BOSTON: Sorry Dr. Phil 2, it's time for us to do some whining, not about how bad things are but about what some bad guys are doing to destroy our country and our lives.
Whining of course is only a first step. After that, we need to recognize that we have a right, if not a duty, to talk about more than what the political candidates are talking about. We have to confront the real power brokers who have now broken our economy and are plunging us deeper and deeper into decline.
Are they, perhaps, "tipping" us, beyond that point of no return?
On Friday July 11, as the world financial markets were quaking because of the threats to two government linked companies with five TRILLION dollars in mortgages, as the Senate rushed to complete a bail-out bill for homeowners that may not bail anyone out, and the Federal Reserve Bank announced tough new, and perhaps irrelevant regulations on a subrprime realty market that has all but disappeared, news outlets were reporting the death of the owner of the Benihana restaurant chain and Larry King was doing another show about UFO's.
With a distraction machine working overtime, we seem to be living in a permanent three-room circus, with a constantly titilating sideshow often sucking up most of the airtime and attention. Britney Spears has replaced the bearded lady from days gone by as the iconic draw.
In the central ring of this circus, is the political campaign with the only focus on the evolving Obama/McCain slugfest. Every soundbite, grimace, phrase and gasp is grist for endless punditizing with little in-depth analysis of the issues.
In the second ring, there's the news of the world that usually means superficial reporting about America in the world. Then comes the daily partial war body count and visuals about where the President is this week. Now we are also getting some news from China about the Olympics and back and forth about whether there will be an attack on Iran.
That's about it!
In the third ring, the economic crisis is slowly coming into focus only because it can't really be ignored even though both major candidates try to focus on minor reforms rather than a structural transformation.
A year ago, the Dow was about to hit 14,000; this past week it dropped below 11,000. Panic, volatility, and fear can no longer be contained. On talk radio, conservative callers still mostly lambast irresponsible borrowers, but more and more they recognize that this crisis is systemic and non-partisan in origins.
Even John McCain's ex-CEO, economic advisor Carly Fiorina, who of course doesn't want to blame anyone or name anyone, says 'there was a situation where there was greed on Wall Street, there was a lack of transparency around a new set of financial instruments..., there were a whole new set of financial players who were less regulated than banks, and all that together created a situation, which now is rippling through the economy."
"The situation"--that's a rather vague way of putting it.
As it turns out, one of McCain' closest advisors, Phil "Mr Mental Depression" Gramm played a direct role in planting the seeds of the subprime "situaton" that started the ball free-falling downhill and gathering more than mere moss.
Appearing on Democracy Now with Amy Goodman, journalist David Corn explained that it involved " a sly backroom legislative maneuver mounted by Phil Gramm, who was Republican chairman of the Senate Banking Committee in the '90s."
..."It was the week that the Supreme Court was giving the election to George W. Bush. As often happens in Washington, Congress had yet to pass most of the appropriation measures that are needed to before that Congress coming to a close, and so they were lumping together, you know, six, seven different appropriation bills into one mega bill, working all hours of the day...
And in the midst of all that chaos, Senator Phil Gramm slipped into this must-pass spending bill a 268-page bill, the Commodity Futures Modernization Act...a portion of the bill deregulated these financial instruments called "swaps...The problem is that these swaps, thanks to Phil Gramm's bill, are totally, totally unregulated, and the swap market is something like now about four times the size of Wall Street, in terms of securities that are regulated. And it really turned a lot of the economy into a secret casino, all this action going back and forth, people betting on bets.
And how this related to the subprime crisis is, about this same time, you know, securities firms started bundling all these bad or risky mortgages and securitizing them, and then they would sell these securities or buy them and then buy swaps or sell swaps to cover the possible loss. So it really enabled a lot of firms to go hog wild on the subprime stuff ...."
The subprime "stuff" has now led to a massive rise in foreclosures and a fall in profits as investment banks are forced to write off billions in bad investments. That in turn destroyed credit markets and confidence in Wall Street. Even after interest rates were cut seven times by the Fed, little improvement was registered except the rise in joblessness and inflation.
And that, in turn is what is behind, at least in part, the current fall of mortgage giants Fannie Mae and Freddie Mac. Add in the Bush policies of lowering the value of the dollar, and you got higher oil prices. Add in speculators and short sellers and a total lack of effective regulation, and you get the possibility of a system collapse.
The Administration that led us into war overseas by raising fear of nukes has stoodbye while our economic well-being was being nuked.
The truth is that this crisis will not be turned around anytime soon. As economist Joshua Rosner puts it: ""People say we're in the final innings of the credit crisis. We're in the late innings of the first game, and this is the World Series." The hedge fund Bridgewater Associates 'has issued an apocalyptic warning to clients that bank losses from the worldwide credit crisis may reach $1,600bn (£800bn), four times official estimates and enough to pose a grave risk to the financial system.'
Banks are already failing. Just this past week, IndyMac Bank's assets were seized by federal regulators.The bank is considered the largest regulated thrift to fail and the second largest financial institution to close in U.S. history. This is the fifth bank to fail this year. More will follow
How did all this happen?
l. Warnings were ignored. One example: Bruce Marks, the CEO of NACA, The Neighborhood Assistance Corporation of America (Naca.com) which is leading the fight for affordable home ownership and opposing foreclosures testified in Congress in 2000 warning of the consequences of Fannie And Freddy getting into subprime lending. His concerns were noted and forgotten.
2. There was government complicity. The Fed under Alan Greenspan encouraged the securitization of mortgages calling it "financial innovation." Today, he rails out at the crooks and criminals who cashed in on an industry he boostered.
3. There was greed. The Wall Street firms ignored worries raised by their own risk managers and ploughed resources into the slimy waters of a shadowy underground banking system. They made a fortune---until they didn't. Some were bailed out like Bear Stears via JP Morgan; others were taken over in various ways or encouraged to merge with stronger institutions.
Earlier this year, the FBI called many of their practices criminal and have already indicted hundreds in the mortgage business with only a few symbolic busts, so far, of truly fat cats. Nevertheless, much of the subprime "dream" now stands exposed as a subcrime scheme.
New rules by the Federal Reserve Bank seem too little and too late. As CNN reported,
"Had these rules been in place, many of these things wouldn't have happened," said Ken Wade, chief executive of NeighborWorks America, a national community revitalization group chartered by Congress whose board is made up of bank regulators. The late Edward Gramlich, a former Fed governor who served as chairman of NeighborWorks' board, pushed unsuccessfully to rein in the mortgage industry."
Now the Fed wants more power and seems to want to push The SEC aside which is the only regulatory body that did regulate in the pre-Bush era.
The Minyanville financial blog insists this will be a disaster:
"The Federal Reserve has mis-managed America's money supply. They have sucked vast wealth away from the middle class to support rich institutions which they call "the system". Why would we give vast new powers to the berries that run the Fed when they have proven they don't know what they are doing?"
As for Congress, AP reports "Final passage of a package has been delayed for close to two months due to substantive disagreements as well as countless procedural delays.
On Thursday, Senator Dodd lamented how long it has taken to move the bill through. "Candidly, we can't wait any longer." He cited the latest foreclosure data, showing 250,000 new foreclosure filings in June, up 53% from a year earlier."
"A lot of us hoped the market would take care of all of this and there would be light at the end of the tunnel," Dodd said. "[But now] the only light at the end of the tunnel is a train coming."
That train is headed for a train wreck. The Wall Street Journal insists the new bill will not help most homeowners in need: " Lawmakers can say they've "done something" about the crisis. The only problem is the bill won't work. Contractual and incentive problems in securitized mortgages will defeat the legislation's attempt to provide a significant amount of relief."
So we are back to minus square one. Fannie and Freddy may be too big to fail but Washington taking on their trillion dollar obligations could double our already unsustainable national debt. This disaster already impacts the global economy. The losses are at 80 percent. The market has ignored reassurances by the likes of Treasury Secretary "Hank" "Goldman Sachs" Paulson.
Do you want to pay for this catastrophe?
Guess what? You may have to. We all may. We may not have a choice. So even if you don't really care about your neighbors loosing their homes and others losing their jobs, it's in your interest to take action. One way to start is to press the banks to restructure their loans and make them affordable so homeowners can stay in their homes.
News Dissector Danny Schechter directed In Debt We Trust warning of the crisis, and has written PLUNDER a new book chronicling its spread. He is also involved in the HomeSweetHome Project with songs against foreclosures. Comments to Dissector@mediachannel.org