Smash And Grab Capitalism, The GOP, And You
September 17th, 2008 by Andrew Cochrane |
 |
|
|
The entire world right now is watching the American economy shudder and stumble under the burden of millions of bad investments. Some of the oldest and most powerful financial institutions in America have collapsed in the past few weeks, leaving all of us wondering how this could possibly have happened. The how is somewhat easy to trace, for a detailed breakdown go listen to this episode of “This American Life”, for those of you in a hurry, this is basically what happened:
So that is the what and the how of what happened (in an extremely simplified nutshell), but why did this happen, why was it not prevented or stopped before it got so critical? Well, it’s actually quite simple: ‘smash and grab capitalism’. At every single point in the chain, everyone was trying to grab as much as they could possibly get, planning on passing the buck along before it was too late. This is what happened to Enron, this is what happened with Worldcom, this is what happens when smart people get VERY greedy. This is capitalism at its worst- unregulated and shortsighted. People who could not afford a house wanted one, so they bought into a system they knew was risky but hoped to survive somehow. They were not taken advantage of or deceived- their greed was appealed to, and they gave in. When the money men came calling, they lost everything. This is sad, but they brought it raining down upon themselves. In some cases sickness or unemployment struck, and that is terrible, but they got into a situation with no reserve funding, and it bit them. Hard. Real estate agents, construction companies, mortgage brokers, banks, investors, all the way up the chain, at each step risky flawed decisions were made. The goal was to get as much cash as possible before passing the debt along to the next greedy sucker. At no point did anyone stop it, they were all too busy participating in the Great Financial Looting of the 21st Century. These were smart people, they knew the risk was real, but they didn’t care, to the degree that the World economy is now endangered. And the government did nothing to stop it. As you watch your stock portfolios, house values, 401Ks and banks enter into a free fall, know this- we got screwed over, and nobody stood up to stop it. Our economy was gang-raped, and the rapists are all multi-million and billionaires now. So what happens now? A lot of people lose their homes, a lot of banks fold, a lot of small businesses downsize and close, a lot of investors loose all of their stock wealth, a few more major institutions collapse. Possibly the US dives into a new Great Depression. Probably the World dives into a recession. This will wipe out a whole lot of wealth here and around the World, and it will be very ugly. In the short term, don’t make any greedy decisions, and hope that those above us in the chain can show the self restraint to do the same. The government’s current approach* to fixing this mess is to shore up the largest failing institutions with hundreds of billions of dollars that we really cannot afford to be spending. The government now essentially owns Fannie Mae, Freddie Mac, and AIG, and strong armed Bank of America into buying Merril Lynch and Barclays into buying part of Lehman Brothers. These are giant companies, and trillions of dollars hang in the balance. I do not know what else we can do, but it certainly seems like our solution to this crisis is to throw fake money at bad money and hope that we can plug the holes fast enough to prevent the whole thing from sinking. In order to dig out of the Great Depression, the government finally raised taxation of the rich to 91%. Currently, that tax rate is at 35%. Food for thought, not much of a closer, but honestly this is a giant mess with no silver lining or happy ending. *WHERE THE FUCK IS OUR PRESIDENT! I hate the bastard, but why is he not talking about this crisis? He is promising even more money we don’t have to clean up the hurricane mess in Texas (while the same cleanup is still ongoing 3yrs later, sans federal funding, in New Orleans). Quote from yesterday about that: “‘I have been president long enough to have seen tough situations, and have seen the resilience of the people to be able to deal with the tough situations… I know with proper help from the federal government and the state government, there will be a better tomorrow.’” He has made a single short statement about the economic crisis, and then.. SILENCE. He is letting the candidates do all the talking about what is going wrong and what should be done to fix it. BUT HE IS IN THE PILOT’S SEAT, not them. He is not a lame duck until Nov. 5th, until then, hate him or dislike him greatly, he is in charge. This is Bush’s legacy: sit idly by while the robber-barons pillage the economy, then swoop in to save ‘his’ state, while continuing to neglect the poor, all while spending every single dime we don’t have in two un-winnable wars and in bailing the fatcats out so they can keep their ill-gotten wealth. This is your President. If you voted for him, this is what you voted to receive. I hope you are very rich now, because otherwise you have done a very bad thing. |
||
 |
 |
September 17th, 2008 at 2:15 pm
Incredible insight, Andy. Youv’e left out, what i feel, is the biggest slap in the face. The voters. Those who did vote in ’04 for Bush, did so without education. They based their decision to back Dubya based on personal morality and how “down to earth” his is and how much they’d would love to have a beer with him.
What is the slap in the face? The face that its happening all over again. The GOP candidates may be a bit less evil than Bush and his nazi vice, but voters are still basing their vote on Roe vs Wade and gay marriage. Even less intellegent, they are voting because they like Palin, and her “I shot a moose, am a hockey mom, just like you” bit.
Its sad. Its sad that voters cant look at the big picture. Its sad that people cant see that soldiers are dying. Families are getting destroyed. Education is suffering. Social security is inevitably becoming privatized. Feds are throwing money at loosing battles, only to lead to our downfall. Why will it be our downfall? Because when the real crisis happens, and it will. Where will the money be then? Spent already. And thats even if they have any now in reserve. We are over 400 billion in the hole. Where did 85 billion come from?
This is an election of our lifetime. I lost alot of faith Nov 04, i pray i wont loose the rest of it this November.
September 17th, 2008 at 2:23 pm
I would also like to add, too, that I truly believe in democracy. I believe that the majority vote, should be the law of the land. But when the majority of the vote is coming from nothing but lemmings…..we have a problem.
September 17th, 2008 at 5:07 pm
In an economy where low taxes increases jobs, drive corporate growth, and sparks consumer spending, the repercussions of an Obama presidency will be quite dramatic, not just for consumers and businesses, but for investors as well.
Bush has been THE WORST republican President – and no ability (or willingness) to communicate to the American people what is going on.
A real leader would come on TV – say we are removing ourselves from foreign affairs for a few years. We would withdraw troops from all over the world, close many bases, place more troops on the border, literally round up illegals, stop their drain on the health care system.
The wars in Iraq and Afghanistan were just, necessary, and strategic. Our remaining there is none of the three.
A real leader would make a radical statement like removing oil from the futures market, make a windfall profits tax if those profits are not immediately reinvested into natural gas distribution, more drilling, solar parking garages. He would end ethanol subsidy and force farmers to create corn for food and make switchgrass for fuel.
A real President would come on TV and tell us that he was indicting CEOs at the end of the year for companies that overcompensate and underperform.
This sounds “Non Republican” – but I am a true conservative through and through. We need a tad bit of liberalism now to fix this mess. I think the McCain/Palin ticket is just the right amount of liberalism.
September 17th, 2008 at 6:14 pm
[...] Smash and Grab Capitalism and You An excellent thumbnail treatment and reflection on how our economy got where it is. [...]
September 18th, 2008 at 10:58 am
Bush spoke up today about the situation, nothing really interesting said, but more importantly, here’s a quote about him dodging the topic under direct questioning:
“Bush has not fielded questions about the economic upheaval this week and even canceled a statement Tuesday. Reporters have tried each day. When one tried to press Bush in the Oval Office on Wednesday, he said he could not hear the question, then made light of the moment by saying, “I’m old.”"
“I can’t heeeear yooooooou”!!!!!! THAT IS OUR PRESIDENT DEALING WITH THE GREATEST ECONOMIC COLLAPSE IN ALMOST ALL OF OUR LIFETIMES (Those of you over 80yrs old excluded of course).
I would also like to add that McCain has made his reputation as a free market, de-regulation candidate. Today he wants to fire the head of the SEC for not regulating the market enough. You want flip flops? McCain’s got em, and there’s a fire sale going on! I personally believe in regulation- I do not think that an economic system entirely structured on greed can be trusted to self-regulate. Bush has pushed de-regulation about as far as it might ever be able to go, to say that we need even more would be beyond suicidal, it’s sociopathic.
The GOP (Greedy Old Party) led the country to financial ruin in the late 20′s, and piloted this bus into the Great Depression. They are doing it again, using the same economic practices (deregulate, smash, grab, blame someone else). The question is, will we let them extend this Looting for 4 more wars?
September 18th, 2008 at 11:53 am
America is in a great, huge trouble. Regardless of who the next president will be, Americans shouldn’t forget that China, certainly not a democratic country owns the American debt. And they are little likely to be permissive towards political attitudes that don’t suit them.
Alex
September 18th, 2008 at 1:27 pm
Here is a nice, detailed analysis of what de-regulation did for us. Short attention span version:
“The events of the past year are not a mere accident, but are the results of a conscious and willful SEC decision to allow these firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1. Instead, the 2004 exemption — given only to 5 firms — allowed them to leverage up 30 and even 40 to 1.
Who were the five that received this special exemption? You won’t be surprised to learn that they were Goldman, Merrill, Lehman, Bear Stearns, and Morgan Stanley.”
September 18th, 2008 at 3:48 pm
Wow, and I was just about to send you that link… Well, 3 down, possibly 2 to go.
September 18th, 2008 at 4:23 pm
It is in times like this that we need smaller government, less fiscal responsibility, more borrowing from China and Japan, more endless wars, lower taxes for the top tax brackets, and NO MORE GAYS. When you write it all out like that, it sounds kind of silly, doesn’t it?
September 18th, 2008 at 4:46 pm
How about this… John McCain claims that if he were President he would fire the head of the SEC and the newspapers don’t even point out that the President isn’t allowed to fire the heads of independent regulatory commissions.
February 23rd, 2009 at 7:20 pm
Very keen insight… capitalism run amok. But why? Because the pressures that normally exist to make sure the bad decisions are not made were removed when the government incentivized bad loans. If a lender actually had to hold the paper for a bad loan they wouldn’t make them. But when Barney Frank and Chris Dodd incentivize bad lending with the expansion of criteria for a GSA paper-buy then those pressures go out the window and the smash and grab starts. Thank big governement for this one!
February 24th, 2009 at 5:46 pm
Sure, de-regulation allowed the situation to begin and escalate, but the fuel for this fire is good old fashioned greed. The government can open the door, even encourage companies and individuals to walk through it, but ultimately the blame lies on us.
May 10th, 2009 at 6:32 am
Great! Thank you very much! I always wanted to write in my blog something like that. Can I take part of your post to my site? Of course, I will add backlink? Regards
May 10th, 2009 at 10:24 am
You’re always welcome to quote any post here, linking back to the source is of course required for properly citing any writing belonging to other people, so that part goes without saying! Glad you liked the post.