|Is it any different today? Well, maybe not the part about sacrificing young virgins, but are we not sacrificing thousands of entire families in the foreclosure courts? We even have Richard A. Posner explaining the collapse of Wall Street and our economic meltdown as due to "mistakes" that are the "result of limited information" (in his review of Akerlof and Shiller's new book Animal Spirits, in The New Republic, 15 April). In other words, the conventional wisdom is not at fault, the prevailing economic theory is pure and perfect, it was the performers who made a mistake. And when it comes to repairing the patient, restoring a healthy economy, and bringing back the rain? Do exactly what we have been doing, intensify the efforts of witch doctor Geithner, but for God's sake do not even think of changing the dogma.
Future Americans, our grandchildren, will look back at our era in judgment: How did a Democratic President and a Democratic Congress use the government to deal with the economic mess? There will be no excuses ("we inherited the mess"), ("no one could have predicted the size of the problem"), ("politics is the art of the possible, of compromise"). True or not, none of that matters. Did the Democrats fix the mess, and did they reform the system so it could not happen again?
What is actually happening under Obama and Geithner, Secretary of the Treasury, their little rain dance, is a "gigantic transfer of wealth" from you and me, the American taxpayer, with no accountability, to banks and financial institutions, where our money is then used to abuse us and to strengthen the banks' control of our society and government. As Brent Budowsky, former Legislative Assistant to Senator Lloyd Bentsen, writes (http://www.opednews.com/articles/The-Great-Bank-Robbery-of-by-Brent-Budowsky-090501-714.html)
"It will be a disaster if this becomes the historic, political and financial legacy of the Democrats using government to solve problems., and I believe it is essential for Democrats and progressives to join a great debate on the side of workers and families and against the abuses that are front-page news..."
What about that stress test which was supposed to force banks to run a diagnostic on themselves, revealing which ones might require more medical attention? It sounded so good people perked up and consumer confidence rose, but there are fatal flaws in the way it was designed:
1) Rebuilding bank equity to 4 percent is completely inadequate; banks will be operating with 25 to 1 leverage, a level prudent investors regard as crazy extreme.
2) Bank assets are still shaky and may readily have to be marked down more than 4 percent, (see number 1) which would instantly mean the bank's common equity was, ugh! zero.
3) Even worse, the stress scenario was not very stressful: it posited a 3.3 percent drop in GDP in 2009 and an 8.9 percent unemployment rate---- unemployment is already at 8.9 percent and climbing, and GDP in the first quarter declined at minus 6.3 percent compared to the last quarter of 2008. In other words, the stress test was not mean enough. There is a suspicion that the "stress test" was a cosmetic or public relations effort. It did seem to work, especially all the hush-hush way it was dribbled out to the public, because Wall Street boomed.
We hear delirious reports of "green shoots" and even car sales rose. I, for one, desperately want Obama to be successful (unlike pleading-for-failure Limbaugh), but.... factory utilization fell to the lowest level ever since records started being kept in 1967; home prices recorded by Case-Shiller fell for the 25th straight month (although NoVa is doing better); commercial real estate is beginning the same long slide that residential has experienced as banks continue to restrict lending; another 600,000 families went into foreclosure; and, as a Realtor, I can tell you that a huge new wave of foreclosures will begin hitting toward the end of 2009 and lasting through 2011 unless Congress passes some kind of legislation (these are the "liar loans," alt-A and option ARMS).
What actually brought on the housing bubble, subprime mortgages, complicated derivatives, globalization of capital, and the entire meltdown is, quite simply, the determined application of conventional macroeconomic theory to the nth degree. None of this would have occurred without the Free Market theories of Milton Freidman, which not only did not believe bubbles could exist, but insisted that people make entirely rational economic decisions in the market place (the so-called "economic man"), which mysteriously results in a perfect pricing and the rational distribution of capital and production to the benefit of everybody; it literally sanctified greed at both the personal level and when it came to short-term bottom line quarterly profits for corporations.
The theory does explain a lot of economic activity, true. When it misses something there are plenty of excuses ("mistakes" due to limited information," said Posner), and any one who questions the theory is attacked as a socialist or a heretic. It is like a secular religion.
This theory actually is absurd: people make decisions without full information, frequently based on emotion or other, non-economic concerns. The market is not a level playing field, one party always has an advantage of some sort (knowledge, power), which skews results. The mathematical formulae produced by Freidmanites fail to measure significant things, possibly because they are not regarded as important since they would require intensive investigation of the bottom classes of the population, and no attention is paid to such things as social costs and environmental costs. Nevertheless, this has become the totally dominant economic theory of modern capitalism all across the world, even in Communist China. Its adherents control most governments, university faculties, the World Bank and IMF, the Federal Reserve and other central banks, all of Wall Street.... and even most Democrats, including President Obama.
Everything Geithner has done has been done to the benefit of his Wall Street buddies. Every attempt to force accountability ("where did the money go?"), restore function to banks ("why aren't banks lending the billions we sent them?"), or even to cap outrageous bonuses of top level executives ("we need them to unravel the mess they created") has failed.
Indeed, it would appear that the financial institutions are the tail wagging the government dog. They continue to suck up billion after billion from taxpayers, loans which will have to be paid off by future taxpayers. Creating such trillions out of thin air instead of from legitimate, productive activity will most probably create the hazard of hyper-inflation as well as destroy the dollar, and that's just for starters. It is my unfortunate conclusion that the only way out of this is to nationalize the banks, break them up ("too big to fail" is too big to exist) and re-privatize them.
Meanwhile, the drum beat starts to attack Medicare and Social Security, both of which could have used a few of the billions sucked up by banks to much better advantage---- but the banksters want it all, the hell with the people.
What we really need is a new economic theory to replace the rotton-on-the-vine Free Market junk so beloved of Republicans and of Democrats who love the campaign contributions of the gluttonous corporate pigs. If the Democrats cravenly back off from this challenge, they are the political party that will take the blame---- because they will have earned it.