I’ve just finished reading Joseph Stiglitz’ “FreeFall” which is an excellent read about the “bursting” of the mortgage “bubble,” the response by both the Bush and Obama administrations, and America’s economy in general.  Let me preface anything I might say in this post with the disclaimer that I’m no economist and much of what I’ve been reading simply goes over my head.  I never finished “Bad Money” by Kevin Phillips – it was just too “heavy” for me – although what I remember about it is how inciteful Phillips was in his writing (actually, I’ve started re-reading it).  Essentially, pointing out how America’s reckless economic policies were headed for a fall – what Stiglitz refers to as the bursting of the bubble.  I did manage to get through Michael Lewis’ “The Big Short” which gave a great “snapshot” of the subprime abuses, the securitization of bad mortgages that were sold by the “too big to fail banks” by the TRILLIONS, the rating agencies who were virtually incompetent, the bankers motivated by GREED, and the small number of investors who got rich off of the backs of all the unsuspecting retirement accounts because they were smart enough to load up on “credit default swaps” – which I still don’t understand.

In my mind, economics should be simple.  It’s about the money supply in the nation.  The flow of money from one person’s hand to another’s in a manner which contributes to the well being of all.  The American economy is NOT healthy at this point in time.  I don’t care which president is trying to convince me otherwise, the evidence is overwhelmingly suggesting we have BIG – no HUGE – problems in America.  The “crash” which hit high gear in about September of 2008 – shortly after John McCain had proclaimed “the fundamentals of our economy remain strong” – OK, is anyone surprised at ANOTHER example of McCain being almost a comparable baffon to GW Bush? (God help him for unleashing Sarah Palin on the rest of us)is far from over.  The response of, first, the Bush administration and, then, the Obama administration suggest that we still have not elected leaders who truly believe in “the change we can believe in.”  Essentially, George W Bush abandoned EVERY economic principle his administration “touted” (we all know; not much of what they said meant what they said) by instituting the “TROUBLED ASSET RELIEF PROGRAM.”  This was an unimagineable “boon” to the banks who created the mess in the first place.  Essentially, telling these banks they were more important than EVERYONE else in America.  It still bothers me just to write this.  Then, along came President Obama and we got more of the same – debt relief for the Wall Street banks that not only got them off the hook for their cavalier behavior – but, allowed them to basically go right back to the same behavior – we taxpayers GAVE THEM BONUSES in the Billions for ruining our retirement accounts!  Unbelievable.

Compare this to Obama’s treatment of General Motors.  Not only was General Motors forced into a controlled bankruptcy where the stockholders lost EVERYTHING, but the CEO was CANNED!  The government essentially took over the largest car manufacturer in the WORLD!  Have you ever asked yourself why they didn’t take the same approach with Wall Street?  Have you wondered why all the shareholders of Goldman Sachs, Morgan Stanley, Bank of America, and Citigroup came out with value in their shares?  These companies were BANKRUPT!  Traditionally, when banks become insolvent, the common  shareholders are wiped out (as in General Motors) and the preferred shareholders and bondholders fight over what’s left.  Why didn’t this happen with the Wall Street banks?  And, why were these executives who allowed this to happen not only still working but receiving bonuses in the MILLIONS?  Think about this – what kind of message did “we the people” through our gutless (or maybe shareholder?) leaders send to Wall Street.  I’m sure as I’m writing this they think they’re more important now than ever.  And, they may be right – because I believe the amount of America’s economy they control has increased significantly since this fiasco.

I’m going to attempt to process some of my many thoughts after finishing Stiglitz’ book – it is very intellectually stimulating – even for a non economics person as myself.   And, I’m going to try to focus on what was done after the “meltdown” because, for all intents and purposes, it no longer matters what happened prior to that.  Bush/Cheney are gone (certainly not forgotten, at least by me) and now President Obama and his “team” are “steering the ship.”  And, I “get” that you have to “steer the ship” gradually – you can’t “turn on a dime” – but, as I’ve been pointing out since prior to Obama’s inauguration (there I go, patting myself on the back again), his economic team left a lot to be desired.  In fact, you could make a significant argument that most of his economic advisors were “right in the middle” of the mess I would just love to leave at the feet of George W Bush.

Make no mistake, George W Bush and Dick Cheney were INSTRUMENTAL in creating the climate which led to the meltdown.  And, the TARP program conceived by Hank Paulsen was unforgivable in my mind.  That being said, when President Obama and his “team” entered the scene they pretty much took the same approach they took with Iraq – essentially a “Bush-lite” approach – that is, a continuance of the Bush policies with no noticeable changes.  The banks continued to receive government support – most people have no idea how much support they’ve been promised.  The Stiglitz book confirms what I had heard – and claimed on this site – that America’s taxpayers are potentially on the “hook” for TENS OF TRILLIONS in bad investments by these Wall Street behemoths.  Siglitz called the response to the crisis by both the Bush and Obama administrations as “muddling.”  Meaning, neither were willing to take dramatic steps to address a HUGE problem and then instituting policies which were INTENDED to return things to “the way the were” before the crash. (the sad truth: we’ve returned to the way we were before the crash)

Here’s the main problem with that approach.  Things were REALLY BAD prior to the “crash.”  When you look closer at the economic statistics for the previous 30 years the results are sobering.  When you combine that with the realities facing America’s society today, taking a “business as usual” approach to a problem like this is unacceptable.  (I want to say COWARDLY because so many of our politicians have been bought and sold by the large corporations who are attempting to hijack this nation – but, I’ll save that argument for another day)  Not only were the shareholders of many of America’s largest banks “bailed out” but there wasn’t ONE investigation of the whole mess that I’ve heard of – save for the one lawsuit brought against Goldman Sachs for essentially selling bundled securities with one hand while “betting” on their failure with the other!  I find that incredible in itself – and worthy of more than a casual investigation by the SEC – SOMEONE SHOULD BE IN JAIL for that one!

We’re listening to the Obama administration (with support from people like Paulsen, and Bernanke) claim that their actions in continuing the bank bailouts and the so-called stimulus package saved us from going into a “GREAT DEPRESSION.”  That may well be true, but for how long?  After reading “FreeFall” I can see a clear argument that we’re just putting off the inevitable.  (In fact, I’ve even heard people claim that we’re NOW in a depression) Yes, the banks are (and have been since early in Obama’s Presidency) back to their misbehavior – gambling with cheap money provided by “we the people.”  They have developed some VERY BAD habits – and it’s going to be HARD to get them to change without getting rid of many of the people controlling the institutions (they have millions to spend on politicians so they might remain secure in their jobs).  The time to do that (getting rid of the execs) was when the banks were insolvent!  These people are now working behind the scenes to bring republicans back to power so they can have further free reign on this economy.  They are skimming profits in the TRILLIONS and many Americans – including the tea partiers – are blindly getting ready to open the floodgates to the treasury AGAIN by voting republicans back into control of Congress!  What’s that saying about the meaning of the word INSANITY?

According to Stiglitz (and this is just a small “snapshot” of his book) the shareholders of Goldman Sachs, Morgan Stanley, Bear Stearns, etc. – the banks that were insolvent – should have been eliminated through an organized bankruptcy and the executives should have been fired.  Stiglitz also agreed with me (and many others) that the Obama “stimulus” package was too small, included tax cuts that were not “stimulative” enough, and – in effect – targeted too much money in the wrong direction.  This was an opportunity for America to address some of the glaring challenges that MUST be dealt with in the next few years.  For some reason, we Americans keep wanting to increase our already overblown living standards when we’re CLEARLY creating a NON-SUSTAINABLE economy and society.  How desperate are we going to have to get before the majority of Americans are going to be willing to face our REAL problems in a REAL way?

What I hadn’t thought about as I was clammoring for more money for infrastructure in Obama’s stimulus package was that if we simply rebuild what we have we are in essence planning to continue doing things the same way for the foreseable future.  For example, should we be funneling stimulus funds into rebuilding existing roads or into creating more MASS TRANSIT in our cities?  Rebuilding our existing roads simply encourages us to continue using fossil fuels at a rate that is unsustainable.  Maybe, after the “meltdown” that should have been a time for change.  Since the meltdown (this might be my inference and not part of the book) President Obama has opened up more “offshore drilling” leases when an emphasis on more wind power, solar power, and other forms of renewable energy would be money better spent with our children and grandchildren in mind.  Are we simply going to pass these problems on to them?

Stiglitz book was way to “much” for me to discuss in one post, but another point it clearly made was the contrast between the “market” economists and the Keynesian economists.  Essentially – no-regulation vs regulation.  He makes a compelling argument about the absurdity of the devotees of Milton Friedman – called the Chicago economists – their philosophy referred to by Natalie Klein as the “shock doctrine” – where they look for these catastrophic situations to cramm their greedy, self centered ideas on the “masses” with the resulting rush of money to the people at the “top.”  History and statistics both do not support what the “right wing” continue to claim is the answer to our “woes” – a “market” economy.  Since the days of Reagan – real wages in America for the middle class has gone DOWN!  We have experienced one bubble bursting after another in the past 30+ years and everytime this happens the “rich get richer” and the “poor get poorer.”  I’m just wondering when America is going to wake up to all this?

Republicans (with the help of some democrats) have been chipping away at the New Deal regulations which – while being enforced created a stable American economy – since Reagan moved into the White House.  Until the mid nineties these “too big to fail” banks like Goldman and Citigroup would have been impossible.  Robert Rubin (Clinton’s Treasury Secretary) and Larry Summers (Obama’s economic advisor) were instrumental, along with republicans like Phil Gramm, in repealing regulations such as Glass Seagull from the books allowing companies like Citibank to acquire insurance companies, securities firms and investment firms.  Rubin left Clinton’s administration to become CEO of Citigroup (the conglomerate he helped make possible), Hank Paulsen was the CEO of Goldman Sachs prior to creating the TARP bailout program, and Summers was a true Wall Street – Goldman type insider as well.  This has been an assault on the American taxpayers by people who believe they are more valuable and brighter than anyone else in the country – as Stiglitz calls them, “risk managers who are unable to manage risk.”  The people who support this type of policy (mainly republicans) are proposing more of the same.  And yet, we’re hearing in the news that America’s voters are going to put them back into office.

These people complain about the deficit (well, actually they weren’t complaining when Bush was in office) and then push for a continuance of Bush’s “tax cuts for the wealthy” – which is tax cuts for the top 1 – 2 percent – suddenly and apparently no longer worried about the deficit.  Personally, I hope the democrats allow all the tax cuts to expire – including the ones aimed at me – which would cut about 3.7 TRILLION from the projected deficit in the next 10 years.  At some point the American public is going to have to come to grips with the FACT that if you want something you should pay for it.  Arguing about what is wanted – that is, what republicans would want vs what I would want – if that was the choice – will be left for another day.  The point I’ve tried to make this evening is that of late – whoever’s steering the ship of America’s economy isn’t turning the rudder very far democrat or republican.  Until we stop cowering to the Wall Street bankers, America will continue to slip toward being a second rate nation!  While we’re all busy telling ourselves that “we’re the best” at everything – the rest of the world is passing us by – and wondering what’s gone wrong with the American people?  If we allow the “tea party” to influence our political process we could very well be headed toward isolationism – involuntarily!

I have to add at this point – the democrats in the senate are not even willing to have a “fight” with republicans over “tax cuts for the rich” – so the chances of “the change we can believe in” actually happening grow dimmer with each passing day.  This when their argument could simply be that during the Clinton years – before the taxcuts – the economy produced over 20 MILLION jobs while after the tax cuts it produced about 3 million – what the hell are the democrats afraid of???  If you haven’t read any of my previous posts, check the archive for what I’ve written about the failure of President Obama to allow investigations of the Bush/Cheney administration.  In my mind – one of the GREAT blunders of any American president.  Ultimately, if Obama’s term as president ends with failure, that will be the decision which paved the way for all the other shortcomings.  Feeling a need to depend on democrats to overcome this republican assault on America is DEPRESSING!