My favorite tweet of this debate season so far was during last
Wednesday’s Debate. Perry wants to get rid of three or four or five agencies of
the Federal Government. I heard people say he has given this a lot of thought,
but as these debates roll one really becomes hard pressed to suggest he has
ever given serious thought to ANYTHING. As he fumbled for escape trying to
remember the third department a few days ago, one of the other candidates trying
to rescue him shouted from stage left, Perry’s right, EPA? Perry sort of went
yeah, then realized the further blunder and backtracked with a wave of his
hand. Later there it was. Rick Perry = Texas Toast! Who says you can’t say
anything important in 141 characters? Give credit to CNBC’s John Harwood, he
followed up and asked if Perry really did want to eliminate the EPA.
Leaving the catastrophic stumble aside, in that moment we see a
microcosm of the Republican Party today, bent on leaving everything to the free
market and tearing everything else down. Other than access to money and power,
perhaps alongside the avoidance of actually doing real work one wonders why
they even want to govern.
No matter how mindless the suggestion or the motive of whomever throws
it out there, the candidates latch onto every draconian obsession like a baby
to its mother’s breast-- Sleepy, barely awake, the baby smacks it lips in the
air until it finds its mark with half open eyes. Sometimes you can trick babies
with your pinky finger but that isn’t very nice.
Weeks ago Bachman actually had the chance to corner Perry on crony
capitalism and the various ways the governor of Texas has sold pieces of his
integrity and the state for political contributions. Matt Taibi wrote an
excellent piece for the Rolling Stone exploring the many layers of Perry’s Corruption
(Rick Perry: The Best Little Whore in Texas). Bachman
had the chance to explore that story; instead she latched onto the pinky
finger, ignorantly trading rumors on a national stage that suggest vaccinations
cause retardation. Largely ignored in the hubbub was the cozy relationship
between Perry and the vaccine maker Merck.
Ron Paul took a knee on Wednesday when given his chance to represent
his principles. Paul is a hero to some
in the electorate. His supporters we hear are the most dedicated, and media
bigs, even some from unexpected quarters such as Jon Stewart, have noted the steady
permanence of his positions. He does not pander. He believes what he does, and
he must know there is no chance. But at last Wednesday’s debate Paul, given the
softest of under-hand pitches to address the corruption at the heart of governor’s
political life the Texas Republican house member said he “didn’t know anything
about that”. Big state, Texas, I guess it’s hard to keep track.
These debates have been a reckless ramble of half-truths, lies and holy
crap, do-you-want-cheese-with-that whoppers. We hear that Fannie Mae and
Freddie Mac, aided by Chris Dodd and Barney Frank caused the housing bubble and
the subsequent collapse of several too stupid to survive financial institutions
such as Lehman Bros, Countywide, Bear Sterns, Merrill Lynch and so forth.
As is so often the case with
lies there is a shred of truth in this narrative, but the whole cloth from
which that story is ripped is a tattered bolt of lies and deception. It is absolutely true that hundreds of
thousands perhaps millions of people got into homes beyond their means.
Sub-prime loans--one of the primary vehicles for the collapse—rose as a
percentage of all mortgage loans from 8% to 20% in just the three years
from 2004 to 2006. Duplicitous predatory
banking practices and absurd assumptions that the price of housing would never
go down drove financial hysteria.
Government institutions strongly encouraged the market to be more
forthcoming in areas of lower economic circumstances. Starting with the
community reinvestment act of 1977, designed to address the issue of red-lining-- the practice by which banks avoided lending
in minority and poor areas-- the government through the Department of Housing
and Urban Development (HUD) has tried to
address the issue of substandard housing for poor and working people. The
Republicans of 2011 of course hate that legislation and have set it and other
government policies directed in these areas as enemies of free enterprise.
Anecdotal stories are always so easy to demagogue, but the reality of
the programs and the ensuing result are always so much more complex.
But before we unspool the greater narrative it’s important to access the
results of the crisis: Since 2008 almost 11 million people have had their homes
foreclosed. Considering the average home occupancy is approximately 2.6 people,
that’s about 30 million men, women and children, tossed from their homes.
Almost 30% of homeowners still in their homes have mortgages that are under
water. That’s another 20 million homeowners in trouble.
Despite the market volatility Wall Street and the banks are actually
doing quite well, adjusting as businesses do to new regulations and
circumstances. Citibank earned a combined $5 billion in the last two quarters,
and Chase earned over $4 billion in the third quarter alone. There are six
banks which even Huntsman now calls “Too big to fail”. They largely got there
by eating too stupid to survive institutions, often with government backed
loan guarantees. Huntsmen, in one of his departures from Republican orthodoxy,
wants to break them up. Fat chance.
Meanwhile, the Washington Post reported last week that despite the
ongoing friction in rhetoric between the White House and Wall Street, incomes
and bonuses are back up to pre-crisis 2008 levels. Obama continues to raise
substantial sums from the financial sector. At the time of the Post report
Obama’s Wall Street haul was bigger than all the Republicans combined.
From the Republican perspective the bankers, speculators and derivatives designers
and traders played no role in the disaster. The Republicans so clearly ignore history,
and yet Newt-- with as Jon Stewart says his “high degree of dickishness-- tells
everyone how the media and academia don’t know how business and by degrees the economy
works.
But the narrative becomes jumbled when the Republicans go down this
road. Alas it does not stop them. Remember though how deeply invested the right
is in the concept that the greater the availability of capital untouched by government
the greater the demand and growth in the economy; this is the foundation of
their trickle down theories. Yet in the housing bubble and the cataclysm that
followed the waterfall of inexpensive low interest cash, much of it foreign,
and then much of that Chinese, in their view did not drive the markets and the economy
in any manner towards near collapse. In their buffed up for the election cycle
fairytale, the poor bankers were bullied by libs on the Hill and in the
executive to give all their money to poor folk. These same bankers who sit on
their billions despite receiving hundreds of billions in TARP money, now just
won’t loan any of it. The Republicans would have you believe that they’re just
so ascared of the government.
There are several reasons that the housing market, and then subsequently
the stock market and the economy collapsed, but the first is greed. American’s
sense this now. In almost every poll the awakening can be seen, especially in the
only polls that count, this week’s actual elections. Ohio was particularly
encouraging in its vote to sustain collective bargaining. In public opinion
polls we hear that almost 70% would support increasing taxes on those making a
million or more. A recent Washington Post Poll found that by nearly the same
number Americans felt the tables were tilted to benefit people with wealth. You
have to wonder if Joe the Plumber now realizes how spectacularly he was f***ed.
In the run-up to the crisis both Government institutions
and the credit rating agencies failed to regulate the wild investment
strategies, the products of the computer finance whiz kids who created it all,
and the predatory lending practices of the banks and mortgage companies. Countrywide
Finance, one of the most lax and predatory, in an extremely damaging
transaction later acquired by Bank of America, issued 20% of all mortgages in
the US. Of course there was greed at every level. Even at the credit rating
agencies like Moody’s and Standard and Poor’s, for profit companies which make
their money from the very institutions they rate, there was a lot of money to
chase and that is just what they did.
So there is blame for the investors, the speculators, the banks, the
government regulators, the rating agencies, both Democrats and Republican
politicians and of course, home owners and home buyers.
So what happened?
There were a number of reasons for the collapse. As spelled out in
Michael Lewis’ excellent book, The Big Short, there was a lot of money in play,
easy money at low rates. As the pool of eligible candidates for standard loans
dried up, the lending institutions still flush with cash began to lower
standards and chase ever less reliable loans. As early as 2004, a very select
few started to get wise when they noted the rapidly deteriorating standards for
awarding home mortgages.
The ratio of American consumer debt to disposable income sky rocketed
from 77% in 1990 to 107% in 2006. In the near hysterical financial circumstances after 9-11,
when the Fed dramatically lowered rates while abdicating its regulatory
responsibility, the banks allowed all standards for approving all kinds of loans to collapse.
Note to Newt: Some of us do understand how business works.
Continuing, Wall Street hucksters came up with ever more complex and
completely unregulated Collateralized Debt Obligations (CDO’s) and other forms
of derivatives and investment vehicles to feed those addicted to cash in the banking,
mortgage, financial services and Insurance (AIG) industry.
By 2006 home loan requirements dropped to a stunning 2% of the value
of the average home. Easy capital made no money down loans worth more than the
value of the home a common occurrence.
According to Lewis’ book, one of
the first to spot the trend was a finance geek named Michael Burry. Trying to
build his own personal wealth he tried in vain to sell Credit Default swaps
(CDS)-- basically an insurance policy that CDO’s would not go bad-- to several
large banks such as Morgan Stanley,
Deutsche Bank, BOA, Citibank, more than a dozen in total, but they all thought
he was crazy. What sort of a nut would you ever think the housing market would soften?
This despite ample evidence that the bankers themselves had that mortgage
standards had essentially come down to one’s ability fill out a form and draw a
breath.
As Lewis says explicitly in his book, people knew or should have known,
but everyone-- Wall Street derivatives creators and traders, the banks, the
mortgage companies, the pension funds and institutional investors, investors large and small, AND the ratings agencies—EVERYONE—was making so much money, no one
wanted to peak behind the curtain at the river of rot that was funding it all.
Greed, Simple greed was the cause of it. Romney and the rest of them know this.
But they lie and they shift blame to feed the corporate masters which drive
their ambition and feed their own greed.
Note to Herman Cain: I saw the debate where you tried to answer 9-9-9
to every question. It certainly is no answer to the under or unregulated and out
of control financial sector.
Washington had skin in the game too. Campaign funds flowing from the
financial sector to both parties were astronomical, and the increase in contributions
mirrors closely the astronomical run up in the cost of elections. The financial
industry spent close to $300 million during the run up to repeal of Glass
Steagull in the Clinton era alone. In just the few years between 2004 and 2006
a trillion dollar market of opaque investment vehicles was set up under the
nose of the regulators, based primarily on a juiced up subprime market. It was
a house of cards. A tidal wave of technology overwhelmed whatever switches there
were.
In response to this we have Mitt Romney on Wednesday, having his best debate
yet according to some, whining, “What do you want federal government to do buy
all the houses?” No, but the US government did put up a trillion save the slime
that created the mess. Why is it that no comparable plans have been devised to
save any of the 11 million that have lost their homes? Is it possible as Cain
suggests the whole of the foreclosed underwater Americans are lazy and or
stupid?
Romney, Paul, Cain, et al, all said Wednesday that the government should step
back. Even though one in five or six
Americans has been severely damaged by the crisis, and millions more have had their
options to seek employment by relocating which would also grow the economy severely curtailed, the Republicans
would step back and allow more homes to be foreclosed. They criticize the
ineffectiveness of the Obama administration which is not compleytely unfair when discussingactual results, but then they explain
to even the most liberal why they would be even worse and sitting out the next election in frustration is no option at all. The Republicans ONLY answer is the free Market. Thought
the Student loan program now administered by the Federal government was widely acknowledged
to be laced with corruption perpetuated by Citibank and other major financial institutions,
the Republican field now proposes to turn it back to their masters in the private
sector.
There are valid arguments to be had about free market principles vs. government
intervention but they cannot be had now, not with this bunch. Today’s GOP stands
in defense of immeasurable corruption and their super rich masters. The Republicans
only principle is the perpetuation of wealth in the hands of a very small minority,
and the perpetuation of their own privilege through the dirty campaign contributions
of these people and the corporations they represent.
On Wednesday the candidates all in one way or another made the case
that the market needs to correct this and that government cannot. Even the
moderate Huntsman with his call to break up the six too big to fail banks,
calls for lesser regulation and lower taxes, which by nature of their structure
would provide greatest benefit –again- to the 1%, and especially the 400.
As reported by Tim Dickinson in
his excellent Rolling Stone article, “How the GOP Became the Party of the Rich.
There are 400 earners in the US that take home on average $350 million a year. In
a country of 275 million people there are eight million millionaires. It is
this very narrow constituency that is funding the vast corruption of both
parties in Washington and at the state level. Campaign contributions by the
likes of the Koch brothers are nothing more than another business expense
designed to create even greater piles of wealth. Meanwhile as Dickinson reports
small business and the upper middle class, which typically pull the Republican
lever, have been sold tax breaks which have been greatly eroded by the
alternative minimum tax. In short all of the money is flowing to the super
wealthy.
On Wednesday we saw the entire Republican field call for a tax holiday
for cooperate taxes held overseas. Not one of the supposedly aggressive CNBC
questioners asked why when this was allowed in 2004 and the corporate rate was
dropped from 35 to 5.25%, so few jobs were created. Where did the money go? As
reported by Dickinson it went to dividends for wealthy investors, and stock buy
backs which further escalated the share prices, which added even more money into
the system, restless cash which loved CDO’s and other esoteric derivatives.
Dickinson writes that in 2004 Congress passed “the little-noticed
American Jobs Creation Act. Named in the same Orwellian fashion as Bush's ‘Clear
Skies’ and ‘Healthy Forests’ initiatives, the 2004 law allowed corporations to
bring home billions in profits they had stockpiled in offshore tax havens – the
very flight of capital that Bush had blessed by torpedoing tax harmonization
three years earlier. Under the tax amnesty, corporations repatriated $300
billion in profits they had stashed offshore. But instead of paying the nominal
corporate tax rate of 35 percent, they were taxed at just 5.25 percent.
The title of the bill notwithstanding, corporations invested almost
none of their windfall in new factories or other measures to create the 500,000
jobs that Republicans had promised. In fact, many companies that received the
biggest tax break actually slashed jobs. Hewlett-Packard laid off 14,500
workers – one pink slip for every $1 million in profits it shipped back home
from overseas. All told, according to an analysis by the National Bureau of
Economic Research, up to 92 percent of the "jobs creation" money was
handed out to top executives and shareholders in a frenzy of dividend payments
and stock buybacks. And thanks to the GOP's cut on investment income the
previous year, wealthy individuals who pocketed the offshore profits paid the
same rate on their bonanza, 15 percent, that a waitress at a diner might pay on
her tips.”
Every dollar contributed by the wealthy and super wealthy legally
invested in the political process has been paid back handsomely in these highly
favorable government policies. The battle today is not between liberals and conservatives.
After his massive giveaway to the rich in 1981 Reagan raised taxes and closed
loopholes11 times in the eight years that followed. He still wrote billions in hot
checks as Benson noted in the debate with Quayle, but he was at least to some extent
restricted by the extent of the deficits his “conservative” polices created. Today’s Republican Party has no such
limitations and as they have already indicated they are prepared to wreck the
economy in the name of their corporate and wealthy benefactors.
