Wednesday, November 26, 2008

Originally posted on, Tuesday, November 25, 2008.

Hey. Sorry, but this IS all about political bullshit, as one of you put it.

This is not a random crisis which no one could foretell. We have numbers and we have causes, and they do correlate.

The root cause is ideological. After the financial collapses of 1871 and 1929, it became apparent that the financial markets could not be allowed to do whatever they liked, devil take the hindmost. Regulations were passed. The usual suspects screamed communism, and spent a dreary half century demonizing those who created the regulated market.

Milton Friedman, creator Chicago School of economics, created the era of super-capitalism, the unregulated (as much as they could) bubble economies.

His boy, one Ronald Reagan, cut taxes, killed social spending, deregulated the markets as much as possible, increased military spending, and ran up the debt like a drunken sailor. Good times for those who made out like bandits. Savings and Loans companies were the first explosion of the unregulated market. Taxpayers bailed them out.

Clinton came in, cut spending, increased the taxes back to saner levels, pulled the economy out of the tailspin, and actually started to pay down the debt. Largest expansion of an economy in world history. Also, he was a free-marketer, and started deregulating trade, tho not so much the financial markets.

Bush enters, and out-Reagans Reagan by simply installing the foxes in all the regulatory henhouses. The actual laws passed under Clinton and Bush are irrelevant, as they were not enforced, so not pertinent to the discussion of blame. The financial markets learned to leverage debt with unsecured insurance, and became rich. The "money" made was leveraged and re-leveraged in a dizzying spiral; derivatives went from a seven trillion dollar pile in 1999 to over seventy trillion in 2008. This money was all bits and bytes, cross-hatched financial cats-cradles made of imagined wealth based on the housing bubble.

All bubbles end. But the Fed, under Ayn Rand boy, kept lowering the rates to keep a hot housing market that should have cooled in 2003 going until 2006. The economy had no growth in the uh-ohs but for the money "made" in rising home values. A guinea pig that could read the newpaper on the bottom of his cage could predict what would happen next.

The price of oil spiked, because of the wonderful new game that commodity players learned through the example of Enron; choke supply, don't build refineries, and prices go up.

The economy constricted, and home prices finally slowed and then started to collapse. No money, no purchases, supply and demand. SOMEthing had to burst the bubble.

Big bit: 2005, Congress makes it all but impossible for consumers to go bankrupt. Uh-ohhhh....

So, the poorest or more unlucky - usually health care costs cause bankruptcy - started to default. This was inevitable, and NOT the product of laziness or greed or stupidity. In a gas leak, the weakest respiratory systems die first. That's all. When the bubble breaks, the weak go first.

The collapse that we are gloriously observing had to happen at some time. The house of cards, the vaporous pile of "cash" that was leveraged into every aspect of out lives, did not really exist except on the books of con men.

Those con men, having merged their businesses without government constraint for decades, were so large that their falls would collapse the world's economy. So we are now pledged to pay them - directly! - with no strings - almost eight thousand billion dollars right now, more than all the wars, land purchases, foreign aid and NASA budgets combined in all our history. And that's just the start. The businessmen who ruthlessly gamed an unregulated market are now literally being handed the keys to our treasury and all our future wealth as a token to assuage their failure. And still no regulation.

And key: the supply-side tax cuts were supposed to enable those who had wealth to create industry and jobs for all. This did not happen. They exported jobs to countries employing, practically, slave labor, killed retail by consolidating into superstores, stole the pension funds, killed the unions, slashed wages and health care, and told those who gave warning to grow up and learn a new trade. The money made in the economy was not invested in jobs, but in new forms of wealth. Our standard of living drops.

This was all ideology and politics. The neo-cons, the deregulators, the tax cutters, those who demanded that the government spend itself to literal death are winning. Our country will be sold, is being sold, for pennies on the dollar. We've been conned.

You are not witnessing a failure of ideology, but a triumph of planning. They are charging us top dollar to execute ourselves.