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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Captialism is the worst economic system on earth - except for all the others. With a nod to Sir Winston for the idea.
Hispanics come up here to work and shop at Wal Mart - saw a bunch of them this evening when I was there shopping. The only thing they were complaining about - if at all - was the usual long lines.
Bet most of the elitists on this site woudn't DREAM of "lowering" themselves to shop there!
"Hispanics come up here to work and shop at Wal Mart - saw a bunch of them this evening when I was there shopping. The only thing they were complaining about - if at all - was the usual long lines.
Bet most of the elitists on this site woudn't DREAM of "lowering" themselves to shop there!" by charlesmartel1
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Everything sold at wal-mart is made in China by workers who make dirt wages. All these products used to be made in the US where workers made a decent wage and were able to raise their families. charlesmartel1, sounds to me like you don't support American workers or families.
I sadly agree with your sentiment, Marko. I was buying shoes and clothes for an inner city friend who needed some inexpensive clothes. Sam Walton took the position you do - but since he has gone, they don't seem to care where it comes from.
Actually, I do look specifically for American made goods wherever possible but it's not often easy.
The part of the capitalist mind that blows me away as a real estate broker is the part that has a mortgage broker selling financing to a customer who can not afford the prospective payments. How prosepective? Next year's rates, ... guarandamnteed! Does the lender want a house, or a stream of consistent payments and returns? I guess we will see. Seems to me that the lenders and the government ought to get busy arranging workouts for these failing mortgages where possible. The value of the homes is falling, ... the market for them drying up. Are folks in neighborhoods of 5000 SF homes ready to have squatters in the house across the street?
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No, ... didn't think so. I think it is time for the mortgagees to contact their mortgagors to figure a way to keep them in those homes. What is reasonable? What can they afford? Will they all be able to stay, ... obviously not! Do you want a million homes standing empty as testimony to fraudulent lending practices, ... To whom would you sell them to recoup your losses? No, ... I didn't think you had an answer to that either.
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Hey, ... how about we meet here next week and see how far the market has fallen in fear of the outcome here? Until the markets help recoup the loss they helped to create, ... we are shot through the ass. Period.
That's been my question. If there are MILLIONS of foreclosures just who's going to buy all those McMansions? And how far in value will they have to fall before they are liquidated?
Or maybe well just break them up into apartments for all those section 8 people. That is of course if they can afford the gas way out to nowheresvi
This 47 minute cartoon was very informative.
http://www
If the banks actually had something in them besides promises to pay loans, things would be different.
Thank you politicky.
Interesting. I downloaded it to look at more thoroughly.
I work with poor people who've gotten into some of these sub-prime loans. Most of the folks I work with have poor reading skills, and limited education, even if they graduated high school (the local school district is a joke). Although people with graduate degrees can be equally as clueless when it comes to this. They put their trust in the professionals who treated them nicely and told them that this is just the way that it's done. The real estate agents, and mortgage brokers all acted like they were getting them a really good deal (and aren't they lucky they got approved!). Meanwhile, the "professionals" are piling on fees and generally misleading the borrowers as to what will really happen. Loan closed--they all get paid! Taxes and insurance are almost never escrowed into the payment, misleading people as to the real cost of the loans. A lot of these loans have pre-payment penalties, so you can't get out of the loan before the payment adjusts. Meanwhile, the loan gets sold off to Wall Street, so the original lender gets their money back. The investors know that there will be a certain default level, so these 12% loans are in a pool that will pay 10% (or something like that). I've seen "pooling agreements" that admitted that the loans were underwritten for the teaser rate and that they know that many of the borrowers will not be able to pay the adjusted rate in two years.
Sometimes when I'm trying to help someone save their home, we can't even find out who still owns the mortgage so I can work with them. A lot of the time, we can't get an agreement worked out because the investment guidelines for the mortgage don't allow changes to the loans (when it would be in the best interest of everyone if the foreclosure is averted).
Since most people do everything they can to keep their mortgage paid, it's amazing that the default rate isn't higher than it is!
Milton Friedman's Reaganomics is about to collapse. The economics of unlimited resources is about to meet headlong into the reality of a finite planet. For Friedman externalities were a minor problem, but as resources become more and more scarce, externalities become profoundly significant. Everything affects everything else. Wild west economics is coming to an end, one way or another.
I wonder how many people were able to buy a home using a subprime loan and now enjoy the American Dream.
I quess the alternative is not to offer subprime loans at all and allow those who cannot get credit to go without owning their own home.
As anyone who has bought a home with a mortgage loan knows, you must sign many documents that disclose everything to the buyer. So let people make their own chooses and mind your own business.
many documents written in legalese that the average person can't understand and can't afford to have a lawyer translate.
Is it better to let the buyer beware and allow unscrupulous lenders to manipulate dreams of homeownership for their own benefit, rather than the benefit of the borrower? After all, we are indoctrinated with this dream from birth. Mortgage holders are routinely calling in markers on the dreams of less than desirable borrowers. How many times can a home be resold? How many of these lenders buy and sell the same home with subprime mortgages as the bait? I wonder....
An interesting article about subprime lending is at the FTC:
http://www
Although it is a bit dated, the issues remain relevant today.
I have been using the Henry Ford analogy for several years now. You would think it would be painfully simple. If you don't create an economy where consumers can buy goods then everything collapses if you horde all the money to yourself. It is scary that these are the same people who don't see the consequences of the wars they start or the ecosystems they destroy.
Well said!
Watch, we are on the edge of economic collapse. The US reminds of the USSR in its last days in at least one respect...
Very good post Barbara Ehrenreich, but has this implosion really hurt the CEO's and big investors or have they already made their killing and can now simply relax in style for the rest of their lives? I think they can relax on their yachts and laugh about "the good old days" when they made their millions and billions.
Second point is what is the end result? Will it be just more of the same until the gears absolutely grind to a halt as people sink lower and lower? Nothing else seems to be out there in this "Flat-Eart
As my step-father from Hungary has often said regarding capitalism: "People don't count. The can die by the millions and millions. It means nothing to the leaders." I think he's right.
I think your step-father was pretty close to the mark. My only quibble is that capitalism (hateful as I find it) is not the driver here. It's so-called leaders.
Getting rich by impoverishing your own consumer base is not a sustainable policy. An economy based on the transfer of wealth from one segment of the population to another -- instead of the creation of wealth, whatever the hell that means -- WILL collapse, and the longer before it does, the more painful the collapse will be.
The more concentrated the wealth becomes, the less will be available to actually do things with. Rich people can afford just about anything, but there are only so much of them: the conspicuous consumption of a few thousand millionaires and billionaires can't sustain our economy. Spread the money around, and you'll have a much stronger economy which is better for everyone.
This isn't to say there won't still be people who have most, if not all, the money in the country flowing through their hands, but so long as it flows back out again as purchases of goods and services and the expansion of businesses -- instead of into the stock market where it does NOTHING!!! -- you won't have any problems.
Socialism and communism were fueled by the excesses of laissez-faire capitalism: people who'd bring it back only risk strengthening their enemies. If you want people to participate willingly, even love, capitalism, you can resort to propaganda -- which will inevitably fail once the gap between the propaganda and what people experience in their own lives becomes too great -- or you can give them a reason to love it: at the very least, you can let them have the American Dream, and for real, not just on paper.
Visc,
“Getting rich by impoverishing your own consumer base is not a sustainable policy.”
Funny you should say that.
The problem with that statement is that once “they” get every single last dollar in existence, they won’t NEED a sustainable policy. They can take that money and invest it for ever and ever “and never want for more.”
That’s the same feeling about global warming. “As soon as we deplete the planet of every last resource, we’ll have all the dollars that will ever be available to man. Then we can simply invest them “and never want for more.”
Hey, I can make better decisions than some ol’ TREE!
(Besides, why do I need to make sacrifices when those greenies will make them for all of us. Sure, sure I believe in global warming. But economically there’s no point in letting on, is there? Hey, I’m no DUMMY!)
You KNOW people really think this way.
When they get it all, what will they be able to invest in? The third reich had an unsuspected financial problem when they created the ghettos in Poland. So I'm reckoning, that when they get it all, it's going to be time for the one-way train tickets.
Ah been there done that with the top level hoarding and the middle and lower classes squeezed out financially.
There was this little thing called the English Civil War, then French Revolution, and then the Russian Revolution
mizz ehrenreich, if we lived in a country that extended equal rights to all its citizens i'd ask you to marry me. but, alas, since both of us have tits i will have to resign myself to congratulating you for (yet another) job well done.
I'm all for easy credit. It's what made this nation great. That function used to be fulfilled by the loan shark, now at least they can't kill you if you don't pay it back. They are still loan sharks though. Borrow as much as you possibly can, spend it as wisely as you can, and hope for the best. That's the American way.
Hear,Hear! Couldn't have said it better myself Ms. Ehrenreich
That was so funny and pointed.
I think one of the most prophetic insights to things to come was Michael Moores noting in the documentry Fahrenheit 911 about how GWB's first Corp. he was in charge of, he drove right into the ground, destroying it economically.
Yet, The hell has been released, the genie is out of the bottle.
The new world order has been "ordered" and we are not allowed to any returns.
The whole economic model is being rearranged right before us and the media does or says nothing beyond reporting momentary evidence of it. Yet somehow no one sees it is the root of the whole worlds woes. The stock market is being proped up by invisible money created from nothing by The federal reserve. The Chinese are threatening complete sell off of Junk bond sold to them by Bush. And Bush is constantly pumping more money and congress is giving in money from no where to a black hole called Iraq.
But even funnier is "we're running out bullits!"
"what, no more buwits?"
I am a fan . You are 1000,000,000,000% right. YOu GO GIRL.
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