Stand and Fight

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.