We’ve seen a lot of desperation as the world (and US) economy tanks in the wake of the mortgage-loss pyramid scheme crash. We’ve heard a lot of hyperbole and rhetoric from the candidates who want to replace Bush-Cheney as President and Vice-President of the United States. This is The Week That Was, votes will be counted tomorrow night, and we should know sometime in the wee hours of Wednesday which of the contestants gets the erstwhile “prize.”

As Wall Street began its precipitous fall, Republican candidate John McCain was busy informing the nation that the ‘fundamentals’ of our economy are strong. No, they aren’t strong, they’re utter failures after years of massive tax cuts to the wealthy, heavy borrowing to support two wars, and the “Unfettered Free Market” [TM] frenzy allowed by blanket de-regulation of the banking and investment sectors.

To get an idea of just how outrageous things had gotten, consider the so-called “Mortgage Meltdown” that took so many once-staid capitalist houses into ruin. We all know that housing prices had ballooned in most urban areas of the country, a ‘bubble’ sustained by the practice of lending to workers whose incomes haven’t seen even a minimal rise in more than 30 years, for houses that cost easily twice as much as they could hope to afford and three times what they were actually worth. Many of these loans were made with specific criminal intent to skim fees off the top, and saddled with adjustable interest rates that worked just like time bombs to force people into bankruptcy.

Knowing that these time bombs would explode X number of years down the line, the banks and futures traders on Wall Street invented a new paper vehicle called “Credit Default Swaps” for the express purpose of betting on strapped families defaulting on their mortgages. [Greenspan Slept as Off-Books Debt Escaped Scrutiny]These are an insurance vehicle, insurance to be paid out to the holders of the policies on bad mortgages. And those policies – as “Credit Default Swaps” were sold and resold hundreds of times. This is what led corporate insurance giant AIG to be one of the first Big-Time Players to fail, our government moved right in to nationalize it.

This situation is a prime example of the philosophy of “Privatizing the Profits, Socializing the Losses.” It’s a bail-out to rich gamblers necessitated by unregulated greed. Pure and simple. Look at how it worked…

The number of risky, possibly criminal, largely ARM mortgages in the US that have or soon will default amounts to approximately 1% of all the mortgages outstanding. The re-insurance scam ended up valuing these mortgages at 5 times the annual Gross Domestic Product of the entire world. They were of course never worth anywhere close to that much, this is just the amount of insurance pay-outs once they DID default. And default they did, that brought Wall Street – and the world markets which participated in the scam – to their knees.

Despite the fact that candidate McCain did not seem to have the slightest grasp on the impending doom (his chief financial advisor Phil Gramm famously called people concerned about the situation “whiners”), his tax promises to the nation if elected is still to maintain George W. Bush’s blanket tax cuts to the top 2% of wealthy citizens and corporate giants. Democratic challenger Barack Obama would reverse this situation by taxing the rich and giving significant tax cuts to the middle classes. Even to the point of eliminating income taxes altogether on seniors who make less than $50,000 a year.

McCain of course calls this tax-the-rich situation “Socialism,” as if that’s as scary a word these days as it was back in the ’50s. It is not. All governments receive taxes and use them to support infrastructure, public education and other social programs, thus all government is essentially socialist at heart. The fine points always apply to who pays the taxes and gets the benefits of governmental largesse.

CNNMoney recently published an article about the different tax plans of the candidates, along with a breakdown of just how much your taxes will go up or down according to your income. McCain, Obama and your tax bill is recommended reading for everyone out there who hasn’t already voted, and is concerned about the recession/depression that we now know will last more than a year.

Then get out there and vote on November 4th, as if your way of life depended on it – because it does!

Links:

McCain, Obama and your tax bill
Greenspan Slept as Off-Books Debt Escaped Scrutiny
Economists see recession through 2009

That’s what Angry Bear says about the government bailout of mortgage giants Fannie Mae and Freddie Mac, announced on Sunday, September 7. It will cost the American taxpayers tens of billions of dollars we don’t have. Why? Because more than 1.3 trillion dollars’ worth of those mortgage bonds are held by foreign countries, primarily China, Japan, the Cayman Islands, Luxembourg and Belgium, and they want to know if their holdings are any good.

Now, you might be struck by some of those listed ‘foreigners’. Cayman Islands? Luxembourg? Belgium? Well known for hosting questionably legal accounts for some questionable characters, I suspect we’d find a lot of Americans on those lists. Americans don’t count as “foreigners.” Unfortunately, we’d also find a lot of Russian front companies and Middle Eastern Sheiks as well.

We’ve once again been robbed blind by wanton corporate and individual greed, and we are expected once again to bail out the wealthy speculators whose greed led to the failures.

Predictions for what happens now aren’t pretty. The dollar will plunge, inflation will zoom, regular Americans will have an even more difficult time keeping up. While the richest 1% will have their taxes cut and get their bad investments paid off so they can go speculate on other nifty things like food and water.

So buckle up, fellow shoestring budget enthusiasts! We’re going to get our chance to put all our alternative survival strategies to work. If we do it right, what will arise from the ashes of the late, once-great American economy might be strong enough to last awhile.

Links:

Bonddad: Our Foreign Masters Have Spoken
Fannie Mae and Freddie Mac: A Broader View
The Fannie/Freddie Bail-Out: The Plan and Why Now?

While those of us in the less-than 95th percentile of the American income scale celebrated a long Labor Day weekend with family and friends, the 2008 Presidential race heated up, took a bizarre turn, and looks more like a “North Country”-like sit-com every day. The New York Times published some Labor Day editorials that are as remarkably honest as they are politically timely in this era of double-digit inflation for basics like food and fuel, the mortgage crisis tossing millions of families out on the streets, and ever-faster distancing between ‘rich’ and ‘poor’ that can positively cause major depression if you think too much about it.

Why? Because things are getting worse, not better. Our shoestring budgets can no longer be thought of a a temporary condition, but something we’ll have to work with all our lives. This is what op-ed contributor Dalton Conley commented on Tuesday in his opinion piece, Rich Man’s Burden.

Conley begins by noticing that less wealthy Americans actually took the weekend off and were happy about it, while wealthier Americans mostly fretted over their BlackBerries and laptops and worked anyway, as if frightened of being left behind if they weren’t working constantly to get ahead. He describes a sort of “red shift” – like that of light reaching us from distant galaxies rushing ever further away from us ever faster – between the middle income group [~$200,000 a year] and the actually rich. The disparity between the middle and the bottom rungs on the economic ladder is not so great and isn’t accelerating much. But once you reach the middle, the rungs get further and further apart.

Princeton economics professor and former vice-chair of the Fed Alan Blinder offered a contrast between the political parties and their economic plans over the weekend that is well worth reading and digesting. He lays things out clearly and simply in what he calls the Great Partisan Growth Divide. The US economy has, on average, grown faster under Democratic presidents than under Republicans.

I call this the Economic Ag Cycle. Where Democrats grow the economy during their ascendency, so that Republicans can move in and reap the money crop (i.e., rob the country blind). Which one might think would balance out over time, but it doesn’t. And that’s why we find ourselves where we are today. From 1948 to 2007, Republicans occupied the White House for a total of 34 years, while Democrats held it only 26 years. There’s simply not been enough wealth grown for the amount of reaping the rich folks have been doing, so we are now worse off than we have been at any time since World War 2.

Income inequality has been on the rise for 30 years. It gets greater and greater the higher up the ladder you go, and Blinder went all the way to the 95% vs. 5% level. Which, btw, is well below the $5 million income level John McCain set as his idea of when people become “rich.” In fact, it’s under $200,000.

Finally, Bob Herbert offers his advice to Head for the High Road and not let ourselves be swayed or fooled by ‘the usual’ political distractions and overblown pandering, but to pay attention to reality on the ground after the last 8 years of Republican reaping. Just as school districts all over the country are suddenly having to deal with huge increases in the number of officially poor and homeless children, those school districts have had to cut funding for programs serving those children due to concurrent huge increases in the costs of food and fuel.

So while I hope you all had a happy Labor Day and enjoyed yourselves immensely, do check out these editorials. They’ll put this political Silly Season into some realistic perspective. Many of us enjoy our lives way too much to be desirous of 24-hour workdays 7 days a week 365 days a year. It’s a rat race that would detract from our quality of life significantly, we only want ‘enough’. Yet if we’re not careful this November, we’re going to get another 4-8 years of less and less, until the American philosophy and the American Dream will become something most citizens can never even hope for. Their children will be less well-educated, they’ll make less money, they’ll have to work harder, they’ll suffer more, and suddenly there won’t be anything left to protect and defend. We must not allow this to happen.

Links:

Rich Man’s Burden
Head for the High Road
Is History Siding with Obama’s Economic Plan?