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Mar. 24th, 2009

Every once in a great long while, the G.O.P. finds itself on the right (that is to say, left) side of a populist uprising. On those rare occasions, it gets to step away from the racial, religious and sexual pandering, packaged together and branded as “the culture war”, which is normally their only way to make contact with the toiling classes, and do something they are normally very reluctant to do: discuss economics. The reason they are reluctant to do this is because for at least 30 years, they have stood for only one real economic principle, and that is enriching the rich. This rarely goes over with the general public, who as a rule are not rich, without some attendant fraud, and even now you have penny-ante Objectivist hustlers trying to convince middle-class people to “go John Galt” to avoid a tax burden that would, a good 90% of the time, not penalize them in any way. But at the moment, they’re standing fully behind – in terms of rhetoric, if not actual votes – the populist hue and cry that the federal bailout package is a colossal swindle.

And they’re right: it is. It’s unprecedentedly bad, and I say this after years of having railed impotently against the massive fraud going on as part of Iraq reconstruction, which was, until the meltdown of 2008-2009, the worst financial crime against the American public in the history of the country. But as usual, the G.O.P.’s populist outrage is even more of a scam: the’yre attempting to harness the proper rage that we’re being asked to participate in a bailout of the most audacious crooks and plunderers of the public till to ever crawl out into the light, and direct it instead towards the President’s plan to keep the economy afloat, aid those worst hurt by the financial industry’s crimes, and shift the burden of paying for it all onto the class that got us here in the first place. You’ll hear none of them speak of holding the executives of the megabanks responsible for their deliberate misdeeds (that’s “scapegoating”), or of giving the government control over the banks, or at least, the regulatory power to ensure they don’t defraud us again (that’s “socialism”), or even getting the people who left us to clean up their toxic assets out from behind the wheel of the economy they drunkenly drove into a ditch (that’s “class warfare”).

Instead, you’ll hear them condemn people they praised when those peoples’ boss was a Republican; you’ll hear them deliberately distort how the tax system works to advance their own agenda; you’ll hear them blame minorities, immigrants, new homeowners and debtors, at a time when the net household savings rate is negative and people earning professional salaries are still a paycheck away from disaster; you’ll hear them offer the free market as a solution for a problem the free market created, deregulation as a solution for a problem deregulation made worse; and tax cuts as a solution for a problem that can’t be solved by tax cuts. They are merely riding the crest of a new and powerful wave, using the same old broken-down board.

The cause of the current crisis is complex and damnably difficult, and arose largely out of the use of arcane financial instruments (which, in the end, were simply extremely abstruse gambling games that the mega-rich played, but we lost) that most people can’t begin to understand, and which the people who got us into this mess have no intention of explaining. (Both Henry Paulson and Timothy Geithner have declined, before Congress, to even identify the organizations which are receiving bailout monies, explaining that to do so would be “confusing” (Geithner) and “counterproductive” (Paulson). But the way that the people behind all this have gotten away with it, and the way they will continue to get away with it, is through a combination of ignorance and audacity. They will treat you like a husband who is first a philanderer and then an abuser: at the outset, they will deny any wrongdoing even as it becomes painfully clear that they are cheats by saying “Don’t talk about things you don’t understand”. Then, buoyed by the success of their lies, they will start slapping your face, relying on the fact that you’ve already let them get away with so much, there’s no point at which you won’t say that enough is enough. We’ve already seen the hollowness of the claim of a “business too big to fail”, and now we’re being asked to contend with a “crime too big to punish”. I hope before we display that last great failure of will, we consider a few things:

- At a time when it was hemorrhaging more money in ten seconds than most working families make in a year, AIG’s Financial Services group told its own investors that they could not realistically envision a scenario in which the company lost even a dollar of its assets.

- The majority of losses in the financial meltdown were a combination of imaginary money and real assets that largely came out of retirement accounts, pension funds, small group investments, and other conservatively vested small-group investments of the very sort that, we are assured, are the only way to plan for our future, because the government cannot help us. In the meantime, no government bond has defaulted and no Social Security payment has been missed; but for millions, every penny they invested in the market is gone forever.

- Two major factors in the collapse, collateralized-debt obligations and credit-default swaps, were given the highest possible safety ratings by regulators and ratings agencies, making them attractive to conservative investors like unions and retirees. This was despite the fact that they were often not backed by a single dollar of real money from the issuing agencies; as long as they were making money off of them, who cared to issue a bunch of stupid, growth-slowing regulations?

- Every single one of the problems now evident in this unprecedentedly huge economic collapse can be traced back to the huge deregulation of banks and financial companies undertaken by the “Contract with America” crowd (and their Democratic abettors) in the late 1990s.

- We used to make things in this country, now we just put our hands in the next guy’s pocket: it is astonishing, the degree to which imaginary income was being generated by the sales of CDS by parties not even involved in the original transaction. AIG, in particular but hardly unique, was selling shares of insurance on loans to investors three and four times removed: that is, someone would invest on the return on a loan held by a homeowner against a bank, and the investment would be sold to them by a financial company that bought it from a bank that bought it from an insurer that bought it from the financial services branch of the bank that made the original loan. The original authors of the loan were making gargantuan levels of paper profit on these loans over and above the actual rate they charged the lendee.

- Before the G.O.P. lobbied to have them recategorized, credit-default swaps were literally regulated as a form of gambling, no different from blackjack or craps. Literally tens of billions of dollars in private and public assets have been lost on what amounts to a horse race.

- Many of the financial services companies involved in the current crisis, including AIG, Bear Sterns, Goldman Sachs and Morgan Stanley, do massive amounts of business in Europe, and at the peak of the CDO/CDS tulipomania in 2004, were faced with the prospect of regulatory oversight by much stricter European laws. They avoided this by having a one-hour meeting with the Secretary of the Treasury, who placated the Europeans by appointing a seven-person board to personally examine such transactions by the biggest companies. Since that time, the board has met zero times and made zero examinations of their activities. They haven’t even named a director.

- The crisis at AIG in particular wasn’t even triggered by their toxic assets, but rather by their fraudulent accounting practices, an audit of which uncovered the former fraud. In other words, the crooked activities of their left hand were accidentally exposed by the crooked activities of their right hand. We have only their own incredible depth of corruption to blame for things not being even worse.

- One of the biggest losers in all this are local and community banks; they’ve been devastated by the crisis, because they were heavily laid into what they were told were conservative investments. But while the hugest financial services companies got billions of dollars in bailout money literally the very day the money was made available, the vast majority – over 75% -- of small banks have still not received the money they applied for, months later. This is particularly galling because not only did these banks not engage in the high-risk lending and speculation that led to the current crisis, but they operate a small-scale, highly regulated, smart business model based on personal knowledge of investor risk and reward that is exactly what’s needed in the market right now. Instead, the banks who did everything right are being penalized (and, increasingly, allowed to fail), while the massive, fraudulent megaconglomerates who got us into this mess are being rescued at lightning speed.

- One last thing to think about, whenever you hear some horseshit “tea party revolutionary” like that CNBC guy blaming the whole mess on homeowners who took on loans they knew they couldn’t afford: starting in 2004 and continuing until their collapse, the debt-to-equity ratio of Bear Stearns was an astounding 33-1. Save your lectures about personal responsibility for your fellow stock hustlers, Santelli, you pathetic phony.


Mar. 24th, 2009 04:55 pm (UTC)
don't have much to say, but nicely done. the more i read about the bailout, the more I think it's f**king ridiculous. But whatever the future holds, it's gonna be ugly.
Mar. 24th, 2009 05:05 pm (UTC)
Nicely done, Leonard. I should skip doing daily posts on this shit and just build up a head of steam like you...
Mar. 24th, 2009 05:13 pm (UTC)
Yep. The Rolling Stone piece is still my favorite because it made the most sense about all of this, all told with the right amount of cussing. A shitty story told clearly through the right channel.

I've always hated investing, too. I'm a very meek person with my money (though sometimes foolish) but every time I hear my Dad talk about investing I get uncomfortable. I just don't like gambling, however justified or legitimized it becomes.
Mar. 24th, 2009 05:21 pm (UTC)
I've always hated the idea that the only vehicle for insuring our economic futures has become to hand over all our hard-earned money to these banksters. It's like they've got a gun held to the head of every American, set to go off when the market goes down. That "we are all investors now" bullshit really chaps my ass.
Mar. 24th, 2009 09:29 pm (UTC)
More like "we are all investors now that we really need your money, and even though we're taking it without your say-so we'll get our PR guys to spin some justification crap so you don't think about it too hard while you watch those shows you downloaded from a torrent on your flat plasma screen tee vee."
Mar. 24th, 2009 05:59 pm (UTC)
See, and it's not even investing -- there are small banks all over the country who invested smart and made sensible loans, and the people who invested in these toxic assets did so because the stocks were, at the time, highly rated. They were doing everything right, not engaging in crazy speculation -- but the people at the top were gambling like 4AM drunks and lying about what was at stake. Even if you believe in the market and the system, how can you have faith in it when the biggest players are doing their best to cheat the system?

That's what so infuriating about the right-wing response. They're blaming the people who believed in the system and excusing the people who gamed it.
Mar. 24th, 2009 09:31 pm (UTC)
Yeah, this. I don't have enough understanding of how the market actually works beyond my It's a Nice Life Jimmy Smits whatever black and white bank monologue I typically sit through during the holidaze, but it's the EXPLOITING LOOPHOLES that sends shivers of fury down my spine. They did it on purpose. That could be said of a lot of things.
Mar. 24th, 2009 05:14 pm (UTC)
Yes. Bravo. Nicely done.


Every single one of the problems now evident in this unprecedentedly huge economic collapse can be traced back to the huge deregulation of banks and financial companies undertaken by the “Contract with America” crowd (and their Democratic abettors) in the late 1990s.

... or further back, if you care to keep going.
Mar. 24th, 2009 05:54 pm (UTC)
Oh, no doubt -- there's been a deregulation mania since at least the early '80s. But it was the demolition of Glass-Steagall in the late '90s, when they allowed all the services to consolidate and basically regulate themselves, that the financial market got well and truly fucked.
Mar. 24th, 2009 06:10 pm (UTC)
But it was the demolition of Glass-Steagall in the late '90s, when they allowed all the services to consolidate and basically regulate themselves, that the financial market got well and truly fucked.

I would add to this the massive credit expansion enabled by the Fed under Greenspan.

(U.S. interest rates over the last few years. The red line is prime lending rate)

Considering that the Dow is at 1997 levels, but things built in 1997 - like my car - still run, it seems evident that all of the wealth that AIG, Bear Stearns et al destroyed was wealth on paper. That can't exist unless there's a lot of bad paper to write.

So, repealing Glass-Steagall was like turning your back on the bratty kids. Slashing the interest rate was like leaving your wallet in the room.
Mar. 24th, 2009 05:45 pm (UTC)
you are the smartest person I have ever met.
Mar. 24th, 2009 06:00 pm (UTC)
Meh. I just read a lot and know when I'm being swindled.
Mar. 24th, 2009 06:02 pm (UTC)
-We used to make things in this country

Same here in the 51st state - Mrs. Thatch did for all that years ago. And funnily enough, it was the U.S. Ambassador at the time who told them 'But you can't all make a living opening doors for each other'.

Deregulation usually turns out to be a bad thing - the banks here were given the keys to the asylum some time ago with lending regulation being eased, and then we gave the Bank of England the power to set interest rates, and it's all been downhill since then.
Mar. 24th, 2009 06:30 pm (UTC)
And they call Obama, "Robin Hood" when the poor don't see a dime! Or a farthing, I guess it would be. Sumpin' like that.
Mar. 24th, 2009 09:08 pm (UTC)
From what I've read, the best solution to this mess (the very one that worked in Argentina in 2002, and South Korea in 1997) is to nationalize the banks, sort out the toxic assets, clean the books, and then re-privatize then. This could be done in days, if not hours, and would return almost all the money used to nationalize the banks back to the Treasury. And it drives me absolutely nuts that this solution is totally off the table, because decades of, essentially, self-serving propaganda from the right has convinced us that nationalization equals socialism equals gay Islamo fascists raping our children.

There's no good way out of this mess, but there's a least-bad way and we're not being allowed to pursue it. Yay for being stupid, no matter what the stakes!
Mar. 25th, 2009 12:41 am (UTC)
I think gay Islamo fascists raping our children could be a step up from what these Wall St thieves are doing to us. At least you know they'd be better dressers.
Mar. 24th, 2009 11:43 pm (UTC)
Well done, sir.
If this is the stuff you write for free, I can only imagine the things you get paid to write.
Mar. 25th, 2009 03:33 am (UTC)
Re: Well done, sir.
Yeah, really!
Mar. 25th, 2009 02:43 pm (UTC)
I think I'm going to start practicing how to start fires with wood shavings and flint. Forget all the IT professionals, lawyers, investment advisors, realtors, personal coaches in the area - seems like that's going to be a much more marketable skill in the neighborhood in the next five years.
Mar. 25th, 2009 03:31 pm (UTC)
As I've clawed my way out of crushing debt in the last ten years, I've frequently lamented to myself, that while I've paid off all my obligations and taken a more responsible path towards finances that includes saving money, I never did anything with it. I never invested in CDs or mutual funds or bought stocks, or really, even bothered to do any of the things that financial planners kept insisting I do with my money. Like buy a rental property, or take out a a loan against my ballooning equity.

For a long time I felt pretty bad about that. I felt a little inadequate, and a little ignorant. I felt like maybe there was something I was missing. Something else I should be doing to secure the financial future of me and my family.

Usually I like it when I'm right, but this seems a little hollow.


flavored with age
Gun-totin', Chronic-smokin' Hearse Initiator
Ludic Log


Leonard Pierce is a freelance writer wandering around Texas with no sleep or sense of direction. If you give him money he will write something for you. If you are nice to him he may come to your house and get drunk.

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