What a week! We have seen the effective nationalization of the financial industry, and handed a bill to pay that will reach past a trillion dollars. More fantastically, our national wealth is to be spread among the horde of Wall Street bankrupts not by an impartial agency, but by contractors who will be working for a profit and will, essentially, be the same people who have gone broke, giving our money to themselves.

How will we pay for it? One guess: we will be taxed to pay for it. It no longer matters which party wins the election. The hope of lower taxes is moot. There is only one way to pay this piper, and that is with higher taxes, and both parties know this perfectly well. Of course, they will continue to lie to us and say there will be tax cuts of one kind or another, but it will not happen because it cannot happen.

Not only that, we have been experiencing stealth tax increases for years, in the form of congress’s refusal to end the alternative minimum tax. In 2007, four million of us got hit by this. In 2008, the amount has risen to twenty-six million. This fall, congress, Democrats and Republicans included, will pass the so-called “AMT Patch” by voice vote, possibly even without debate, or with a few of our elected reprobates making a token protest, and next year, as many as forty million of us will find ourselves paying higher taxes, on this basis alone.

In the real world–that is to say, the place where we all live, but which the media and the politicians pretend doesn’t even exist–what will happen is that they will soon come screaming to us that Social Security must be privatized and Medicare cut back. No way will we see any kind of comprehensive national health care program. Far from it, a lot of us are going to lose our jobs over the next few years, and with them any access we may now have to health insurance.

Meanwhile, they will continue to try to ram the Social Security privatization scam down our throats. If this had already been achieved, one might reflect, we would ALL be seeing our pensions go down the tubes, because they would be caught in the Wall Street debacle that is taking place now. But, I can assure you, we would NOT be getting the benefit of any bailout.

I am constantly hearing that this whole mess started because a lot of people who could not afford mortgages took them out and then walked away from the houses when they couldn’t pay. This is what happened, but it didn’t need to happen.

Starting with the Clinton administration, a process of deregulation encouraged banks to loosen mortgage restrictions. Then, in 2003–2004, when home prices appeared to be reaching a top, new, more creative mortgage instruments were invented, and along with them, the wholesale gathering of millions of mortgages into pools, which were then sold as “securities.” Fake securities, because there was and is no way to determine their actual value.

In the Bush administration, the regulations that were left were simply abandoned, and, what is worse, financial entities were allowed to stop disclosing their actual financial state. As a result, housing prices escalated into a lunatic bubble, which began to burst when many of the loans made on interest payments only in 2003-2004 began to require capital payments as well. People who had been paying $300.00 a month interest on a loan on a $200,000 house, suddenly had to pay that, plus principal, in many cases more than doubling their loans.

This could not work, because not only had housing prices topped out, thus making it impossible to sell without handing the bank a fat check for the difference between the sale proceeds and the mortgage amount, the average persons taxes haven’t gone down and his wages haven’t gone up–so he ended up able neither to pay nor to sell.

The result was foreclosure, and from that point, the rot began to spread upward. As unsold housing inventories rose, more and more expensive houses began to lose value. Now, even prime mortgages came to be in trouble–and the rest is history, because it is plastered all over the headlines right now.

I have been listening to the candidates talk about this, and it has been extremely disappointing. All Obama ever says is “change.” What change, exactly? He’d better tell us soon, or a lot of us are going to conclude that he is blowing smoke. He has said that he supports the bailout, meaning that he hasn’t got the slightest idea what it means or what the perils involved may be.

As far as McCain is concerned, his chief economic adviser is Phil Gramm, the arrogant fool who accused us, a few weeks ago of being “whiners” because we were losing our jobs and our homes. But of course, why not? He’s made a bundle at the public trough, and he isn’t going to suffer. To be fair, McCain has disavowed the comments, but continues to rely on the man.

No matter who reaches the White House in November, we are in for one hell of a time over the next few years. This bailout is, simply, a matter of replacing money Wall Street has lost with our hard-earned tax dollars. In other words, they made the mistakes and WE must pay for them. And, you can be sure, that they wll not be losing their multimillion dollar mansions.

The simple fact is that, without big regulation, big finance and big industry are always going to experience the same kind of boom and bust cycles that dogged all capitalist economies prior to the Depression. Abandoning regulation and ignoring the need for disclosure led directly to the disaster we are facing now.

What will happen to us? First, this gigantic bailout is only a bandaid. It will work for a while, but, inevitably, the truth will become known: we are in the process of seeing a trillion dollars of our money thrown into a black hole. There is much, much more out there in terms of worthless paper, and the system that is being set up is tailored to encourage the big banks and financial institutions to make the absolute maximum demands, without the need to disclose very much at all about what they are doing with our money.

What we have now is a cynical cabal between Wall Street and government, that is designed to replace the street’s losses with our hard earned tax dollars.

What is worse, as of right now the document that is being sent to congress explaining the new program is exactly three pages long. One thing it does make clear though, is that the president will have absolute authority to appoint the administrator, and he will have final say about where the money goes.

Bush’s history with appointments is abysmal, of course, so we can expect the worst with this, too, presumably.

Bottom line: the financial community goes to a trough filled with our money, and what is worse, we have to listen to the media and the politicians crow about how smart they have all been, to have saved us from another depression.

The bailout will work for a while, but not for long. What will cause it to fail? I don’t know, but I have some ideas. First, it depends absolutely on the rest of the world continuing to be willing to by US Treasuries.

Our government’s biggest customer is China, and they are going to see this as both an opportunity and a peril. How they will manage this is anybody’s guess, but you can be sure that we will have to pay some sort of a price in order to get them to continue to buy our national debt, most probably in the form of our having to pay higher interest.

Worse, though, is the extraordinary vulnerability that our country must now face. Basically, if China refuses to buy our debt, the United States of America is, effectively, bankrupt. And their peril is, of course, that we may fail as an economy anyway, so being a buyer of US debt right now is a risk they may not want, or be able, to take.

It must not be forgotten that Asian bourses have taken a fantastic hit over the past 12 months, China is suffering from inflation, its own consumer economy sliding into recession, with hundreds of thousands of people losing their jobs.

The Chinese leadership knows history, and not only their own. They know that revolutions take place in countries where the aspirations of an expanding middle class are thwarted, as happened in France in the 1780s, in Russia in the early twentieth century, and more recently in the Shah’s Iran.

It’s anybody’s guess what China will do. Obviously, we’re a vitally important trading partner, but, given the risks that we now present, they will do whatever they can to reduce their exposure to us, and that does not mean continuing to buy our debt, obviously.

What else might go wrong? One thing that certainly will go wrong is that there is going to be a historic feeding frenzy as the wealth of the American people is doled out, and every single financial entity with even the slightest reason to go to the trough is going to stick its big square nose in and just gobble. And because the administrator will have total control, we probably won’t even get any disclosure.

Will the bailout save the financial world? For a while, sure, but it will not change the massive inventory overhang in the housing market, and, because it is going to force the government to tax us ever more heavily at a time when our real income is dropping, it won’t do a single thing to stimulate demand. In fact, the ever increasing tax bite that will result from it is going to retard economic growth in this country for many years to come.

There will be those who say that the candidates are both promising tax cuts, which they are. But this spending frenzy just ate those tax cuts–or, to put it more accurately–converted them into unavoidable tax increases, no matter who is in power.

The truth is, the bailout is the last card the government can play, in its effort to undo the grotesque catastrophe that its own policies–or lack thereof–have caused.

Once the bailout fails, it’s the abyss for us. But not for the politicians of course, or for the Wall Street millionaires. Just us tax-choked whiners.

NOTE: This Journal entry, previously published on our old site, will have any links removed.

Dreamland Video podcast
To watch the FREE video version on YouTube, click here.

Subscribers, to watch the subscriber version of the video, first log in then click on Dreamland Subscriber-Only Video Podcast link.