Smashing Capitalism
Somewhere in the Hamptons a high-roller is cursing his cleaning lady and shaking his fists at the lawn guys. The American poor, who are usually tactful enough to remain invisible to the multi-millionaire class, suddenly leaped onto the scene and started smashing the global financial system. Incredibly enough, this may be the first case in history in which the downtrodden manage to bring down an unfair economic system without going to the trouble of a revolution.
First they stopped paying their mortgages, a move in which they were joined by many financially stretched middle class folks, though the poor definitely led the way. All right, these were trick mortgages, many of them designed to be unaffordable within two years of signing the contract. There were "NINJA" loans, for example, awarded to people with "no income, no job or assets." Conservative columnist Niall Fergusen laments the low levels of "economic literacy" that allowed people to be exploited by sub-prime loans. Why didn't these low-income folks get lawyers to go over the fine print? And don't they have personal financial advisors anyway?
Then, in a diabolically clever move, the poor - a category which now roughly coincides with the working class -- stopped shopping. Both Wal-Mart and Home Depot announced disappointing second quarter performances, plunging the market into another Arctic-style meltdown. H. Lee Scott, CEO of the low-wage Wal-Mart empire, admitted with admirable sensitivity, that "it's no secret that many customers are running out of money at the end of the month."
I wish I could report that the current attack on capitalism represents a deliberate strategy on the part of the poor, that there have been secret meetings in break rooms and parking lots around the country, where cell leaders issued instructions like, "You, Vinny -- don't make any mortgage payment this month. And Caroline, forget that back-to-school shopping, OK?" But all the evidence suggests that the current crisis is something the high-rollers brought down on themselves.
When, for example, the largest private employer in America, which is Wal-Mart, starts experiencing a shortage of customers, it needs to take a long, hard look in the mirror. About a century ago, Henry Ford realized that his company would only prosper if his own workers earned enough to buy Fords. Wal-Mart, on the other hand, never seemed to figure out that its cruelly low wages would eventually curtail its own growth, even at the company's famously discounted prices.
The sad truth is that people earning Wal-Mart-level wages tend to favor the fashions available at the Salvation Army. Nor do they have much use for Wal-Mart's other departments, such as Electronics, Lawn and Garden, and Pharmacy.
It gets worse though. While with one hand the high-rollers, H. Lee Scott among them, squeezed the American worker's wages, the other hand was reaching out with the tempting offer of credit. In fact, easy credit became the American substitute for decent wages. Once you worked for your money, but now you were supposed to pay for it. Once you could count on earning enough to save for a home. Now you'll never earn that much, but, as the lenders were saying -- heh, heh -- do we have a mortgage for you!
Pay day loans, rent-to-buy furniture and exorbitant credit card interest rates for the poor were just the beginning. In its May 21st cover story on "The Poverty Business," BusinessWeek documented the stampede, in the just the last few years, to lend money to the people who could least afford to pay the interest: Buy your dream home! Refinance your house! Take on a car loan even if your credit rating sucks! Financiamos a Todos! Somehow, no one bothered to figure out where the poor were going to get the money to pay for all the money they were being offered.
Personally, I prefer my revolutions to be a little more pro-active. There should be marches and rallies, banners and sit-ins, possibly a nice color theme like red or orange. Certainly, there should be a vision of what you intend to replace the bad old system with -- European-style social democracy, Latin American-style socialism, or how about just American capitalism with some regulation thrown in?
Global capitalism will survive the current credit crisis; already, the government has rushed in to soothe the feverish markets. But in the long term, a system that depends on extracting every last cent from the poor cannot hope for a healthy prognosis. Who would have thought that foreclosures in Stockton and Cleveland would roil the markets of London and Shanghai? The poor have risen up and spoken; only it sounds less like a shout of protest than a low, strangled, cry of pain.
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I wish people would criticize capitalism as much as they do religion. It's capitalism that made the 20th century so bloody, not religion - and it's industry that will probably destroy the planet.
Whether you have a Capitalist system, Socialist, or Marxist, it will be corrupt as long as there are corrupt people.
Corrupt people are motivated by greed for money, but, equally by greed of power and control. They have had their way with us for a long time, and the ignorance of the masses is a powerful tool of this corruption.
The entertainment industry is used for this mass hypnotism, but it can also be used to break the spell. It is beginning to happen that way. Also, information on the internet is changing everything.
I made this comment in another post, but it bears repeating: often smart people look down their noses at the ignorant mass from their PBS ivory tower where they are terribly full of their own intelligence, instead of reaching out to connect and having compassion for this ignorance that has styfled our country. It is more important to help dispel ignorance and to heal division inside the mass.
But the most important thing individuals can do is to spend time with children, and help them stay alive in their creative spark, and imbue them with a deep sense of integrity that is also far from Religious dogma. Never say there is nothing one small person can do.
Revolutions that revolve on real circumstances, and are not based on idealogical or intellectualism are the most preferred kind, in my opinion.
The subprime mortgage meltdown began when Greenspan, after 9/11, lowered interest rates and kept them there until easy money flooded our system.
Enter the now common practice of mortgage companies "securitizing" their mortgages by bundling and selling them to pension funds, hedge funds and overseas governments. This spread the risk, much as we do with insurance and allowed people who otherwise might not have gotten a loan to do so. By selling the mortgages, the originating company avoids the expense of servicing the loan and gots their money up front. The buyer got a cash flow for years. Regulated, this is a good system.
Now greed enters. Mortgage companies sprang up like mushrooms in a dark basement. Who hasn't had a phone call, snail mail or email touting a cheap mortgage.
Want a mortgage? Earn $200,000? Been working five years. Got a 780 score? Don't bother proving anything, we believe you!! Want a mortgage but don't want to tell how you earn money? None of our business! The appraisal? We do them with neural-net computers. We go on probabilities! The house is probably worth that!!
You're the pension plan manager. You wonder if these loans are secure? They're AAA rated by Standard & Poors, by Moody's! Respected rating agencies that were making money off these things. The fox was guarding the henhouse, like the accounting firms that passed Enron.
These loans became big business. Blaming the poor for accepting them and causing this meltdown is too easy. When something this big happens in the biggest financial system in history, don't blame the powerless. Follow the money. Mortgages were securitized and money was there to be made, but not by the poor. They were there to be victimized. They were lured, seduced, lied to and will, once again, bear the burden. Not only in America. Remember those other countries who invested in these bad loans? When the rock finishes rolling downhill, crushing everything in its path, it will come to rest in third world countries, who invested also. They will take the brunt. They are where the road ends.
I'd be willing to bet that the health insurance availability/cost crisis is also playing a role here. That many of those forced to the wall on their mortgages do so because of medically-related financial problems. The ability of hedge fund managers to speculate with these mortgages is being undermined by the American healthcare crisis.
But it's doubly bad because stupid hedge funders bought the debt and sold it without being straight up about the risk. Otherwise just a few banks dick enough to stick poor people with variable rates would have gotten screwed.
The whole thing about America is that it's NOT free market capitalism. It's a rigged game run by multinational corporations and corrupt politicians, and their enablers in the media. Try to break into Microsoft's monopoly, or introduce an alternative to Coca Cola. The major corporations have everyone sealed out.
A "free" system should have competition and the winners will naturally rotate, according to their performance. Monsters like Wal-Mart, Microsoft, AT&T, Sprint, Goodyear, at least to me, aren't a sign of economic expansion and freedom. It's limitation of choice, and of innovation. That's one reason cars still gulp down gasoline. A "free" market would have implemented an alternative to crude oil 30 years ago.
And just as the poor "revolted" by not paying their mortgages, the poor will ensure we get universal health care by spreading a quickly deadly, very communicable disease (to the rich) because of lack of health care.
Barbara, Excellent article, the best I have read in a long time!
"Deregulation" does not dispense with the fiduciary role bankers and lenders have vis-a-vis society. Like teachers, doctors and cops, they stand in a position of TRUST to the rest of the community.
Of course nearly everyone would choose to buy a home if they could swing the mortgage. It is the lenders' responsibility to make sure the buyer CAN swing the mortgage. The buyer is not expected to know all the ins and outs of the lending biz anymore than the patient is expected to know all about brain surgery.
When a huge number of loans have been given to buyers who clearly cannot float them over the long haul, then the responsibility- the FAULT- is on the lenders.
Absolutely true! Thank you, altpower. Bankers know to the penny what borrowers can repay and the likelihood of foreclosure and default. When you see a bank offering credit on cards for 21% - 28% and paying savings accounts 1.85% - 2.9% to their depositors they are gambling and practicing usery on the one side, ... and practicing common thievery on the other! Since the lender has the liquid asset to lend against illiquid collateral, and the right of foreclosure almost a certainty in many cases, ... one has to wonder if such practices do not, in fact, constitute FRAUD. As a licensed non-practicing RE Broker, I do not use the term loosely, and would hope the AG's in some states look seriously at "sub-prime" lending as exactly that, ... a way to sell, and then resell real property through exorbitant fees, calculated foreclosure, and , ... eventually, ... resale schemes and broker collusion in the remarketing of default properties.
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There has never been a serious downturn in our national economy in which such practices did not occur. To have our government salvage those lenders who practiced fraud, and packaged garbage mortgages to resell to pensions, funds and other unsuspecting investors, would be a travesty. To then allow them to seize at foreclosure, remarket, and re-lend to a new investment market, ... that would be racketeering at its most flagrant!
Barbara, you forgot to mention that Henry Ford paid his workers in 1913 $5 a week, which is more than the workers in the slave labor markets that corporations have run off to exploit are getting paid. So they are on subsistence wages as well ... I hope those republicans in all those textile mills in the US that have been laid off have figured it out since the quotas on textile imports from China were lifted in 2004.
Stop bitching America, you're getting exactly what you deserve. If you don't like it, get off your asses and do something about it. If you don't know what to do, then you really are stupid. Last I checked, bitching is not an effective form of political activism.
Wall Street Loves Big Mummy Gubmit!
Investors Say That Fed Must Do More for Markets
http://www.nytimes.com/2007/08/22/business/22fed.html?_r=1&hp=&adxnnl=1&oref=slogin&adxnnlx=1187755416-4EoKJtv8tWBQTjlkuRM4jQ
This is such a sad and frightening truth. And another "connect the dots" just HAS to be the formation of the "North American Union", which, if I understand it correctly, was signed in secret by the leaders of Mexico, the U.S., and Canada, to dissolve the borders between the three countries. What the hell is going on here, and why do commentators, both left and right, find it so frightening, too?
And, of course, it has been long in the planning. LONG in the planning, by U.S. and international banks - and huge corporations. This will be the most Orwellian "privatization" ever created.
Arianna, Barbara, have I lost my mind or can this be true?
Yes, a low strangled cry of pain, which will continue as the right wingers kill, maim and steal from more and more of us.
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