be successful. It cannot be successful, not
without a growing jobs base.
Just a couple of weeks ago, Whirlpool announced that it
would close its Evansville, Indiana operations and move at
least 1100 jobs to
Mexico. This should be illegal. It should always have been
illegal. In fact, the export of jobs should require a permit
and be subject to stringent regulation.
It is not true that jobs are exported because American
workers are "paid too much." Far more often, jobs are
exported to increase
profitability, not to restore it.
We are constantly bombarded with the idea that we live in a
"market economy," and that "the market must be allowed to
find its own level." But we do not live in a market
economy. We live in a corporate oligarchy in which each
major industry from the media to mining to agriculture and
manufacturing, is dominated by just a few large corporations.
The truth is that the individual is helpless in an economy
like this. The company holds all the cards, and the only way
to change that is to start making and enforcing wise laws
that are designed to preserve what we have and give the
American people a chance to rebuild.
This can be done without increasing the federal debt, but to
do it we are going to have to get congress to stop listening
to lobbyists and start respecting the needs of the people.
Congress is an elective body, but it is not a representative
body. We elect our representatives and senators, but they do
not work for us. They work for the corporate oligarchy that
funds their campaigns. It's that simple. And both sides do
it. It's not a partisan issue.
The only way we can change that is by electing
representatives who will have the courage to go to
Washington and pass laws against corporate campaign finance
and corporate lobbying.
Try to go see your senator sometime. You'll almost certainly
end up meeting with an "aide," generally the youngest, least
important aide in the office. And that aide will not even
give your senator a brief memo about your question or concern.
So, where will he be? Meeting with lobbyists. No doubt, to
help companies like Whirlpool insure that they can continue
sending jobs to Mexico.
Update: On September 22, it was announced by the Equifax
Credit Bureau that 7.58% of all US home mortgages were at
least 30 days late, the highest number on record, and a
shocking 41% of subprime loans were in arrears, the greatest
number to date.
