In Debt We Trust

By the time you find this, you probably will have already unwrapped those gifts you bought this year as part of your Christmas celebration, taking advantage of low prices and enticing deals, all the while obeying the mantra to keep the economy going by doing your part: buy, buy, buy, consume, consume, consume.

In a few weeks, the credit card bills will start rolling in, a stark reminder that the current financial situation of this country has hit your home as well. But it was nice for these past few weeks to pretend that it would all be resolved by our leaders in Washington D.C., by the new administration that will take over come January, and by the injection of some $700 billion of the tax payers’ hard-earned money into the pockets of financial giants and their CEOs and executives—even as a major sector of the working class—the auto industry and all of its associated businesses and suppliers—faced the onslaught of haranguing from government leaders of the Senate and House of Representatives. It was a relief to see fuel prices drop to their lowest level in recent memory, so that we had more money to put toward our escalating mortgages, rising medical costs, insurance premiums, and medical supplies. Not to mention that wonderful new big screen TV sitting in our family room, at the ready to serve us up hours of mindless television filled with violence, sex, and gratuitous moments of everything in between.

And all this, even while the newspapers and the news programs remind us that we are in dire straits as a nation. Stocks rise and fall with neither rhyme nor reason, responding to the latest reports and rumors, whether employment, housing price slumps, futures trades, or the latest announcement by the incoming administration. The problem is: nobody’s listening. Or, if they are, they don’t care. It’s becoming abundantly clear that as we watch this country plummet over its cliff, it is every person for themselves. Get while the getting’s good is the order of the day.

It’s irresponsible, and everyone knows it. But they don’t care. Keep buying, keep spending, keep consuming the goods that they want to feed us. They even sweeten the pot by lowering the price to the point that you feel like a fool if you don’t buy their goods. Even if you can’t afford it, you’ll sort it out later. And why not? After all, everyone else seems to be getting a piece of the financial pie with no regard for us less fortunate, non-Wall Street folk. So why not take advantage and enjoy life a little?

What seems to be escaping everyone’s notice, however, is that Wall Street executives and conglomerates will not be footing the bill after this is all over. The giant banks that are collecting those billions of dollars, free and clear, from the U.S. government while at the same time hoarding that money and unapologetic for doing it, thumbing their noses at those who are drowning under mortgages, escalating credit card fees, and diminishing hours at work—they aren’t going to be footing the bill either.

It will be the taxpayers. Plain and simple. And it looks like the way it will work is that if you lose your job because your business decided to keep a little more of the money pie for themselves, the next administration will “create jobs” so that you can work off your share of the national debt that you never had a say in raking up. In effect, you will become an indentured servant in order to put food on the plate of the financial giants. If, after Wall Street and its associated banking conglomerates get their entitlements through your blood, sweat, and tears, there is anything left over, then you might be fortunate enough to have something left over to feed your family.

Sound impossible? Are you still under the delusion that this is America, and such a thing could never happen here? Then continue to do nothing.

Uncle Sam’s Gift to You

By the time that President George W. Bush and the 110th Congress go their happy way, the U.S. citizenry will be finding approximately $8.7 trillion dollars’ worth of potential taxpayer-funded commitments for loans, guarantees and other bailout niceties for businesses. Somewhere amidst that insanity, U.S. citizens will find more than $1.5 trillion in FDIC loan guarantees that have been put into place; $1.8 trillion in cash, tax breaks and loan guarantees that have been gleefully handed out from the Treasury Department to financial institutions and credit companies—no strings attached whatsoever; $300 billion for homeowners from the FHA (nobody has seen that money, however, and experts have made it clear that even if that money does become a reality, it is a pathetic pittance for what is really needed); up to $25 billion in assistance (“bridge loans”) for auto companies; and $5 trillion in new money, loan guarantees and loosened lending requirements from the Federal Reserve Bank.

One expert, James Bianco, did the math and came to the inescapable conclusion that this amounts to more government aid and assistance than nine other historic bailout programs and outlays combined.

Take, for example, the New Deal. It cost approximately $32 billion in its day. Today, that would translate to around $500 billion. The Marshall Plan cost $12.7 billion when it was enacted, yet in today’s dollars it only adds up to $115.3 billion, give or take. The Louisiana Purchase paid out $15 million to the French—an outlay of about $217 billion today.

So do the math. Better yet, go ahead and throw in the adjusted costs of the race to the Moon, the savings and loan crisis from not so long ago, the Korean War, the Iraq War, the Vietnam War, and the financial assistance NASA gets, and you’ll see that it all adds up to a paltry $3.92 trillion—not even half of what American taxpayers are on the hook for right now, as Bush prepares to leave office and settle back into his comfortable easy chair back on his ranch in Texas.

And there’s no telling what Obama and his incoming administration will be doing in addition to this! For example, headlines are already showing up that they are working on a massive stimulus package for early next year that will make the $168 billion given away last Spring look like pocket change.

Hope you’re enjoying those new gifts, because Wall Street is sure enjoying that gift you gave them.

Stuffing Wall Street’s Stockings

Borrowing your money, no strings attached

According to a study made by Associated Press, a whopping $1.6 billion went to bank executives of financial giants in the form of salaries, bonuses, and other benefits. Even though some of those institutions made various cuts, they still made sure to pay out multi-million dollar executive pay packages. It should come as no surprise that the total amount given to nearly 600 executives of bailed-out banks and financial giants would have covered the entire bailout costs for as many as 116 entire banks!  The average pay to these same executives was $2.6 million in salary, bonuses, and benefits. If that wasn’t enough insult to injury, the Associated Press also found that the very banks that received bailout funding also paid out millions for home security systems, private chauffered cars, and club dues.

In one instance, Wells Fargo (which got $25 billion in taxpayer-funded money for their bailout) gave its top executives up to $20,000 each to pay personal financial planners. In another example of blatant disregard for responsible spending, Bank of New York Mellon Corporation’s chief executive, Robert P. Kelly’s stipend for financial planning services came to $66,748—and that was in addition to his $975,000 salary and a tidy $7.5 million bonus. Personal car and chauffeur: $178,879. Plus, he received $846,000 in relocation expenses, including the purchase of a home in Manhattan.

And there were several other discoveries made in AP’s study. Many of those findings had already made the airwaves. Large parties after bailouts, for example, in AIG’s case. And the list could go on.

We Don’t Have to Tell You Anything

A couple days ago, Matt Apuzzo of the Associated Press wrote, “Think you could borrow money from a bank without saying what you were going to do with it? Well, apparently when banks borrow from you they don’t feel the same need to say how the money is spent.”

The double-standard that is at work on Wall Street just goes to demonstrate how far the U.S. citizenry could care less about what is transpiring.

The AP made contact with 21 banks that had received at least a billion dollars in taxpayer money and asked four simple questions: How much has been spent? What was it spent on? How much is being held in savings, and what’s the plan for the rest? It should come as no surprise that not a single bank provided a direct answer to any of the questions.

And, thanks to exiting President George W. Bush, an over-eager Congress and House of Representatives, and a nation of uncaring Americans, there’s no way for taxpayers to find out. See, when Wall Street came asking for their bailout, we gave it to them—all $700 billion—no questions asked. No strings, no conditions. All because everyone bought into the blatant lie that if we didn’t, bad things might happen. We might, we were told, see another Great Depression, for example. If something wasn’t done and fast, people might not be able to buy that new car, or get a credit card. So, the blank check was signed and handed over to our Wall Street benefactors, who promptly went out and celebrated with parties, year-end bonuses, and frills the likes of which are beyond the imaginations of most working-class Americans.

What About Us?

We need to be bailed out, too!

Once the doors were opened for monetary handouts from the government, backed by good ol’ U.S. citizenry’s taxpaying dollars, the lines grew at the front door of our government. The government was so excited about getting our congressmen and representatives to sign the blank check that they quickly decided that instead of using those funds to help struggling homeowners, the funds would instead be given to the banks and financial institutions of Wall Street, pretending that that wasn’t the goal all along. They also announced that anyone who wanted a piece of the monetary pie simply had to apply as a bank or financial institution and they’d be added to the party guest list.

It was a strange twist of fate, however, when the Big Three—Ford, Chrysler, and GM—showed up at the door asking for a handout. They were swiftly escorted to the smoke-filled inner chambers of Washington and skewered before the entire nation. The manufacturing giants’ CEOs were publicly shamed and humiliated for arriving in private jets, receiving bonuses and high salaries—and it all played out on live television and via internet video streams. In effect, the CEOs were sent packing with their tails between their legs.

According to public opinion polls, the Big Three shouldn’t be helped in any way, shape or form. They should be allowed to implode under their own mismanagement and years of opposition to demands for higher fuel standards and innovations in alternative fuel forms.

It’s a fascinating example of misled masses. For one, these same Americans who are against any financial assistance going to the Big Three bought into the lie that Wall Street should be helped. Further, while the Big Three CEOs got harangued bitterly by leaders in Washington D.C., this was a markedly different treatment from what leaders in Washington gave to Wall Street executives and representatives who similarly arrived in private jets, received extensive and costly salaries and bonuses, and don’t even have to explain a single thing or render an accounting for the money they were given from the taxpayers of America. Again, a double-standard is at work, and the U.S. citizenry could care less.

It doesn’t help that the Big Three have made themselves an easy target for our disdain. As mentioned earlier, they have strong-armed Washington D.C. a number of times, fighting against new regulations and guidelines in order to keep the U.S. automotive industry competitive in the world market. And they’ve leveraged their political power in numerous other ways as well. Further, the automotive unions themselves have wielded a tremendous amount of power, and secured for themselves some of the highest wages in the world’s working class, as well as insurance benefits the likes of which the majority of working class Americans have never seen.

To many Americans, this is an opportunity for the Big Three and its unions of workers to get their comeuppance, to be taken down a notch.

Unfortunately, it is just another piece of the delusion that has been spun for us.

See, while it’s true that we have reason to be angry and resentful towards the mismanagement and greed of the automotive industry, it’s a clearcut case of distracting us from matters of greater import: the ongoing, unchecked greed, manipulation, and haughty oligarchy taking shape in our midst. So long as our disdain is directed at the Big Three, against the unions therein, our eyes aren’t on Wall Street.

Further, if the Big Three are going to be given help, it is absolutely essential that the money be given with strings and conditions attached. But then, the same should be demanded of Wall Street. Immediately. If we’re going to harangue, shame, and ridicule the Big Three—then shouldn’t the same be done for Wall Street?

Yet somewhere, somehow, people are making a distinction between the Big Three asking for and getting money, and Wall Street asking for and getting money. Americans have bought into the lies and propoganda, hook, line and sinker. The rich class has placed itself in the ideal position over us, and now delights in our resentment and bitterness towards the working class—specifically, unionized workers. If unions are broken, along with them will go any power that the working class holds in today’s society. Even Walmart, the nation’s largest retailer, fights hard against its workers forming unions, because once the workers achieve that, they have a consolidated power to make demands that is impossible to make otherwise. It’s no different with the automotive unions, or electricians unions, or any other union of workers in existence.

But, break unions and you then regain power over the masses again. Suddenly, they are at your mercy and have to do what you say. Let me be absolutely clear about this: if the Big Three are allowed to go belly-up, so will some of the largest unions in this country. Are we really willing to lose what little foothold we have in the upper echelons of power in Corporate America?

And that’s not even to mention the loss of tax dollars, should the automotive industry fail. Someone is going to have to pay for that $8 trillion dollar brainchild that our exiting U.S. President is leaving for us to deal with. In a report released just today, Reuters is reporting that jobless claims have surged to a 26-year high. Those are individuals who will not be able to pay their “fair share” of the $8 trillion debt, and the burden will subsequently fall greater on the rest of us. Are you really prepared to pay more than your own “fair share” so that Wall Street executives and others of the rich class can have their luxuries and frills while you continue to try to figure out how to keep your house, keep your family fed and healthy?

How is it that we as a nation have come to the point where we are more than willing to bailout the rich class and turn our backs on the working class? How is it that we bought into such an excusable delusion? We are the working class, and without us, the rich would have nothing at all. Nobody to buy their goods, borrow their money, pay their exorbitant salaries and bonuses. But they have us believing that we need them. At the same time, they have us hating on the automotive industry, and laugh at us as we talk to our friends about how the Big Three should fail, how those greedy unions are “getting what they’ve had coming to them for too long now.” It’s abundantly clear, at least to me, that Wall Street got away with it and will continue to get away with it because we’re too busy tearing at each other instead of seeing what’s really going on.

Before long, we will be nothing more than indentured servants of the rich and civilian slaves to the government that indebted us to the rich.

And we’ll have only ourselves to blame.

Last night, like millions of others, I watched the carefully-scripted speech from George Bush as he did little more than repeat information that the rest of us have already been hearing. I may not be a financial expert, but I do know that I can think and reason through things. Because of that, I’d like to go over what President George Bush said to us last night, with a fine-toothed comb.

Transcript: President Bush Address to the Nation on Economic Crisis.
White House, September 24, 2008

Good evening. This is an extraordinary period for America’s economy.

This was, at best, an overstatement of the obvious.

Over the past few weeks, many Americans have felt anxiety about their finances and their future. I understand their worry and their frustration.

Somehow, I seriously doubt that this president really understands our worries and frustrations. For one thing–and this will become more obvious as we continue to plod our way through this speech, George Bush never includes himself in those affected by the growing financial calamity. For example, he speaks of “their worry” and “their frustration.”

We’ve seen triple-digit swings in the stock market. Major financial institutions have teetered on the edge of collapse, and some have failed. As uncertainty has grown, many banks have restricted lending, credit markets have frozen, and families and businesses have found it harder to borrow money.

This is a natural occurrence, but George Bush doesn’t go into that. Instead, he shows a preference to generate more fear and more uncertainty, and he does this throughout his speech. I say it’s natural because we naturally react to the loss of money by holding more tightly onto the money that we still have. Only gambling addicts keep going. For example, if you are a normal person going to the casino with a hundred dollars, hoping to make that hundred dollars into more money than when you started–at some point during the time that you are losing that hundred dollars, you decide it’s time to cut your losses and you don’t give any more of your hundred dollars to the casino. On the other hand, a person who is willing to go the distance on the slim chance that he’ll make it all back (and more), who then loses the entire hundred dollars, and then goes to his family and cries for money so he can go back and try to get his hundred dollars back has a problem–but it is not the problem of the persons he wants to get money from. It is his problem.

If banks have restricted lending, why are we being told that that is a problem? The fact is, we, as individuals and families, restrict our lending based on the principle of whether we can afford to lend money or not. If we don’t have it, we don’t lend it. We should expect a bank to restrict lending in order to protect the funds that they hold for their clientele. Bottom line: that bank is acting responsibly when it does that.

He also told is that “credit markets have frozen.” Again, why is this a problem? It’s a simple matter of fiscal responsibility: if you can’t afford to extend credit–then, don’t! And a rule of thumb that I learned in my life is to never loan what you can’t afford to lose. In other words, if you loan money to a friend or family member, you do so with the presumption that you may not get that money back. If you do get it back, great. In fact, you may have even made some money in the process, if you charged interest. But the reality is that you don’t loan someone money that you cannot afford to lose or not have. It doesn’t make sense to do otherwise.

Bush went on by saying, “families and businesses have found it harder to borrow money.” Again, this is a natural occurrence. In tough financial times, there is less money available, and it’s harder to justify one’s being able to lose the money that we do have. It’s called fiscal belt-tightening. It doesn’t make sense to, in the face of a tightening financial market, go out and get a loan to buy a new car. Yet that is what we’re supposed to do, according to the pundits. We should be able to buy that new home, even if the one that we have right now is sufficient until things pick up again in the economy. We should be able to get that new big-screen television, even though we don’t have the money to pay for it because our work hours have been reduced.

This whole idea of encouraging us to live beyond our means through an addiction to credit has been going on for a long time; but more so in the past decade. I’m not talking about those instances where you have an unexpected emergency and need to take out a loan against the equity in your home to pay for a home repair or medical emergency. And I’m fairly certain that this is not the type of borrowing that is being talked about by Bush. I suspect that it’s in reference to starting up new businesses, buying new homes, new cars, new personal loans, etc. In fact, Bush touches on that further on in his “speech.”

We’re in the midst of a serious financial crisis, and the federal government is responding with decisive action.

Again, he’s stating the obvious. In fact, he’s saying what he said at the beginning of his speech, but changed up the words a bit. Unfortunately, it then gives him an opportunity to speak in generalities. For example, he says “the federal government is responding with decisive action,” but then doesn’t really specify what that action is.

What makes this even more interesting is that all of this is made to sound as though it’s a sudden emergence, a surprise development that must be met with hasty response. But isn’t this the same president that told us not very long ago that the financial system is “fundamentally sound”? In what way is it sound, Mr. President? In theory? And if it’s “fundamentally sound,” then why are you calling for an emergency injection of $700 billion dollars into the sustention of Wall Street? Clearly, things are not as sound as you would’ve had us believe. Worse still, experts are in full agreement that this situation has been some two years in the making, so it came as no surprise to anyone except you, Mr. President.

We boosted confidence in money market mutual funds and acted to prevent major investors from intentionally driving down stocks for their own personal gain.

“We” boosted confidence? The last time I checked, it was Congress that took that extraordinary action. What most Americans don’t seem to realize that is that once the door was opened by the government, everyone on Wall Street was going to try to walk through the door for a handout.

Most importantly, my administration is working with Congress to address the root cause behind much of the instability in our markets.

Everyone already knows what the “root cause” is. It was greed. Simple, uninhibited greed. In an attempt to generate cash flows for board members and stockholders, someone came up with the brainchild of the ARM scheme: make buying a home so easy that even the poorest of Americans could own a home–the American dream fulfilled. And when the enticing 2-year fixed rate was up, the new homeowner could simply refinance their mortgage. Or so they were told. But those who signed on the dotted line for what we call “subprime” mortgages suddenly found themselves without the ability to refinance into another mortgage. Suddenly, their fixed-rate mortgage became an ARM which could increase every six months. And suddenly, rather than paying what they were when they started, they had to come up with $200-$500 more every month, with the potential to see even that increase again in six months when the ARM was reconfigured.

It was greed that kept the mortgage companies from working with the homeowners to come up with an extension on the fixed-rate mortgage until things got better. It was greed that made the mortgage holder think that throwing the homeowner out into the street and reclaiming the house rather than settle for what they had been getting up until the ARM kicked in.

But it didn’t end there. The mortgage holder thought that they could simply resell the repossessed home to someone else for its original value, and thus continue their tidy sum of monthly earnings. The reality was, however, that other mortgage holders were going into the same mindset, and the realty market became glutted with vacant homes with nobody either interested in going into a new mortgage, or unable to because “subprime” mortgages were no longer the latest fad for Wall Street. Now, these mortgage companies were sitting on empty houses and unpaid mortgages.

Financial assets related to home mortgages have lost value during the house decline, and the banks holding these assets have restricted credit. As a result, our entire economy is in danger.

Bush confirms what we already knew. And having already covered the details above, I won’t go back over it here.

So I propose that the federal government reduce the risk posed by these troubled assets and supply urgently needed money so banks and other financial institutions can avoid collapse and resume lending.

This is where thinking Americans get a little miffed. They get angry because when they lost their homes, nobody came forward to help them. It was just the “free market” at work, and apparently it was okay, as immoral as it was. And yet now that the mortgage holders are on the verge of losing their collective “homes,” the U.S. government is falling over itself to help them. And to add insult to injury, American taxpayers who are already struggling to make ends meet, including their mortgages, are expected to also foot the bill of their mortgage companies, in effect, paying twice. Bush and his administration has tried to sweeten the bitterness by saying that it comes down approximately $1000-2000 per person. Doesn’t sound so bad, does it? Except that we thinking common folk know that not every person pays taxes. Our children, for example. So, for the single mother, working two jobs at minimum wage, with three children, will not only have to pay her mortgage, insurances, utilities, personal expenses, transportation costs, income tax, food expenses, but she will also have to shell out the theoretical $4000-8000 that will cover her family’s “fair share” of this Bush solution.

And she wouldn’t be the only one.

This rescue effort is not aimed at preserving any individual company or industry. It is aimed at preserving America’s overall economy.

Should I be comforted in being told that this is not aimed at preserving any individual company or industry? What about us, the citizens? I mean, I’m thrilled that you are wanting to preserve companies and industries and the economy, but it’s just too obvious that we don’t fit into the big plan here.

It will help American consumers and businesses get credit to meet their daily needs and create jobs. And it will help send a signal to markets around the world that America’s financial system is back on track.

Again with the generalities. How will it help? And since when did it become necessary to have credit in order to meet daily needs? Isn’t credit something that we need in unforeseen situations and unexpected expenses that are outside of the ordinary daily expenses? We take out a home improvement loan when we need to repair our roof, for example. That makes sense, because we don’t typically include in our housing budget “roof repair” since we can pay for that from the equity we’ve built up in our home itself. But needing credit to meet our daily needs?

Bush also touches on businesses that apparently need to get credit in order to create jobs. I would hope that in tough economic times, businesses aren’t interested in seeking out credit in order to expand. They need to operate by the same principle that we, the common man, operate under: if you can’t afford to, don’t. If the only way that a business can create jobs is to get credit and spend funding that they didn’t have to begin with–in the hopes that they’ll make that money back along with a profit, then they’re fundamentally wrong. A business should create jobs when its current workforce is insufficient to meet the demand. And if the demand is that high, then they are already generating the income anyhow–they just need the workers to fill the orders–regardless of whether they invoice clients or ask for the funding upfront.

Apparently, this putting every American–man, woman, and infant–individually under a further debt of $1000-2000 will convince the rest of the world that “America’s financial system is back on track.” That is such an unbelievable claim, that I’m not even going to bother responding here. You can think that one through, right?

I’ll address more in my next entry.