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.
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