Capitalism; Dead, Alive, and Broken

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copyright © 2009 Betsy L. Angert.  BeThink.org

For but a moment, whilst the Group of 20 [G20] met in London’s ancient financial capital, ,”The City,” the roars of remorse, could be heard.  Words of woe had been whispered in hushed tones for quite some time.  Scholars spoke of various possibilities on occasion.  Whether Senior Economic Fellows from various think-tanks thought a system to be dead, alive, or near doomed, there was perhaps a bit of agreement.  “I see what you mean.  It is broken,” Economist Mark Thoma mused more than a year ago.  

The public screamed out in pain for decades; however, few cared about the cries of countless common folks.  Those who argued against principles that place profits before people were easily ignored for they had no power and less influence.  Much to the chagrin of corporate titans, even Economists warned; this could be the end of Capitalism.  Yet, until early in the day, only weeks ago, no one paid much attention to what has become a customary declaration for everyday workers.  Morning has broken, and Capitalism is shattered as well.  

America adopted and advanced a system that was unsustainable..  More than once, “systemic failures” revealed the folly of free enterprise principles.  Nonetheless, worldwide people were convinced to purchase damaged goods and premises.  Yet, as Journalist Professor, Robert Jensen contends, “most notably those in the business world and their functionaries and apologists in the schools, universities, mass media, and mainstream politics” do not want to admit that this is so.

Wanted; Dead or Alive

The evidence is everywhere.  What was a question rarely uttered, “Is Capitalism Dead?” has become a statement, or perhaps the dream of those who have been severely affected by this most devastating downturn.

Wealthy watch breathlessly as stock markets crash.  Banks fail.  Blue Chip companies crumble.  Foreclosures flourish, and people, those once thought prosperous, pour out onto the avenue in search of a job, or some sense of stability.

Perhaps, that is why, average citizens felt a need to break the silence, to speak of the broken Capitalist system.  In the shadow of powerful and prosperous Presidents and Prime Ministers, who gathered together for the G20 Conference, 4,000 demonstrators pleaded, not for pity, but for relief from a fiscal system that requires poverty.  

Frustrated and forlorn by an attitude that fosters further advancement of free market principles, at least in the United Kingdom, dissenters shouted in disgust.  It would not be wise to work within an economic structure that changed the global culture in ways that ultimately brought international institutions down.  

On a fateful day, early in April a young girl in the crowd, Aeyla Windridge pleaded.  I want “the death of Capitalism.”  The twelve-year-old spoke to what Heads of State had not for centuries.  “Capitalism isn’t in crisis, capitalism is the crisis,” so said another activist.  

Recovery, Reinvestment, and Rescue

Few of the principal players, those who represented the twenty participant countries were willing, or able to acknowledge the free market theory is flawed.  Most of the prominent Heads of State were, and continue to be, content with sanguine assessments.  Up to 85 percent of global gross national product comes from the shores of but a score of countries.  Eighty [80] percent  of world trade comes from these territories.  Americans, who might be thought of as the authors of Capitalism, saw and see no reason to change the status quo, at least not substantially.

Borrow and spend had worked well in the past for the superpower, or so the US government attempted to advocate.  While the President poses this philosophy cannot stand, America must move away “from an era of borrow-and-spend to one where we save and invest,” in the same breath, the Chief Executive who represents the country that gave birth to free enterprise, endorses the framework, just as those who preceded him did. (Please peruse the text What Ever Happened to Free Enterprise, By Ronald Reagan)

Capitalism, the Obama Administration states, was not the cause of the planet-wide monetary collapse.  Only greed, excesses, and a lack of regulations brought about the demise of the dollar, and the rate of exchange.  As he addressed other world leaders in attendance at the G20 Conference President Obama conceded, “the crisis began in the United States.  I take responsibility even if I wasn’t even president at the time.” However, Mister Obama contends all countries must be accountable for this massive macro-breakdown.  America’s Chief Executive proposes plans intended to strengthen a Capitalist structure.

In his April 4, 2009 Action to Address to the Global Economic Downturn, President Obama encouraged more regulations in an attempt to expand a consumer-based Capitalist theory.  With little regard for how the American way of life, which the President does not apologize for, cripples common, people throughout the world, Mister Obama declared.

“(W)e know that the success of America’s economy is inextricably linked to that of the global economy. If people in other countries cannot spend, that means they cannot buy the goods we produce here in America,  . . . if we continue to let banks and other financial institutions around the world act recklessly and irresponsibly, that affects institutions here at home as credit dries up, and people can’t get loans to buy a home or car, to run a small business or pay for college.

Ultimately, the only way out of a recession that is global in scope is with a response that is global in coordination.”

One is reminded of why, in earlier years, no one spoke vociferously of the crisis that is Capitalism.  Ordinary people were busy.  For centuries, regular folks worked day and night only to bring home a nominal paycheck.  Even in prosperous nations, people could barely afford to put food on the table.  People took trivial jobs just to secure shelter.  Millions felt forced to pursue professional paths that offer few rewards.  The only goal for the average Joe and Jane was to stay afloat.  Few have had the time or energy to protest their circumstances, or what the powers-that-be had and have imposed internationally.  Today, and in the past, worldwide economic slavery has sufficed.  That is until now.  

Lest the President and Prime Ministers elsewhere forget, in the States, and abroad, people are out of work.  The promise of an ownership society,where “people, from all walks of life,” would open the door of their private residence and say, “Welcome to my home” proved to be but a myth.  The pledge of plump stock portfolios for everyone through Capitalism was a claim never substantiated.  Contrary to the oft-voiced assurances, the American Dream could be achieved anywhere on Earth If people only invested in a free market economy, this current fiscal crisis has shown the world, words were but wishes promoted by the prosperous.

Regardless of how average people are punished by a fiscal formula that requires there be poor people, the current President intends to preserve the Capitalist principles that govern a global economy.  While Mister Obama may not profess a commitment to an “ownership society,” he too wishes to encourage people to possess what they cannot afford.  

Broken Beyond Benevolence

In contrast, more than a few Economists have begun to contemplate the wisdom of a system based on constant consumption.  Experts in monetary movements examine, What went wrong and, rather more importantly for the future, what did not. Other statistician who study the social science of fiscal affairs suggest there is ““Good Capitalism, (and) Bad Capitalism.”  Certainly, no matter the belief, with cause, “Capitalism is under fire.”  

William Pfaff, the author of eight books on American foreign policy, international relations, and contemporary history has pondered the depths of a paradigm profoundly broken. Mister Pfaff offers a perspective less limited than the simpler theories often presented by Administrations and Academics.  The  observer of intercontinental issues writes . . .

The essential question is, what capitalism are we talking about? Since the 1970s, two fundamental changes have been made in the leading (American) model of capitalism.

The first is that the “stakeholder,” post-New Deal reformed version of capitalism (in America) that prevailed in the West after World War II was replaced by a new model of corporate purpose and responsibility.

The earlier model said that corporations had a duty to ensure the well-being of employees, and an obligation to the community (chiefly but not exclusively fulfilled through corporate tax payments).

That model has been replaced by one in which corporation managers are responsible for creating short-term “value” for owners, as measured by stock valuation and quarterly dividends.

The practical result has been constant pressure to reduce wages and worker benefits (leading in some cases to theft of pensions and other crimes), and political lobbying and public persuasion to lower the corporate tax contribution to government finance and the public interest.

In short, the system in the advanced countries has been rejigged since the 1960s to take wealth from workers, and from the funding of government, and transfer it to stockholders and corporate executives.

There is ample evidence to support the author’s contention.  In 1970, the recipient of a Nobel Memorial Prize on Economic Sciences, Milton Friedman, encouraged an emphasis on corporate earnings. A culture that creates a vibrant community, Friedman insisted is counter to “The Social Responsibility of Business is to Increase its Profits”

Decades later, his disciples of sorts, Presidents Ronald Reagan,  George Herbert Walker Bush, Bill Clinton, and George W. Bush, each implemented plans that increased earned income for the influential and decreased available dollars for the already disadvantaged.  Policies designed to protect and promote an American entrepreneurial taxonomy, or Capitalistic interests, were proposed as a means to spread democracy.  Planet-wide, people and economic practices were transformed.

The second change that has taken place is globalization.  The crucial effect of this for society in the advanced countries is that it puts labor into competition with the poorest countries on earth.

We need go no further with what I realize is a very complex matter, other than to note the classical economist David Ricardo’s “iron law of wages,” which says that in conditions of wage competition and unlimited labor supply, wages will fall to just above subsistence.

There never before has been unlimited labor.  There is now, thanks to globalization – and the process has only begun.

The variance is vast.  Those who have possess so much.  The portion of population that owns little, have far less than even an average individual might imagine.  The wealthy cannot conceive of a life where food might be the most valuable commodity.  A world in which water is worth more than gold seems unthinkable to those who thrive in “civilized” communities,  Yet, this reality may come to towns in a Capitalist country.   Indeed, in some American communities, this truth appears today.

Nonetheless, agreements secured at the G20 summit ensure the adoption of a debt-driven American-style “democracy.”  An arrangement, in which all are not created equal, will continue to be the practiced and preferred economic system planet-wide.  People will once again forget assessments presented less than a decade ago.


Many of the radicals leading the protests may be on the political fringe.  But they have helped to kick-start a profound re-thinking  about globalization among governments, mainstream economists, and corporations that, until recently, was carried on mostly in obscure think tanks and academic seminars.

The reassessment is badly overdue.  In the late 20th century, global capitalism was pushed by leaps in technology, the failure of socialism, and East Asian’s seemingly miraculous success.  Now, it’s time to get realistic.  the plain truth is that market liberalization by itself does not lift all boats, and in some cases, it has caused damage to poor nations.  What’s more, there’s no point denying that multi-nationals have contributed to labor, environmental, and human rights abuses as they pursue profits around the globe . . .

(After a ten-year expansion of market capitalism around the world, as of the year 2000) The World Bank figures the number of people living on a $1 a day increased to 1.3 billion, over the past decade.

The extremes of global capitalism are astonishing . . .  If global capitalism’s flaws aren’t addressed, the backlash could grow more severe.

Indeed, the repercussions have been relentless.  Near a century of consumption, solely for the sake of profits, has weakened the world.  The current fiscal crisis reveals Capitalism was never the cure for what ails the people on this planet.  Persistent poverty, and the threat of increased insolvency, born out of a free enterprise system is an expense few, if any, can afford.  One need only look at Capitalism, and what it has wrought.  Acquisitive individuals may acknowledge one reaps what one sows.  Independently, or collectively, as a global community anyone might come to understand, “If my brother is poor, I/we too will suffer.  Ultimately, I/we will pay for the poverty I/we accept.”  

Without such a realization, and inspired by the spirit of an individualism that has flourished amongst free-marketers, people may, as President Obama proclaimed.  Worldwide, or here at home, we “want a return to that sense of dynamism and entrepreneurship that [has] been missing.”  However, it is not another glorious “morning in America.”  Nor is it a beautiful day in most neighborhoods.  Were the clouds to clear, globally people might avow, authentically, there need be an actual new dawn.  It is time to dream of economic structures that have never been.

The majorities in the States, and throughout the globe, are no longer silent.  Common folks have spoken.  Capitalism is broken.  It is not wanted, dead or alive.

Sources for economic and empathetic structures . . .

Tim Geithner; Retention, Rewards, and Krugman Realizations



DN!>Paul Krugman (12) on $1 Trillion Geithner Plan to Buy Toxic Bank Assets

copyright © 2009 Betsy L. Angert.  BeThink.org

Negotiations began in November.  Decisions were reached during the month of December.  By January, a retention bonus was awarded to the individual considered most superlative within the staff.  President Barack Obama presented the gift.  American International Group, Incorporated [AIG] executives did not receive the windfall.  Nor did someone “separate” from the previous President garner the honors.  Gold was not placed at the door of a New Deal Democrat.  No, dollars and command were delivered to a truly Progressive person.    Insider, Timothy Geithner was the recipient of a title that would sustain his service.  Mister Geithner was given a reward that was worth far more than mere millions in greenbacks.  Power and influence are priceless.

President Obama granted these “commodities” to one who worked to ensure banks and other financial institutions would continue to flourish just as they had in the Bush Era.  Now, the man with copious clout, wants more.

Indeed, Tim Geithner has already taken the reigns.  He has worked to set more rules.  Separate from Congressional approval for increased authority, and regardless of what regulatory standards the House and Senate might pass, Secretary Geithner, happily ensconced in President Obama’s favor, has begun to broaden his horizons.  He expresses his expansive preeminence, and all are a twitter.

New-found fame, a brighter, well-funded future befits the man whose face now appears everywhere.  Greater authority is as Tim Geithner was groomed to acquire.  Indeed, Secretary Geithner grew accustomed to attention and awards.

Perhaps, Timothy Geithner’s desire for further recompense, economically or emotionally, began when he was but a boy.  In his youth, the now Secretary of Treasury saw what could be wrought if one was well-connected.  His lineage allowed him to look into a world of affluence and advantages.  

Maternal grandfather, Charles F. Moore, was an adviser to President Dwight D. Eisenhower.  Mister Moore also served as a Vice President of Ford Motor Company.  “Dad,” Peter F. Geithner, was with the Ford Foundation.  Tim Geithner’s father oversaw the project that Ann Dunham, President Obama’s mother gave birth to.  Stanley Ann Soetoro and Tim’s Dad, developed microfinance programs in Indonesia.

This association alone might have helped Mister Geithner realize his path to the White House.  Some theorize, President Obama and Tim Geithner formed an invisible bond, one that ties them together today

Money, power, and privilege were given to Timothy Geithner from birth.  The more the lad “earned,” the more he hoped to receive in return.  A graduate of Dartmouth and John Hopkins, initially Tim Geithner worked for Kissinger Associates, Incorporated.  He then entered government, just as his forebears had.  Geithner first joined the Department of Treasury in 1988 and worked in three administrations for five Secretaries of the Treasury in a variety of positions.  He served as Under Secretary of the Treasury for International Affairs from 1999 to 2001.  He was Director of the Policy Development and Review Department at the International Monetary Fund from 2001 until 2003.  Then, he headed the New York Reserve.  He befriended the acclaimed Economist Professor Paul Krugman.  The two are associates within The Group of Thirty, a Consultative Group on International Economic and Monetary Affairs.  It is no wonder President Obama was impressed and wanted to retain the financial expertise of one so esteemed.

Previously, the Secretary had succeeded, even exceeded expectations.  With each step, the esteemed Economic wizard takes, greater gratitude and gilt are given.  Hence, he moves forward.

Secretary Geithner addressed Congress on March 24, 2009.  He and his cohort, Federal Reserve Chairman Ben S. Bernanke affirmed a need to be endowed with exceptional authority.  The two concurred.  The AIG catastrophe confirmed “a basic and tragic unfairness – that those who were prudent and responsible in their personal and professional judgments are harmed by the actions of those who were less careful and less prudent.”  Many would agree.  

On paper, the proposed request for increased control over financial institutions, other than banks, seems reasonable.  If Congress approves of the strategy, Federal authorities could seize a failed fiscal establishment.  Many believe the measures are long overdue.  However, several hesitate.  When they consider the fact, Secretary Geithner might be the person to decide the fate of these firms countless express concern.  Perchance, he is not the person to have or hold such extensive power.  

Esteemed Economist, and colleague Paul Krugman expressed disappointment after Mister Geithner revealed his bailout plan.  Nobel Prize recipient Krugman wrote in The New York Times, “”In fact it fills me with a sense of despair.”

“The Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt,” the Princeton University Economist explained, as he cited specifics within the proposed strategy.

Might the man Professor Krugman long admired not be competent to oversee the fringe financial institutions? Those who were uncertain Tim Geithner was ever the best, the brightest, or the person to be retained, are now joined by others who originally had confidence in the now Secretary of Treasury.  Since the appointment, and ample intangible appropriations were bestowed upon Secretary Geithner, the choice issue may be a moot point.  Only the battle for a bigger role, increased responsibility to regulate remains a subject of contention.

The Obama Administration, mostly through Tim Geithner, has compared the proposed process to the work of the Federal Deposit Insurance Corporation.  This favored institution protects depositors from bank failures.  Regulators can take control of a troubled depository, place it under the authority of the FDIC, and then, quickly, and competently, restructure the reserve

Perhaps, that is the most significant difference.  With consideration of the current economic crisis, and crucial assessments, the Secretary made prior to this plea for greater rule, Timothy Geithner showed no evidence of being swift or skilled in his ability to seize the moment or reign in American Insurance Group’s excesses.

As the former president of the New York Federal Reserve, Mister Geithner is the one Obama Administration official who is associated with the Bush-era bailouts.  Once AIG was under Federal control, public servants say, compensation arrangements were rarely, if ever, discussed.  In December, long before Tim Geithner received his own abundant reward, an initial $55 million in bonuses was delivered to the Insurance Group executives.  

At the time, the glorious Geithner did not decry the greed.  Indeed, even on this date late in March 2009, as he answered questions before the House Financial Services Committee, Secretary Geithner stated, “It’s a difficult balance.”  He then further explained his belief; the government should not dictate detailed executive compensation limits to bankers.  Timothy Geithner empathized with those who had been given retention bonuses.  Indeed, while he did not give voice to the thought, the Secretary understood, he too was a very recent beneficiary of such graciousness.

Perhaps, opponents of greater government oversight appreciated the more individualist posture Treasury Secretary Geithner presented. However, a few felt a vital veracity must be pondered.  An individual Presidential appointee [Geithner], and an agency [FDIC] with ample autonomy, are not one and the same.

Intentionally, the Federal Deposit Insurance Corporation, unlike the Treasury Department, was designed to be separate from the political process.  The bureau acts in accordance to law.  Should Congress consent to the Geithner request, a person who is profoundly affiliated with a partial, political body, would have the authority to take possession of a business that displeases the White House.  Granted, supporters assure those who challenge the proposal, only corporations in crisis would be seized.  Nevertheless, dissenters declare, corporate collusion with government insiders would remains a concern.  A poorly regulated financial institution potentially would corrupt the government [further?].

Policy-wonks state, the power to take over banks or other alternative financial entities need be part of a broader regulatory structure.  Limits are set on the risks that economic establishments can take.  Therefore, the need for seizures is, and must be, more fully linked to violations.  The Obama Administration has expressed a desire to increase regulations on firms that might be eligible for seizure under the proposed law.  However, specifics have yet to be furnished.  

For now, the focus remains solely on the Treasury Secretary.  Tim Geithner seeks greater power than was given to him in the form of a gift, his title.

Unequivocally, Tim Geithner has received many accolades.  Perchance, he was and is deserving.  Secretary Geithner offered a welcome plan to resolve the mortgage meltdown the day before his most recent plea.  Wall Street applauded the strategy, as evidenced by a record rise in stocks.  The headlines for the long-anticipated program that would remove bank toxic assets and revive the financial system, bedazzled those with money to spend.  Rescue Plan, With Fine Print, Dazzles Wall Street. Urged on by his success, Secretary Geithner had reason to  hope he could garner greater authority.  Those with big bucks see his increased powers as a bonus.

Yet, the apprehension Nobel Prize Economist, Paul Krugman expressed on March 23, 2009, the day before this recent hearing hangs over the head of Treasury Secretary Geithner. Thankfully, rancor for the subprime solution seems to receive less attention, at least amongst the House Financial Services Committee.  Possibly, acrimony over Geithner’s past performances is also forgotten.

For a time it seemed Professor Krugman too had been willing to forgive and forget.  There was a time the Princeton Professor was with those who sanctioned the selection of Tim Geithner to Treasury.  Doctor Krugman had thought as President Obama did; Tim Geithner should be retained.  His mere presence in the Administration would be a worthy bonus.  Only months ago, Krugman approved of Geithner and his work.  In his article, The grown-ups are coming, the stellar observer of economic policy sardonically noted the Tim Geithner was an improvement in contrast to the  Bush Best and the Brightest.  

Paul Krugman spoke highly of his associate from The Group of Thirty, a Consultative Group on International Economic and Monetary Affairs.  That is, until Tim Geithner introduced his solution for toxic assets relief.

Perhaps times have changed.  Certainly, there is reason to think Timothy Geithner has not.  Nonetheless, earlier impressions and associations formed long ago linger in the present.

The New York Times Columnist and Economist publicly offered his “Despair over financial policy.” However, in a recent interview with Democracy Now’s, Amy Goodman, Krugman was reluctant to say the person who ascribes to lemon socialism, Timothy Geithner must go.

Paul Krugman as others may not have yet come to terms with contradictory views of the man who now Heads the Treasury.

Prior to the prize bequeathed on Mister  Geithner, all of his actions appeared above board and in alignment with the ethical standards President Obama set for his Cabinet.  The beneficiary of perks and power was perceived as an individual who had sacrificed much in order to serve his country.  Tim Geithner was subjected grueling to Senate hearings.  His records were scrutinized. To be certain no one would have reason to question the calculations, a highly respectable résumé was submitted.  

Before his selection, Mister Geithner served as President of the New York Federal Reserve Bank.  In his career, he worked closely with former U.S. Federal Reserve Chief Alan Greenspan, Bush Treasury Secretary Henry Paulson, and head of the Federal Reserve Ben Bernanke, and oh yes, venerated Economist Paul Krugman.  

Overdue taxes were paid to ensure that all appeared proper and in order.  That is, at least some of the levees never accounted for were remunerated  Other outstanding tariffs, Tim Geithner was told, need not be paid,  The statute of limitations had lapsed.

Just as had been with much else in his life, Tim would be forgiven for his forgetfulness or failures to do what most think ethical.  No one would think to inquire of the enormous sums the Head of Treasury would garner for his friends, former colleagues, and himself.  People were expected to consider the pittance he “earned” as a civil servant and be reassured, Tim Geithner is committed to the good of the country.  After all, were he still with his previous employer, investment firm Goldman-Sachs,  Secretary Geithner’s salary would have been far greater.  

The power Timothy Geithner garnered throughout his life cannot be counted.  Personal financial gains for friends, former colleagues, and himself are ample.  Influence is near infinite.  Why not, some might say, give Geithner more authority to rule.  He has “earned” it.  Perhaps, one day in a sequel to Professor Krugman’s recent tome, “America the Tarnished”, the established Economist will reject the cry, “Why not indeed.”  He might even pen prose that state more directly  Timothy Geithner, his retention, and the rewards he has already received  are a significant part of “the crisis [that] has cost America much of its credibility, and with it much of its ability to lead.”

References for a Geithner Rule to be realized . . .

Updated Reference . . .

Wars; Endless Wars. The Want for More

Wars

copyright © 2009 Betsy L. Angert.  BeThink.org

It is March, again.  Just as I have been for years, in this month I am haunted by the hate we, humans, propagate.  March 19th is the sixth anniversary of “unnecessary wars”.  The phrase is not mine alone.  Public servants,  Ambassadors, and former Presidents have proclaimed as I have.  Foreign Secretaries and domestic Diplomats deem the war was a mistake.  Then there are the people.  

Those embroiled abroad cannot be happy with a hapless combat that destroys homes, the lives of families, and fractures communities.  The American public also grapples with great pain, albeit for those safely ensconced in the States, the pain is less physical or psychological than a soldier’s stationed abroad might be.  

When polled five long years ago, people in this country stated the war was a mistake.  At the time, fifty-six percent of the United States population rejected further battle.  Americans decisively declared, the “war is not worth fighting.”  Seventy (70) percent of Americans thought any slight gains in security had come at an “unacceptable” cost in military casualties.  That was then.

Today, as the economic crisis looms larger in the minds of many United States citizens, less pay attention to the wars in Iraq or Afghanistan.  Americans hope only for change, spare dollars, and cents.  Indeed, the American people want jobs.  The public craves the cash they need to put food on the table.  People are more focused how they personally might pay for the roof over their heads.  The only wars that cause them worry are “trade” battles.  All is not well on the Western Front.

On the home front, Americans are anxious.  To worry about the conflict abroad seems a waste.  Many families face foreclosure.  Businesses fail.  Jobs are lost.  Ours is a generation who will not prosper as their parents’ had.  A few, although not few enough in the minds of those affected, fear the future for sons, daughters, husbands, and wives who are called to combat.  Perhaps a lesser number are apprehensive when they ponder the fate of a loved one who will volunteer for service in Iraq and Afghanistan.  My sister, brother-in-law, and I are amongst these.

This weekend, on his father’s birth date, I learned my nephew has considered his options, his career, and the choices he has.  Jason is a Marine.  He enlisted near a year ago.  He enjoyed boot-camp.  The not yet twenty one-year-young man did as he has always done; he endeavored to do his best.  Months ago Jason was promoted to Lance Corporal.  It was quite an honor He is proud and happy to serve his country.  Perhaps, he will overseas.  Jason has not decided conclusively.  Yet, it seems a stay in Afghanistan is his plan.

His family, mine, understands at any moment the decision will not be made by him.  The Marines might move him to the Middle East.  While change came in American policy, it appears an end to armed conflicts is no longer the priority.

Nonetheless, as one who has stood vigil for peace since before the first American bombs blasted over Afghanistan, as the sixth anniversary of the more often observed Iraq War draws near, I invited many of my fellow activists to commemorate the day.  I sent an electronic mail to the many who have joined the local Peace Corner congregation each week.

My message was delivered on the same day the stock market slipped to a record low.  An acquaintance, one who organized our local community in support of then Senator, Barack Obama, answered.  She stated she could not participate in an hour-long peace vigil on March 19th, regardless of what time it was held.  

Jesse wrote of her commitment to Barack Obama’s economic stimulus package.  Her advocacy, she said, would prevent her attendance.  However, she revealed, in truth, she felt she could not sanction the remembrance.

Jesse penned, “I may not love all aspects of the President’s plan regarding Iraq but trust that he knows much better then I how to get out without bloodbath.  With regard to “Afghanistan,” she wrote; “until there is a strong diplomatic effort going in that region, which wasn’t done under the Bush regime, we owe it to soldiers there to give them the support they need to protect themselves while they are trying to destroy our enemy.”

I wondered what I might say.  Frequently I spoke of my belief; I wish to support our servicemen and woman actively.  That is the reason I want them safe and sane.  I thought of my conversation with my sister.  Linda feels certain Jason will offer to serve abroad.  She wishes not only for his safe return, she prays for his sanity.  Too many, Linda bemoaned, come home, and mentally, emotionally, the troops who travel afar, and saw a world of woe, are never the same.

As I reflected on my siblings reality, I read more of what Jesse avowed. “Our enemy is there – and despite what you and I have discussed in the past Betsy, this is NOT a people you can negotiate with and you can’t change their mind set.  They are out to destroy us so we have to try to destroy them first.”  As I considered her words, I reflected on an article presented three days after the Twin Towers fell, long before America wrecked greater havoc on a country bombed back to the Stone Age before the US sent more artillery.  Tamim Ansary penned, An Afghan-American Speaks.  In the reflection, published in Salon the author offers a thoughtful analogy, one I observed to be true, even as an outsider.

(T)he Taliban and bin Laden are not Afghanistan.  They’re not even the government of Afghanistan.  The Taliban are a cult of ignorant psychotics who took over Afghanistan in 1997.  Bin Laden is a political criminal with a plan.  When you think Taliban, think Nazis.  When you think bin Laden, think Hitler.  And when you think “the people of Afghanistan” think “the Jews in the concentration camps.”

I thought to share the source; yet, I feared Jesse might not be open to the comparison.  Although she has often heard of my belief in the principle, transformation is invisible.  We must talk endlessly if we are to build trust and a novel truth, the woman who advocates for diplomacy expressed what for me feels forever dismissive.  “We will just have to agree to disagree on this one,” Jesse typed.

“I wish all of you well in your efforts since I know you only want what you think is right and moral.  I wish the conflict had never started in Iraq and that we had completed what we started in Afghanistan . . . which was to find and capture Bin Laden and his followers, and bring them to justice.”  

In accordance to what Jesse thinks humanitarian relief, she stated her hope is America will “rebuild what we destroyed in the region, build schools and proper roads, lay down broadband to connect these backwoods people to the rest of the world so they can see what there is out there.”  

Jesse theorized; “Only by doing that can we offer them an alternative to what they have now.”  I wondered.  How might we accomplish any of what would be good in the Middle East as long as we came, and continue to come to Afghanistan with guns ablaze.  Had our failed policy in Iraq not been a lesson, or are we do believe as Jesse, and even George W. Bush might.  The only reason for regret in the past was a lack of intelligence.

Just before he left the Oval Office, the previous President, who Jesse blames for the battles that brew, ruminated.  “The biggest regret of all the presidency has to have been the intelligence failure in Iraq,” a remorseful George W. Bush told ABC television in December 2008.  “I wish the intelligence had been different, I guess.”

Intelligence.  That is often the problem.  Intellectually adept as any of us might be, emotionally, each of us is handicapped by what we believe.  We forget, as I shared with my sister days earlier.  “No one can be inside of our heart, soul, being, or brain.”  I asked Linda to think of the two of us, our experience of our home life, our parents, and our shared history.  We do not perceive any given moment as our sibling does.  Nor do either of us relate to what others in our brood believe to be true.  Perchance, this lack of perspective, an empathetic point of view is the cause for endless wars.

As I pondered, Jesse apparently perused another article and sent the source on to me.  I trusted she knew as I frequently express, I never agree to disagree.  I believe, personal philosophies, peace, and profound inquiry, are each part of a never-ending process.  Agreements are not achieved in an instant.  Combat will not cease in a second, and conversations, if they are to be effective, must be ongoing.

With a link to the essay, Jesse included a statement, “Knew you would want to see this.  I’m so conflicted – wish I knew the right thing to do.”  I clicked on the link and smiled when I saw the New York Times Columnist Bob Herbert treatise appear.  A man I personally admire, one I think phenomenal, in his March 3, 2009 editorial addressed the issue of Wars, Endless Wars .

The article begins . . .

The singer Edwin Starr, who died in 2003, had a big hit in 1970 called “War” in which he asked again and again: “War, what is it good for?”

The U.S. economy is in free fall, the banking system is in a state of complete collapse, and Americans all across the country are downsizing their standards of living.  The nation as we’ve known it is fading before our very eyes, but we’re still pouring billions of dollars into wars in Afghanistan and Iraq with missions we are still unable to define.

I read the article in its entirety and responded.  “Dearest Jesse,” I enthusiastically noted.  “I am past partial.  I love Bob Herbert!”  Herbert’s reference to a favorite tune and musician of mine, prompted an impulsive applause.  When I saw he had connected the wars to the economy, I became more enthralled with his every word.  

I thanked Jess for her being open to further thought, and her willingness to share.  I expressed my own truth.  I observe “The war is tied to economics.”  Conflicts overseas have an effect on the environment, education at home, business, and whether we rebuild the infrastructure.  Questionable ethics, ethnic cleansing, genocide, and homicide, increase when a country is consumed with a waged conflict.  Homelessness, amongst veterans, or the displacement of those on foreign soil, is disregarded when we are embroiled in warfare.  I stated, “The list of effects is endless.”  

I also believe emotional intelligence is altered when we think war is a necessary evil.  We begin to engage in one battle, it seems enemies are everywhere.

Then, I told Jesse a tale, a true story that occurred seconds after I spoke with my sister.  

I entered the Recreation Center ready to swim.  I trusted thoughts of my nephew and the war would fill my mind while I was under water.  I entered the locker room to prepare for my exercise, and there I saw an acquaintance.  Sue, a Korean woman I often chat with, was gathering her gear.  She has lived in the States for near a decade.  Sue is young, beautiful, and does not speak in depth on most subjects.  When we see each other at the cement pond, the swim is often our priority.  

Brimming with beliefs, I blurted out, “I loathe war.”  Sue verbalized her venom for violence immediately.  She told me of how awful the North Koreans are and why combat is necessary.  I responded; the North Koreans are people.”  Sue spoke with knowledge.  She told me of the dictatorial government, the North Korean leader Kim Jong-Il, and the people who will do whatever their government demands.  

In all the years we have known each other, we have chatted frequently.  Yet, I have never seen or heard Sue speak with such vigor.  Sue assured me the North Korean people will follow their leader.  I reminded her of Hitler, and the economic Depression, that helped catapult the Fuehrer to power.  Even long before my review of the aforementioned article, An Afghan-American speaks these comparison was so real for me.

As we discussed the dynamics of conflict, I introduced many more instances, on various continents.  “Much of what occurs worldwide illustrates why people are motivated to do as an autocrat deems they must,” I said.  I referred to the reality in Afghanistan, although not as eloquently as Author Tamim Ansary had.

Some say, why don’t the Afghans rise up and overthrow the Taliban?  The answer is, they’re starved, exhausted, hurt, incapacitated, suffering.  A few years ago, the United Nations estimated that there are 500,000 disabled orphans in Afghanistan — a country with no economy, no food. There are millions of widows. And the Taliban has been burying these widows alive in mass graves. The soil is littered with land mines, the farms were all destroyed by the Soviets.  These are a few of the reasons why the Afghan people have not overthrown the Taliban.

We spoke further of other circumstances in countless countries.  “Each,” I exclaimed,  “exemplifies the same truth.  War is an economic endeavor, always has been . . . even the Civil War is but an example.”

Sue listened; and then rationalized her beliefs.  I too paid attention; and then shared why I thought, why I think, as I do.  Finally, my sincerest belief rose to the surface.  Empathy is the best educator.  I invited Sue to imagine.  “If you had a relative who resided in North Korea, would that individual be evil?”  Would you wish to kill them . . . before they killed you?  Sue stood quietly.  She stopped speaking.  Reflected for a time.  Then she said, “I understand.”

Perhaps, if Jesse, the President of the United States, and the people, in each an every country contemplated our deeper connections, the sixth anniversary of the Iraq war, March 19th, would not need to be commemorated.  Nor would we prepare to pay tributes to those who have or will fall in Afghanistan.  If humans were to honor, no man, or matter is an island, perhaps, people would not need to fight for jobs, fiscal stability, food, shelter, power, or for principles that are contrary to a stated belief in peace.

References for a wartime, all-time reality . . .

Where is the restraint in spending?



Republican Response to Obama Budget Request – Bloomberg

copyright © 2009 Betsy L. Angert.  BeThink.org

On this fine day in February 2009, President Barack Obama submitted his budget blueprint.  For  the first time, in near a decade, transparency is built into a national financial plan.  The tremendous costs to wage the two wars America is engaged in are no longer hidden.  Outlays for military offenses have been written into the ledger, and not in the traditional invisible ink.  While one might think fiscal and political Conservatives would be pleased, upon receipt of the document, Republicans immediately pounced.  Senator Judd Greggspoke on the Grand Old Party’s behalf when he asked, “Where is the restraint in spending?”

Interestingly, Senator Gregg and his fellow Republican Legislators did not solicit answers to this inquiry when the last Administration reigned.  For all those many years, the Conservatives did not concern themselves with the price the American people paid.  None on the “Right” worried of what might be when “unnecessary”wars are fought The monetary debt left to American children was not a consideration when combat was paid for on credit.  Then, as now, the greater trepidation was expressed for higher taxes.

America attacked its adversaries with borrowed money and on time borrowed from the brood.

As long as parents did not have to pay, or see the billions of bites taken from fruits reserved for their offspring, war, or supplementary spending was wonderful.  What is not so glorious for the wealthy are the words of President Obama, or his plan to pay as we go.  

“Having inherited a trillion-dollar deficit that will take a long time for us to close, we need to focus on what we need to move the economy forward, not on what’s nice to have,” Mister Obama said.  This statement did not make sense to Conservatives who rather do as the previous Administration had allowed them to do, trade common “cents” for an economic crisis.

Comfortable with artificial caps or spending, repeatedly supplemented, Republicans reacted poorly to the introduction of fiscal responsibility in the Obama Recovery Plan.  Intermittently the “Right” expresses concern for the children.  Nonetheless, each rant raises what seems to be the more real issue, taxes.  

Indeed, in the past, Progressives pondered levees.  Most Democrats wondered why Americans were not asked to sacrifice for two wars fought on credit.  It all began early in President George W. Bush’s first term.  The date, September 11, 2001 will live in infamy.  The Council on Foreign Relations explained this in a report.

Following 9/11, the United States launched new military endeavors on a number of fronts, including in Iraq.  Estimates for the total costs of these efforts remain sharply politicized.  Costs have consistently outpaced government predictions.  In September 2002, White House economic adviser Lawrence B. Lindsey estimated the cost of invading Iraq could amount to between $100 billion and $200 billion.  Mitch Daniels, who at the time headed the White House budget office, called Lindsey’s estimates “very, very high” (MSNBC) and said the war would cost $50 billion to $60 billion; shortly thereafter, Lindsey left the White House.

In January 2004, a report from the Congressional Budget Office (CBO) estimated the total costs of Iraq’s reconstruction would land between $50 billion and $100 billion.  But in October 2007, the CBO said in a new report that the United States had already spent $368 billion on its military operations in Iraq, $45 billion more in related services (veterans care, diplomatic services, training), and nearly $200 billion on top of that in Afghanistan.  

American initiated battles blazed abroad.  No money was allocated to pay for the combat.  Billions were kept off the books.  American babies were blinded from the truth.  Their parents placed a financial burden on them that could not be calculated.

Each year, with hat in hand, Commander-In-Chief George W. Bush came to Congress and said, cost cannot be a consideration.  We must protect our borders.  The compassionate Conservative Bush assured Senators and Representatives alike, inclusive of Judd Gregg who now reels over the cost of the Obama fiscal plan.  The country must be made safe for your brood and mine.  

Although the past President knew the battles would be protracted, and said so often, he never accounted for the projected expenditures in his budgets.  Very early on, the Bush Administration was asked to design a plan for war-related costs.  However, the White House ignored such silly suggestions.  Congress too did not comply with a request to consider the cash flow.

Iraq Supplemental Requires Transparency

Revenue Watch Institute

Legislative Action

Congress must insist that clearly defined standards of transparency are incorporated into the $87 billion appropriation for Iraq.  Congress must require the President to submit at minimum a quarterly report, detailing the processes by which US funds are disbursed in Iraq, under the conditions elaborated below.

Recommended Legislative Language:?

No competitive or non-competitive contracting or purchase activities may be undertaken using any of these funds unless the President certifies that the International Advisory and Monitoring Board mandated by Resolution 1483 has been established, and submits a quarterly report detailing:

  • The extent of Iraqi consultation and participation in the contracting and purchase agreement process.
  • Actions taken to be in compliance with the transparency obligations of UN Resolution 1483.  ?An independent cost and capacity estimate of the activity in question.
  • In cases where non-Iraqi sources are awarded contracts, an explanation demonstrating that Iraqi companies lack the necessary resources and experience to perform the service at the independently estimated cost, and/or within a reasonable time frame.
  • In cases where a no-bid contracting process is employed, a detailed justification for the non-competitive tender, including a demonstration that this justification was made available to the Iraqi public.

(An Iraqi Public Finance Oversight Board should be established as a formal channel to achieve an acceptable level of Iraqi consultation for all large-purchase contracting activities undertaken with these funds.  The International Advisory and Monitoring Board, as mandated under Res. 1483, should be empowered to audit all aspects of Development Fund for Iraq. . . .  

None of these possibilities were put in place.  No one believes the proposal was even taken under advisement.  Instead, the Bush Cheney Administration moved into foreign terrain ready for a fight.  Documents that might help determine the dollars needed to do these deeds were not sent to the House or Senate in advance.  Budgetary reviews for defense spending were deliberately shortsighted   More was left out than included in ledgers.  Emergency Supplemental funds were requested each year.  

In 2001 and thereafter, no one complained, at least not loudly, certainly not the Republicans who now demand we attend to our children’s inheritance.  How might one argue against the need to protect the country, care for its citizens, and pay for the soldiers who keep this country safe?

Conservatives, in the early years of combat were gleeful with Congressional control.  They coalesced.  Democrats, defeated, chose to forfeit dignity and duty.  Progressives no longer believed they had the power to do what was right.  Resigned to the will of the President and his “people,” the Left relented.  Legislators looked the other way when the economic experts strongly stated more money is needed.  Supplemental funds, off budget show support for the soldiers.

On September 8, (2003) the White House requested an additional $87 billion of funding to cover the continued occupation and reconstruction of Iraq and Afghanistan in 2004.  Of this $87 billion, $66 billion will be for military operations, and $21 billion will be for reconstruction in Iraq.

Congress caved.  Trillions trickled out of the country.  A few at home profited from the Shock and Awe plan.  However, no one wished to speak of Halliburton, the ties that remained to Vice President Cheney, or the off-the-book expense of wars.  

For persons affiliated with the Administration, defense contracts, no bid agreements to facilitate the folly known as the Iraq and Afghanistan wars, the monetary Mission was Accomplished.  However, for the majority of Americans, the loss of credibility, lives, limbs, and cash was a failure.

Citizens feel the calamity in an economic crisis.  Yet, Republican Representatives wish to blame Barack Obama for a budget, which will not hide such outrageous costs.

Total cost of the Iraq and Afghan Wars

The CBO [Congressional Budget Office] now estimates the costs of the Iraq war, projected out through 2017, might top $1 trillion, plus an extra $705 billion in interest payments., The total cost of Iraq and Afghanistan combined could reach $2.4 trillion.

Some experts say even those figures underestimate the true price tag.  Joseph E. Stiglitz, the Nobel Prize-winning economist and former economic adviser to President Bill Clinton, projected in a 2006 paper (PDF) with another economist, Linda Bilmes, that the total macroeconomic costs of the Iraq war itself would surpass $2 trillion.  This analysis differs from that of the CBO, which measured only the war’s budgetary impact.  Stiglitz and Bilmes also predict a somewhat higher budgetary impact than the CBO did, though the CBO responds at the end of its 2007 report that some of the difference may be accounted for by factors like inflation and standard pay increases that have little to do with the Iraq war itself.

More recently, a group of Democrats on the U.S. congressional Joint Economic Committee released a report estimating the total long-term cost of operations in Iraq and Afghanistan would range between $2.6 trillion and $4.5 trillion, depending on how quickly forces are drawn down.  These figures drew pointed criticisms from congressional Republicans, who released a statement (PDF) citing dozens of errors in the report’s findings, some of which were subsequently changed.

Yes, the Republicans actively repute all claims of cost overruns.  For them, money spent on military actions were  and are justified.  The real issue, for the “Right” while subterranean, was revealed; as long as taxes were not raised on their personal wealth “fiscal Conservatives” felt fine.  

During the Bush years, Republicans had reason to feel content.  Those who want no new taxes had a friend in the White House who would hide the costs of combat.  Thus, then, concern was not expressed for the children, the credit crisis, or what these irresponsible parents caused.

Republicans would rather be critical of the Democrats for too many dollars spent and the way the Obama plan proposes to reduce the deficit.  “On the backs of the rich,” those who think themselves “Right” rage.  Perchance it is important to peruse the books.  Republican rants may not reveal what detailed reports do.  Today, if the government continues to fund its fights on credit, as the Bush White House did, our progeny will inherit what prosperous parents refused to pay for with cash.  


Comparing the Defense Budget to the Total Economy

The U.S. defense budget has risen over the past decade but remains substantially lower than historical levels when considered as a percentage of U.S. GDP.  President Bush requested $481.4 billion in discretional spending for the Department of Defense’s 2008 budget.  That figure does not include any of the spending for the wars in Iraq and Afghanistan, which have been paid for primarily through “emergency supplemental requests” that are not included in the federal budget’s accounting. War spending is expected to tally to roughly $193 billion in 2008, an increase of $22 billion, or roughly 13 percent, over 2007 expenditures . . .

Allocations toward the “Global War on Terrorism,” which exceed $145 billion for 2008, also fall outside the U.S. defense budget, and do not include the war-budget supplements. . . .

In a global context, U.S. spending on military-related endeavors ranks high.  According to 2005 data from SIPRI (PDF), the Stockholm International Peace Research Institute, the United States spends substantially more on military endeavors than any country in the world.  If war spending and allocations to the “Global War on Terror” are excluded, the U.S. military budget is still more than seven times that of its next closest competitor, China. If you include those other expenditures, U.S. military spending surpasses that of all other countries in the world combined.  

That thought alone is awesome.  Rather than build a better world, engage in diplomatic talks with other nations, provide for peaceful negotiations, prepare American children for careers, prevent illness, care for the injured, or maintain the infrastructure . . . all of which would better the world for our offspring,  the Bush Administration spent trillions on destructive warfare.  

In the early years, the White House depleted a budget surplus for much of the money.  Some of the dollars came from the taxes paid by poor and Middle Class.  The super-rich Republicans were asked to contribute a lesser percent of their income.  When dollars from duties were exhausted, the Bush White House sought more funds from creditors.

Grand Old Party politicians, with the help of weakened Democrats, allowed the last Administration to squander more money than is possible to fathom on an unnecessary war.  No thought for the future of our children was mentioned.

Yet, today, with the introduction of a budget that calls for a reduction in troops and defense allocations, Republicans rage.  They do not wish to recognize that  the previous White House  already sacrificed the safety and fiscal sanity of the Seventh Generation.  

Until today, the Grand Old Party could not be bothered with war costs written into the budget.  Republicans did not ask, “where is the restraint in spending?”  Those on the “Right” played with the people’s money as though it or they were mad, and now, on this fine February day, with a transparent plan delivered, Conservatives clamor, what of the children.

Cost of War Off Budget . . .

Did Racism Help Cause the Mortgage Crisis? Part One

I am honored to present the work of Ralph Brauer.  For some time I have marveled as I read his research and reflected upon his work.  Today, this author of note shares with readers at BeThink.  I welcome Ralph Brauer.  May I invite you to peruse his prose.  Please ponder; then share your thoughts.

copyright © 2008 Ralph Brauer. The Strange Death of Liberal America

There is an elephant in the room no one wants to mention when you bring up the housing crisis.  It is the same elephant that has occupied the room since the very beginning of this nation.  Yes, it was there that hot Philadelphia summer when they drafted the Constitution.  Maybe that is what Ben Franklin is gazing at as he sits in the center of the famous painting of the signing of the Constitution by Howard Chandler Christy that hangs today in the House of Representatives east stairway.  Certainly the elephant had haunted Franklin much of his life causing him to call it “a constant butchery of the human species” in an anonymous letter written in 1772.  That elephant that haunted Franklin and continues to haunt us today is racism.

The economic crisis we face today has produced countless essays analyzing its origins and proposing all manner of cures, but almost no one has dared to mention the elephant in the room.  As I researched this topic I found only one person who seemed to be on to it: John Kimble, who wrote an excellent op ed piece in the New Orleans Times Picayune in October that should be required reading for everyone.  One sentence gets to the heart of the matter:

What few today remember is that one of the government’s central goals in undertaking mortgage market reform was to segregate American cities by race.

That such a piece should come from New Orleans does not surprise me; that few have sought to connect what to me seem rather obvious dots is more of a mystery to me.  But that is the power of that elephant in the room.

Perhaps now with an African American President we will finally have more open discussion of the elephant in the room and that discussion should begin by acknowledging that the elephant played a significant role in causing the mortgage crisis which in turn has toppled financial giants as if they were a row of dominoes.  To understand why we need to go back to the years immediately after the Second World War when the housing boom began.

The Creation of the Suburb

The discussion of the role of racism in America should begin by confronting the most important social, cultural and political reality of the past half century: the American suburb is largely a creation of racist loan policies that came from none other than the federal government.  The suburban migration stands as one of the largest freely-undertaken, government-subsidized mass social movements in history.  It accomplished by democratic means what dictators over the ages have tried to accomplish by force: alter the physical, economic, and social environment to create a unique culture.  As Kenneth Jackson writes in Crabgrass Frontier, his history of the American suburb:

Suburbanization was not an historical inevitability created by geography, technology, and culture, but rather the product of government policies.  (p. 293)

Through a variety of government subsidies, the creation of the suburbs allowed people of modest means to attain what real estate ads have christened the American dream.  The immensity of this achievement is only beginning to dawn on us, for it constituted the kind of land and social reform that governments everywhere still try to accomplish.  Kenneth Jackson notes:

Single family housing starts in this country rose from 114,000 in 1944 to 937,000 in 1946, 1,183,000 in 1948, and 1,692,000 in 1950.  (p. 233)

The federal government financed this growth through the Federal Housing Administration, an agency created during the New Deal to help spur the growth of home construction.  During the postwar housing boom Jackson points out:

The main beneficiary of the $119 billion in FHA mortgage insurance issued in the first four decades of FHA operation was suburbia.

Drawing the Color Line

A half century before the creation of suburban America, W.E.B. DuBois had written in the very first sentence of The Souls of Black Folk the immortal and prescient words:

HEREIN lie buried many things which if read with patience may show the strange meaning of being black here at the dawning of the Twentieth Century.  This meaning is not without interest to you, Gentle Reader; for the problem of the Twentieth Century is the problem of the color-line.

Little could DuBois have predicted that the color line would become a red line drawn around the American suburb by none other than the FHA.  The name redlining actually dates back to the 1930s when the FHA first began using color codes to designate areas where they should not invest.  Red areas were off-limits.  Jackson states:

FHA also helped to turn the building industry against the minority and inner-city housing market, and its policies supported the income and racial segregation of suburbia.

Even as the suburbs mushroomed across the American landscape, a few were asking questions.  In 1955 Columbia Professor Charles Abrams charged:

From its inception, the FHA set itself up as protector of the all white neighborhood.  It sent its agents into the field to keep Negroes and other minorities from buying houses in white neighborhoods.  (Jackson, pp. 213-214)

In what has become the classic source on FHA discrimination, The Politics of Exclusion, Michael Danielson quotes an FHA underwriting manual:

If a neighborhood is to retain stability, it is necessary that properties shall continue to be occupied by the same social and racial classes.  A change in social or racial occupancy generally leads to instability and reduction in values.(p. 203)

FHA policies also required appraisers to determine the probability of people of color moving into a neighborhood and even forced homeowners to agree not to sell their property to someone of another race.  According to one commentator,

“[T]he most basic sentiment underlying the FHA’s concern was its fear that property values would decline if a rigid black and white segregation was not maintained.

With the rise of the Civil Rights movement in the 1960s, the FHA began to make some attempt to right these wrongs, but with the election of Richard Nixon in 1968, the so-called “Southern Strategy” soon put a stop these efforts.  Chris Bonastia documented Nixon’s dismantling of FHA’s residential integration efforts in his paper, “Hedging His Bets: Why Nixon Killed HUD’s Desegregation Efforts.” Nixon’s refusal to back HUD’s reform efforts would have an impact on American society that ranks right up there with the decision by President Rutherford B. Hayes to abandon the South to the segregationists, essentially ending Reconstruction.

Yet to see one man and one decision as a historical lynch pin is to take an outmoded view of history, for the truth is that by 1968 the die had already been cast and DuBois’ color line had been drawn like a moat around the suburbs designed to keep people of color from entering. It would have taken considerable political will–and perhaps even federal law enforcement–to desegregate the suburbs by then.  Dr. Martin Luther King, jr.’s infamous march into the Chicago suburb of Cicero, where he was met with bricks and catcalls, showed the depth of that moat. There is a moment in the video of that march when you hear what sounds like a shot and King turns suddenly as if wondering where the shot came from.

This does not excuse Nixon’s actions, which at best were misguided and at worst cowardly and racist. While historians debate how much Richard Nixon personally bought into the Thurmond catechism, his elevation of Thurmond aide Harry Dent to the White House staff after the election sent a clear signal of his alliance with Thurmond. Dent was the one who sat outside the Senate chamber with a pail in case Thurmond needed a quick bathroom break during his record-setting filibuster. Nixon himself put it bluntly:

I am not going to campaign for the black vote at the risk of alienating the suburban vote.

For the federal government to go further than the law, to force integration in the suburbs, I think is unrealistic. I think it will be counter-productive and not in the interest of better race relations. [quoted in Charles M. Lamb, Housing Segregation in Suburban America Since 1960, p. 4, p. 9]

Still, as Lamb would point out in a footnote, two decades later a University of California study found that 44% of white Americans favored encouraging African Americans to move to the suburbs.

The Creation of the Subprime Market

Yet the FHA did not just discriminate against people of color who sought to live in the suburbs, it also made  it more difficult for them to obtain loans, period, by refusing to insure loans in areas with high concentrations of people of color.  The systemic impact of this is still reverberating through America’s inner cities.  Without FHA insurance, no reputable bank would issue a home loan to someone living on the other side of the “color line.” This in turn had a host of social and cultural impacts, from resource-poor schools to lack of jobs because businesses would not build where the FHA would not write loans.

You don’t need to be a systems modeler to see how each of these came to feed on each other. In the last decade scholars have begun to refer to this as “structural racism,” by which they mean a convergence of forces and policies that conspires to sustain the color line. Just imagine one systemic loop: you cannot get a good job because you live in a neighborhood with substandard housing and were educated in a substandard school and so you cannot qualify for a loan for better housing which in turn further reinforces the substandard housing. Structural racism is also not a bad metaphor, either, for it suggests the immense weight of these multiple factors that presses down on people living inside those red lines drawn by the FHA.

Where legitimate businesses and institutions are prevented from entering, illegitimate ones will grow. Since regular banks would not lend to people of color in inner city neighborhoods and FHA policies kept them from lending to the few people of color who could afford suburban housing, there obviously was a need for someone to supply these loans and so we have the growth of the so-called subprime market, only back in those days they were known as loan sharks and other unprintable words and had reputation to rival check cashing operations, greedy landlords and take and bake furniture renters. Anyone who has grown up in the inner city can tell stories not only about price-gouging home loans, but high-priced loans for everything from cars to buying furniture or clothes on credit.

What Is Subprime Lending

Subprime lending is a mixture of old-fashioned altruism and blatant thievery with an American twist. Some entered into the business of making loans to people of color because they genuinely believed people deserved an equal opportunity, others saw a chance to make a quick buck. The reality of the situation was that without FHA insurance even the most well-meaning lenders still had to charge more than they would have for a white suburban home-buyer.

A 2003 study for the Lawyers Committee on Civil Rights Under Law reported:

While red-lining has served to exclude poor and minority residents from the benefits of mainstream mortgage lending, purveyors of predatory lending (or so-called “reverse red-lining”) practices have targeted many of the same poor and minority households that traditional lending institutions have ignored or excluded.

In testimony before the House Committee on Banking and Financial Services in 2000 Bill Brennan of the Atlanta Legal Aid Society outlined how subprime lending works for lenders:

Here is what these companies do, the predators. They overcharge on interest and points, they charge egregiously high annual interest and prepaid finance charges, points, which are not justified by the risk involved, because these loans are collateralized by valuable real estate.

Since they usually only lend at 70 to 80 percent loan-to-value ratios, they have a 20 to 30 percent cushion to protect them if they have to foreclose. They usually always buy at the foreclosure sale and pay off the debt and sell the house for a profit.

As for those taking out the loans, Gary Gensler, Undersecretary for Domestic Finance at the treasury Department, told the same Committee:

Borrowers in these markets often have limited access to mainstream financial services. This leads to two things, as the Senator said earlier. Some borrowers who really would qualify for prime loans-we estimate anywhere between 15 and 35 percent of the subprime market could qualify for prime and cannot get that prime loan. Second, the rate and term competition is limited. Subprime lenders don’t tend to compete as much on price.

Beyond preying on vulnerable populations, beyond the limited access to mainstream financial services, is that abusive practices tend to be coupled with high-pressure sales tactics, whether by a mortgage broker, a home improvement contractor, sometimes a lender themselves in the local community.

Perhaps the most extensive and longest longitudinal study of predatory lending practices has been the Woodstock Institute’s periodic reports on Chicago.  It’s 1999 report “Two Steps Back” was among the earliest to blow the whistle on predatory lending.  They found:

Documented cases of abuse include fees exceeding 10 percent of the loan amount, payments structured so that they do not even cover interest (resulting in increasing principle balances), and flipping a loan numerous times in a couple of years.

At the same time, lending to lower-income and minority communities is often viewed as an isolated line of business, in which the focus is on the short term transaction and associated fees. Lenders active in such communities tend to be mortgage and finance companies subject to much less regulation than banks and thrifts. The increased scale of the subprime industry itself has resulted in a larger number of abuses. Moreover, there has not been a proportionate increase in regulation or regulatory resources devoted to this new industry.

As usual, graphs and tables tell the story in black and white:





The date on the graph may be a little difficult to see. It is 1998. On the first table, the percentage of subprime loans going to African American communities is 53%. Only 9% went to predominantly white communities. The Woodstock study went on to deal with the obvious question: is it race or income that is the strongest determinant of who receives a subprime loan? They found it was the former:

Thus, whether a neighborhood is predominantly African-American explains the greatest amount of variation in subprime lending,

The Final Results

In 1997 Bill Brennan could tell the New York Times:

We have financial apartheid in our country. We have low-income, often minority borrowers,  who are charged unconscionably high interest rates, either directly or indirectly through the cover of added charges.

Three years later Census data would confirm Brennan’s charge. The Lawyers Committee on Civil Rights Under Law found:

The typical white person lives in a neighborhood that is overwhelmingly white, with a few minorities (80.2% white, 6.7% African American, 7.9% Hispanic American, and 3.9% Asian American), the typical African American lives in a neighborhood that is mostly black (51.4% black, 33.0% white, 11.4% Hispanic American, and 3.3% Asian American). By comparison, the typical Hispanic American lives in a neighborhood that is more evenly Hispanic American and white (45.5% Hispanic, 36.5% white, 10.8% black, and 5.9% Asian American); and the typical Asian American lives in a neighborhood that is mostly white (17.9% Asian American, 54% white, 9.2%  black, and 17.4% Hispanic American).

In a study released this year by United for a Fair Economy, the authors note:

According to federal data, people of color are more than three times more likely to have subprime loans: high-cost loans account for 55% of loans to Blacks, but only 17% of loans to Whites.

This is a decade after the Woodstock study identified a similar pattern in Chicago.

Reflections

This history makes you wonder what kind of country we might have become had racism not pervaded the home mortgage market. The United for a Fair Economy study puts it eloquently:

While the housing crisis has affected all sectors of society, it has disproportionately affected communities and individuals of color. For them, the dream that Martin Luther King, Jr. once spoke of has been foreclosed.

Now the injustices white America heaped on black America for half a century have come home to roost. The sobering thought to ponder is that what you have read so far is merely the very tip of a rather large iceberg, for there are literally dozens and dozens of books and countless articles on racism and housing. If you enter “racism” and “housing” in Google you will find over four million entries. Yet despite over half a century of studies, reports and papers about discriminatory lending, little was done about it.

The most damning piece of evidence in this entire story is not that racism fostered predatory loans, but that like organized crime going from petty bootleggers and drug dealers to big time operators, the practice of predatory loan sharking expanded and went mainstream– moving from being the providence of small-time shady operators to mainstream banks. Essentially, loan-sharking cast off its sleazy past and the bigger it became the more people looked the other way.

That is until it suddenly threatens to take down the entire American economy. Now like the figures in that painting of Constitution Hall, fingers are pointing and people are staring.

If racism played a big role in creating the mortgage crisis, the solution to our current problems will prove tougher to deal with than what the so-called experts have been telling us. We could be witnessing the fourth American revolution. The first was the war for independence, the second the Civil War, the third the Great Depression and now the present crisis which combines the themes of the previous two–race and economics.

The next essay in this series focuses on how we got here and why, for only by understanding that journey can we see a way out of the current morass. What is clear so far is that this crisis is not merely the fault of a few misguided CEOs, but rather the culmination of decades of discrimination in which all of us are culpable.

Now the time has come to stop pretending there is no elephant in the room and deal with it.

Resources

For a good bibliography on the subject click here.

Crossposts: The Strange Death of Liberal America, My Left Wing, Progressive Historians, The Wild, Wild Left

Did Racism Help Cause the Mortgage Crisis? The Rise of Sandy Weill and Citigroup



Photo: United for a Fair Economy The State of the Dream

copyright © 2008 Ralph Brauer. The Strange Death of Liberal America

Sandy Weill’s story tells how racially-biased predatory lending lies at the center of the economic crisis.  A third-generation American, Weill grew up on the streets of Brooklyn where for some the road to success was a place whose name came from a structure built to protect the city from Indians, pirates and other invaders and whose die was cast when a small group of men met in secret under a buttonwood tree: Wall Street.

Like the hero of a Horatio Alger tale, Weill began his climb to success not in the proverbial mail room but as a $35 a week clerk, eventually clawing his way to become second-in-command at American Express. But Weill had an itch for more so he cashed in his chips and set about looking for his own business. In 1986 he settled on a Baltimore loan company named Commercial Credit that specialized in predatory lending.

The tale of how Weill would use Commercial to build the financial empire that became Citigroup is the story of the financial crisis and at the heart of that story is racial discrimination and predatory lending. In short, predatory lending made Citi into one of the nation’s largest financial institutions and now is responsible for its downfall.

The Beginnings of Citi

If Weill did any due diligence at all, he knew quite well he was buying a company whose entire existence was predicated on ripping off people of color. Commercial already had a shady reputation when Weill moved in on it. In 1973 the FTC had issued an order demanding Commercial cease using deceptive and hardball tactics to entrap those in search of a loan. In his article “Banking on Misery Citigroup, Wall Street, and the Fleecing of the South,” Michael Hudson  relates that Weill’s assistant, Alison Falls, was appalled at the idea of buying Commercial:

Hey guys, this is the loan-sharking business. “Consumer finance” is just a nice way to describe it.

After Weill bought the company did he seek to curb these practices? Quite the contrary, Commercial became even more aggressive. After all, Weill’s whole business plan was predicated on using Commercial to launch a larger company and in order to do that he had to get as much as he could out of Commercial, which meant squeezing clients even more.

Some of Weill’s former employees tell stories of being pressured into steering clients into dubious deals. Hudson quotes Sherry Roller vanden Aardweg, who worked for Commercial in Louisiana from 1988 to 1995. She agrees there was “a tremendous amount of pressure” to sell insurance: That insurance was issued by another Weill acquisition American Health & Life.

We kept adding insurance that we could offer. It just kept growing. It was beginning to get a little bit ridiculous.

Frank Smith, who worked for Weill in Mississippi, put a perspective on ripoffs such as “closed folder closings” in which documents adding to the cost of the mortgage were kept from the client:

They need the money or by God they wouldn’t be at the finance company. They’d be at a bank.

Weill used the money milked from Commercial’s clients to acquire insurance and finance company Primerica. In 1990 he acquired Barclay’s Bank. Meanwhile the stories told by African Americans victimized by Weill certainly sound like loan sharking. Two Mississippi clients of Commercial signed on for Annual Percentage Rates (APR) of 40.92 and 44.14. Another client paid $1,439 for insurance on a $4,500 loan.

Ripoffs like this attracted the attention of attorneys and law enforcement officials, especially in the South, where Commercial had a large presence. Hudson reports:

In 1999, the company agreed to pay as much as $2 million to settle a lawsuit accusing Commercial and American Health Life of overcharging tens of thousands of Alabamans on insurance.

Jackson, Miss., attorney Chris Coffer says he obtained confidential settlements for about 800 clients with claims against Commercial Credit or its successor, CitiFinancial.

How much money African Americans probably overpaid Commercial can be glimpsed from one study by the Community Reinvestment Association of North Carolina. Testifying before a 2006 hearing of the Federal Reserve in Atlanta, CRA-NC Community Organizer Richard Brown cited the findings of the study, Paying More and Getting Less: An Analysis of 2004 Mortgage Lending in North Carolina:

Our key finding is that disproportionately, by a ratio of more than 4 to 1, African Americans pay more interest on home loans than whites do in North Carolina.

Cultural Impacts

Like some modern plantation, subprime lending was built on the enslavement of African Americans, only instead of being field hands or sharecroppers their lives were indentured to loan sharks. Like the infamous overseers who ruled plantation life with the crack of a whip, the loan sharks ruled the lives of African Americans with whips woven together with words the way real whips are woven from strips of leather. While these words might not have inflicted the physical wounds overseers specialized in, the mental scars inflicted by the words woven into loan sharking mortgages were socially and psychologically devastating.

Like slavery, loan sharking helped to turn the African American family into a hot-button issue whose implications are still the subject of volatile debates within and outside the community. Yet while the particular sociological and cultural impacts of loan sharking may be the subject of some debate, there is agreement about the big picture: the impact rippled through families and communities like a rogue wave bringing misery and destruction. In the inner city and some rural communities, especially in the South, African American families faced two equally devastating choices when it came to housing: deal with the loan sharks or deal with the slum lords.

Loan sharking also rippled through American culture. Call it apartheid or something else, whatever label you assign to it the forced separation of whites and people of color is the number one issue of post World War II America. As surely as South Africa carved out “homelands” for its black citizens, so FHA and others carved out the equivalent through redlining.

In the South African Americans and whites lived together but interacted through the elaborate codes and rituals of Jim Crow, but in the North the races were physically separated so a white suburbanite could grow up without having much association with people of color. As a result, while white Southerners saw African Americans as inferior, white Northerners saw them as abstractions.

The 90s Boom in Subprime Loans

Meanwhile Sandy Weill continued building Citi through mergers and acquisitions. In 1993 came the controversial merger with Travelers followed four years later by Citi’s acquisition of Salomon Brothers. At the same Weill was building Citi, the mortgage market was undergoing some dramatic changes. Researchers began identifying a huge spike in the number of subprime loans. Loan sharking had come from back streets and low budget store fronts to the center of America’s financial empire: Wall Street.

A graph from the Woodstock Institute tells the Story:

This graph raises two obvious questions: what was fueling the growth and who was providing those new subprime mortgages? The first is still the subject of some debate among economists and others.  For example, some have tied it to an increase in interest rates. In its explanation accompanying the graph Woodstock states:

Despite increasing rates in 1994, 1995, and 1997, however, subprime lenders continued to increase their refinance volumes. This suggests that subprime refinancings are not driven by homeowners refinancing to save money during times of declining rates and that subprime lenders are aggressively marketing loans regardless of the rate environment.

In part, the growth of predatory activity stems directly from the development of an increasingly specialized and segmented mortgage market, especially for refinance and home equity loans.

What was in it for others is the same thing that was in it for Sandy Weill–profits. Forbes reported that in the boom of the 90s, subprime companies enjoyed returns up to  six times greater than those of the best-run banks.

United for a Fair Economy put it more bluntly:

The subprime lending crisis has occurred because a financial product intended for limited use by a limited number of people has been parlayed into another ill-fated bubble by some mortgage lenders lacking in integrity, foresight, and any vestige of civic concern.

What made this possible was the packaging and trading of loans, which goes under the fancy name of securitization.  A Federal Deposit Insurance Company report describes how this process works:

Thirty years ago, if you got a mortgage from a bank, it was very likely that the bank would keep the loan on its balance sheet until the loan was repaid. That is no longer true. Today, the party that you deal with in order to get the loan (the originator) is highly likely to sell the loan to a third party. The third party can be Ginnie Mae, a government agency; Fannie Mae or Freddie Mac, which are government sponsored entities (GSEs); or a private sector financial institution. The third party often then packages your mortgage with others and sells the payment rights to investors. This may not be the final stop for your mortgage. Some of the investors may use their payment rights to your mortgage to back other securities they issue. This can continue for additional steps.

As usual a graph tells the story of the growth of these new investment vehicles.

The FDIC goes on to explain how various pooling tactics package subprime loans, taking you into a thicket of acronyms like (MBSs), collateralized debt obligations (CDOs), and structured investment vehicles (SIVs)–all essentially are ways of spreading the risk of pooled mortgages. Notice that the initial upswing in MBS begins in the late 1980s. That was due to the tax reform act of 1986.

Ginnie Mae (Government National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) had been involved with MBS before the 1986 bill, but the Reagan Administration’s gift to the home mortgage industry introduced another acronym into the mix: REMIC–Real Estate Mortgage Investment Conduit, which is yet another tool for pooling and packaging mortgages. None other than Freddie Mac described the importance of the 1986 bill:

The REMIC law was passed as part of the Tax Reform Act of 1986 and marked the beginning of the growth of the CMO [Collateralized Mortgage Obligation] market.

Once financial institutions began to catch on to this and entered the thicket of securitization in a big way, there was no turning back. The American economy would never be the same.  Put the two graphs above together and you have the story: the initial growth of the subprime market was enabled by the growth in MBS. There remained only one regulatory hurdle in place, one that had been there since the Great Depression.

The Repeal of Glass-Steagall

Had Carter Glass been alive in the 1990s it is doubtful any of this would have happened, but by the time he put his name on the Glass-Steagall Act during the Depression, Carter Glass was an old man. He had actually been a delegate to the 1896 Democratic National Convention when William Jennings Bryan gave his “Cross of Gold” speech and most of his political life he had a Bryan streak in him that included a distaste for banks. When he left Woodrow Wilson’s cabinet at the end of Wilson’s term he was already warning of the dangers of uncontrolled banking, particularly banks getting involved in the stock market and other financial dealings.

Carter Glass would not have liked Citi or Sandy Weill. Weill, in turn, had little use for what Glass had created, seeing it as an obstacle that stood in the way of his fulfilling his vision of the kind of “full-service” banking Carter Glass had feared.

The Glass-Steagall Act was designed to keep banks out of the securities business because Carter Glass and New Deal officials including President Franklin Roosevelt believed that one of the causes of the Depression was that banks had strayed too far from their original functions during the 1920s.  According to a paper by Jill M. Hendrickson:

in 1932, 36 percent of national bank profits came from their investment affiliates (Wall Street Journal 1933, p. 1).

Glass-Steagall built a wall between banking and other financial services and the ink on the paper was barely dry when the bankers and their allies in the Republican Party began howling.  Over the next half century there were numerous attempts to weaken or scuttle Glass-Steagall, but in the midst of the securitization boom the cries to tear down the wall of Glass-Steagall grew louder.  In 1990, the Fed, under former J.P. Morgan director Alan Greenspan, permitted guess who–J.P. Morgan–to become the first bank allowed to underwrite securities.

It would be none other than Sandy Weill who would put in motion the forces that ended Glass-Steagall when he essentially gave the federal government the equivalent of an upraised finger by proposing the most audacious financial merger in American history: he would merge one of the largest insurance companies (Travelers), one of the largest investment banks (Salomon Smith Barney), and the largest commercial banks (Citibank) in America. The problem was the merger was illegal in terms of Glass-Steagall.

Weill convinced Greenspan, Robert Rubin, and President Bill Clinton to sign off on a merger that was illegal at the time, with the expectation that Congress would repeal Glass-Steagall. That would happen with a big push from Sandy Weill. First, he spent over $200 million in lobbying fees to convince Congress to go along with his merger. It still ranks as the largest single amount spent by one firm on one bill over the shortest period of time in American history.

When the conference committee charged with reconciling the House and Senate versions of the repeal bill seemed stalemated, it was Sandy Weill who applied the final push needed to get the bill passed. Here is the now oft-quoted Frontline report of what happened:

On Oct. 21, with the House-Senate conference committee deadlocked after marathon negotiations, the main sticking point is partisan bickering over the bill’s effect on the Community Reinvestment Act, which sets rules for lending to poor communities. Sandy Weill calls President Clinton in the evening to try to break the deadlock after Senator Phil Gramm, chairman of the Banking Committee, warned Citigroup lobbyist Roger Levy that Weill has to get White House moving on the bill or he would shut down the House-Senate conference. Serious negotiations resume, and a deal is announced at 2:45 a.m. on Oct. 22. Whether Weill made any difference in precipitating a deal is unclear.

The Aftermath

With Glass-Steagall out of the way, Sandy Weill had his merger and the American financial industry now had a green light to enlarge on subprime lending. Some followed Weill’s model of consolidating loan and insurance companies as he had done with American Health & Life and Travelers, taking loan sharking to a level those who had engaged in it back when it was done in storefronts with peeling paint could have never imagined.

More money than any organized crime syndicate could have dreamed of flowed into the coffers of the subprime lenders. What had been an activity aimed mainly at people of color now became linked to complex financial instruments such as tranches and derivatives, that to an uninitiated mind resembled nothing so much as the old shell game. Where’s the mortgage? Under this fund? No. guess again. Inner city and suburb which had been separated by redlining became linked by acronyms–MBS, CDOs, CMOs. But as we shall see in the next essay, ripping off people of color would continue.

Postscript: The Revelations of Language

Some reading this essay might object to my linking loan sharking and subprime mortgages, but Sandy Weill from the streets of Brooklyn would get it. Subprime is perhaps one of the most misleading euphemisms ever devised, because it means exactly the opposite of what the term implies. The Investopedia offers a succinct definition:

A type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans.

As for loan sharking, a definitive definition is a little more difficult to come by. Investopedia says it is anyone who charges above the legal interest rate (which is set by some states). Several others add that it also involves an implied or real threat to injure the person who doesn’t pay off.  As if to throw a ringer into that definition there are dozens of references to “legal loan sharking.” Perhaps the broadest definition is at Wiktionary:

Someone who lends money at exorbitant rates of interest.

These definitional niceties represent not merely semantic nit-picking, but in fact provide a vital piece to understanding the cultural shifts that have accompanied the economic crisis. One of the unspoken theses in this series of essays is that by clothing loan sharking in the more respectable term of subprime, it suddenly made it not seem so bad to lend money to people–especially people of color–at higher rates. It is reminiscent of the semantic games segregationists used to play with strategies like the “literacy law.” CNN even named “subprime” the word of the year. Can you see them doing that for loan sharking?

In a fascinating article, Ben Zimmer explains how subprime came to have its present meaning, noting that the earliest use of the term was in industry to describe something below grade while in the 1970s banks used it to refer to loans below the market rate.

Something happened to the word in the 1990s, however. Now it was the borrowers themselves who were being classified as “less than prime” based on their shaky credit histories. [My underline]

Zimmer is on to something when he says the term was applied to people, because as we have seen, a high percentage of subprime loans were aimed at people of color.  So the phrase about borrowers being “less than prime” has more meaning than Zimmer perhaps realized when he wrote that sentence.

At the same time that subprime underwent a shift in meaning it is quite clear that so, too, did loan sharking. The earlier references clearly have a criminal tinge to them. In old crime movies “loan sharking” was always thrown in with other nasty activities gangsters perpetrated on the innocent and not so innocent. Yet the recent references seem to take the gangster and the “enforcer” out of the term, so loan sharks just charge higher rates without threatening to break your legs or worse.

This linguistic convergence of loan sharking and subprime reflects an economic and social convergence, for it seems to date from about the time Sandy Weill first bought Commercial. So as Weill took what his own assistant termed a loan sharking operation to the pinnacle of corporate success, the financial industry adopted the euphemism of subprime just as it was getting into this type of lending.

In truth it is the financial industry itself which has helped to blur the distinction between conventional lending at a higher rate and the hardball, card-sharp techniques of the loan shark. That in turn has given rise to a new term “predatory lending” which has largely replaced loan sharking in our vocabulary, creating a living for economists and others who write papers dissecting the differences between the two as if they mattered to those who have to pay exorbitant rates.

As we plunge deeper into the financial crisis, two things are clear: it takes a pretty good lawyer to decipher the standard mortgage agreement and an even better wordsmith to explain if an agreement charging more than the standard interest rate is an innocent subprime mortgage or predatory lending. For me I will continue to use loan sharking with its connotations of shady activity until the financial industry cleans up its act.

Zimmer ends his article by observing:

Here’s hoping that in the not-too-distant future we can look back on the current usage of subprime as a quaint artifact of the late 20th and early 21st centuries.

Twenty years ago the mainstream financial industry would have nothing to do with subprime lending.  Now they are using language much like the defenses of the original loan sharks to defend it, talking about how they are performing a service for people who cannot get loans any other way.

In the next essay we will look at the consequences of the Glass-Steagall repeal, the fall of Sandy Weill and Citigroup, and the growth of so-called subprime lending. Then you can make up your own mind about whether to call it loan sharking or continue to use that other euphemism.

Crossposts:  The Strange Death of Liberal America, My Left Wing, Progressive Historians, The Wild, Wild Left

Did Racism Help Cause the Mortgage Crisis? Part One

I am honored to present the work of Ralph Brauer.  For some time I have marveled as I read his research and reflected upon his work.  Today, this author of note shares with readers at BeThink.  I welcome Ralph Brauer.  May I invite you to peruse his prose.  Please ponder; then share your thoughts.

copyright © 2008 Ralph Brauer. The Strange Death of Liberal America

There is an elephant in the room no one wants to mention when you bring up the housing crisis.  It is the same elephant that has occupied the room since the very beginning of this nation.  Yes, it was there that hot Philadelphia summer when they drafted the Constitution.  Maybe that is what Ben Franklin is gazing at as he sits in the center of the famous painting of the signing of the Constitution by Howard Chandler Christy that hangs today in the House of Representatives east stairway.  Certainly the elephant had haunted Franklin much of his life causing him to call it “a constant butchery of the human species” in an anonymous letter written in 1772.  That elephant that haunted Franklin and continues to haunt us today is racism.

The economic crisis we face today has produced countless essays analyzing its origins and proposing all manner of cures, but almost no one has dared to mention the elephant in the room.  As I researched this topic I found only one person who seemed to be on to it: John Kimble, who wrote an excellent op ed piece in the New Orleans Times Picayune in October that should be required reading for everyone.  One sentence gets to the heart of the matter:

What few today remember is that one of the government’s central goals in undertaking mortgage market reform was to segregate American cities by race.

That such a piece should come from New Orleans does not surprise me; that few have sought to connect what to me seem rather obvious dots is more of a mystery to me.  But that is the power of that elephant in the room.

Perhaps now with an African American President we will finally have more open discussion of the elephant in the room and that discussion should begin by acknowledging that the elephant played a significant role in causing the mortgage crisis which in turn has toppled financial giants as if they were a row of dominoes.  To understand why we need to go back to the years immediately after the Second World War when the housing boom began.

The Creation of the Suburb

The discussion of the role of racism in America should begin by confronting the most important social, cultural and political reality of the past half century: the American suburb is largely a creation of racist loan policies that came from none other than the federal government.  The suburban migration stands as one of the largest freely-undertaken, government-subsidized mass social movements in history.  It accomplished by democratic means what dictators over the ages have tried to accomplish by force: alter the physical, economic, and social environment to create a unique culture.  As Kenneth Jackson writes in Crabgrass Frontier, his history of the American suburb:

Suburbanization was not an historical inevitability created by geography, technology, and culture, but rather the product of government policies.  (p. 293)

Through a variety of government subsidies, the creation of the suburbs allowed people of modest means to attain what real estate ads have christened the American dream.  The immensity of this achievement is only beginning to dawn on us, for it constituted the kind of land and social reform that governments everywhere still try to accomplish.  Kenneth Jackson notes:

Single family housing starts in this country rose from 114,000 in 1944 to 937,000 in 1946, 1,183,000 in 1948, and 1,692,000 in 1950.  (p. 233)

The federal government financed this growth through the Federal Housing Administration, an agency created during the New Deal to help spur the growth of home construction.  During the postwar housing boom Jackson points out:

The main beneficiary of the $119 billion in FHA mortgage insurance issued in the first four decades of FHA operation was suburbia.

Drawing the Color Line

A half century before the creation of suburban America, W.E.B. DuBois had written in the very first sentence of The Souls of Black Folk the immortal and prescient words:

HEREIN lie buried many things which if read with patience may show the strange meaning of being black here at the dawning of the Twentieth Century.  This meaning is not without interest to you, Gentle Reader; for the problem of the Twentieth Century is the problem of the color-line.

Little could DuBois have predicted that the color line would become a red line drawn around the American suburb by none other than the FHA.  The name redlining actually dates back to the 1930s when the FHA first began using color codes to designate areas where they should not invest.  Red areas were off-limits.  Jackson states:

FHA also helped to turn the building industry against the minority and inner-city housing market, and its policies supported the income and racial segregation of suburbia.

Even as the suburbs mushroomed across the American landscape, a few were asking questions.  In 1955 Columbia Professor Charles Abrams charged:

From its inception, the FHA set itself up as protector of the all white neighborhood.  It sent its agents into the field to keep Negroes and other minorities from buying houses in white neighborhoods.  (Jackson, pp. 213-214)

In what has become the classic source on FHA discrimination, The Politics of Exclusion, Michael Danielson quotes an FHA underwriting manual:

If a neighborhood is to retain stability, it is necessary that properties shall continue to be occupied by the same social and racial classes.  A change in social or racial occupancy generally leads to instability and reduction in values.(p. 203)

FHA policies also required appraisers to determine the probability of people of color moving into a neighborhood and even forced homeowners to agree not to sell their property to someone of another race.  According to one commentator,

“[T]he most basic sentiment underlying the FHA’s concern was its fear that property values would decline if a rigid black and white segregation was not maintained.

With the rise of the Civil Rights movement in the 1960s, the FHA began to make some attempt to right these wrongs, but with the election of Richard Nixon in 1968, the so-called “Southern Strategy” soon put a stop these efforts.  Chris Bonastia documented Nixon’s dismantling of FHA’s residential integration efforts in his paper, “Hedging His Bets: Why Nixon Killed HUD’s Desegregation Efforts.” Nixon’s refusal to back HUD’s reform efforts would have an impact on American society that ranks right up there with the decision by President Rutherford B. Hayes to abandon the South to the segregationists, essentially ending Reconstruction.

Yet to see one man and one decision as a historical lynch pin is to take an outmoded view of history, for the truth is that by 1968 the die had already been cast and DuBois’ color line had been drawn like a moat around the suburbs designed to keep people of color from entering. It would have taken considerable political will–and perhaps even federal law enforcement–to desegregate the suburbs by then.  Dr. Martin Luther King, jr.’s infamous march into the Chicago suburb of Cicero, where he was met with bricks and catcalls, showed the depth of that moat. There is a moment in the video of that march when you hear what sounds like a shot and King turns suddenly as if wondering where the shot came from.

This does not excuse Nixon’s actions, which at best were misguided and at worst cowardly and racist. While historians debate how much Richard Nixon personally bought into the Thurmond catechism, his elevation of Thurmond aide Harry Dent to the White House staff after the election sent a clear signal of his alliance with Thurmond. Dent was the one who sat outside the Senate chamber with a pail in case Thurmond needed a quick bathroom break during his record-setting filibuster. Nixon himself put it bluntly:

I am not going to campaign for the black vote at the risk of alienating the suburban vote.

For the federal government to go further than the law, to force integration in the suburbs, I think is unrealistic. I think it will be counter-productive and not in the interest of better race relations. [quoted in Charles M. Lamb, Housing Segregation in Suburban America Since 1960, p. 4, p. 9]

Still, as Lamb would point out in a footnote, two decades later a University of California study found that 44% of white Americans favored encouraging African Americans to move to the suburbs.

The Creation of the Subprime Market

Yet the FHA did not just discriminate against people of color who sought to live in the suburbs, it also made  it more difficult for them to obtain loans, period, by refusing to insure loans in areas with high concentrations of people of color.  The systemic impact of this is still reverberating through America’s inner cities.  Without FHA insurance, no reputable bank would issue a home loan to someone living on the other side of the “color line.” This in turn had a host of social and cultural impacts, from resource-poor schools to lack of jobs because businesses would not build where the FHA would not write loans.

You don’t need to be a systems modeler to see how each of these came to feed on each other. In the last decade scholars have begun to refer to this as “structural racism,” by which they mean a convergence of forces and policies that conspires to sustain the color line. Just imagine one systemic loop: you cannot get a good job because you live in a neighborhood with substandard housing and were educated in a substandard school and so you cannot qualify for a loan for better housing which in turn further reinforces the substandard housing. Structural racism is also not a bad metaphor, either, for it suggests the immense weight of these multiple factors that presses down on people living inside those red lines drawn by the FHA.

Where legitimate businesses and institutions are prevented from entering, illegitimate ones will grow. Since regular banks would not lend to people of color in inner city neighborhoods and FHA policies kept them from lending to the few people of color who could afford suburban housing, there obviously was a need for someone to supply these loans and so we have the growth of the so-called subprime market, only back in those days they were known as loan sharks and other unprintable words and had reputation to rival check cashing operations, greedy landlords and take and bake furniture renters. Anyone who has grown up in the inner city can tell stories not only about price-gouging home loans, but high-priced loans for everything from cars to buying furniture or clothes on credit.

What Is Subprime Lending

Subprime lending is a mixture of old-fashioned altruism and blatant thievery with an American twist. Some entered into the business of making loans to people of color because they genuinely believed people deserved an equal opportunity, others saw a chance to make a quick buck. The reality of the situation was that without FHA insurance even the most well-meaning lenders still had to charge more than they would have for a white suburban home-buyer.

A 2003 study for the Lawyers Committee on Civil Rights Under Law reported:

While red-lining has served to exclude poor and minority residents from the benefits of mainstream mortgage lending, purveyors of predatory lending (or so-called “reverse red-lining”) practices have targeted many of the same poor and minority households that traditional lending institutions have ignored or excluded.

In testimony before the House Committee on Banking and Financial Services in 2000 Bill Brennan of the Atlanta Legal Aid Society outlined how subprime lending works for lenders:

Here is what these companies do, the predators. They overcharge on interest and points, they charge egregiously high annual interest and prepaid finance charges, points, which are not justified by the risk involved, because these loans are collateralized by valuable real estate.

Since they usually only lend at 70 to 80 percent loan-to-value ratios, they have a 20 to 30 percent cushion to protect them if they have to foreclose. They usually always buy at the foreclosure sale and pay off the debt and sell the house for a profit.

As for those taking out the loans, Gary Gensler, Undersecretary for Domestic Finance at the treasury Department, told the same Committee:

Borrowers in these markets often have limited access to mainstream financial services. This leads to two things, as the Senator said earlier. Some borrowers who really would qualify for prime loans-we estimate anywhere between 15 and 35 percent of the subprime market could qualify for prime and cannot get that prime loan. Second, the rate and term competition is limited. Subprime lenders don’t tend to compete as much on price.

Beyond preying on vulnerable populations, beyond the limited access to mainstream financial services, is that abusive practices tend to be coupled with high-pressure sales tactics, whether by a mortgage broker, a home improvement contractor, sometimes a lender themselves in the local community.

Perhaps the most extensive and longest longitudinal study of predatory lending practices has been the Woodstock Institute’s periodic reports on Chicago.  It’s 1999 report “Two Steps Back” was among the earliest to blow the whistle on predatory lending.  They found:

Documented cases of abuse include fees exceeding 10 percent of the loan amount, payments structured so that they do not even cover interest (resulting in increasing principle balances), and flipping a loan numerous times in a couple of years.

At the same time, lending to lower-income and minority communities is often viewed as an isolated line of business, in which the focus is on the short term transaction and associated fees. Lenders active in such communities tend to be mortgage and finance companies subject to much less regulation than banks and thrifts. The increased scale of the subprime industry itself has resulted in a larger number of abuses. Moreover, there has not been a proportionate increase in regulation or regulatory resources devoted to this new industry.

As usual, graphs and tables tell the story in black and white:





The date on the graph may be a little difficult to see. It is 1998. On the first table, the percentage of subprime loans going to African American communities is 53%. Only 9% went to predominantly white communities. The Woodstock study went on to deal with the obvious question: is it race or income that is the strongest determinant of who receives a subprime loan? They found it was the former:

Thus, whether a neighborhood is predominantly African-American explains the greatest amount of variation in subprime lending,

The Final Results

In 1997 Bill Brennan could tell the New York Times:

We have financial apartheid in our country. We have low-income, often minority borrowers,  who are charged unconscionably high interest rates, either directly or indirectly through the cover of added charges.

Three years later Census data would confirm Brennan’s charge. The Lawyers Committee on Civil Rights Under Law found:

The typical white person lives in a neighborhood that is overwhelmingly white, with a few minorities (80.2% white, 6.7% African American, 7.9% Hispanic American, and 3.9% Asian American), the typical African American lives in a neighborhood that is mostly black (51.4% black, 33.0% white, 11.4% Hispanic American, and 3.3% Asian American). By comparison, the typical Hispanic American lives in a neighborhood that is more evenly Hispanic American and white (45.5% Hispanic, 36.5% white, 10.8% black, and 5.9% Asian American); and the typical Asian American lives in a neighborhood that is mostly white (17.9% Asian American, 54% white, 9.2%  black, and 17.4% Hispanic American).

In a study released this year by United for a Fair Economy, the authors note:

According to federal data, people of color are more than three times more likely to have subprime loans: high-cost loans account for 55% of loans to Blacks, but only 17% of loans to Whites.

This is a decade after the Woodstock study identified a similar pattern in Chicago.

Reflections

This history makes you wonder what kind of country we might have become had racism not pervaded the home mortgage market. The United for a Fair Economy study puts it eloquently:

While the housing crisis has affected all sectors of society, it has disproportionately affected communities and individuals of color. For them, the dream that Martin Luther King, Jr. once spoke of has been foreclosed.

Now the injustices white America heaped on black America for half a century have come home to roost. The sobering thought to ponder is that what you have read so far is merely the very tip of a rather large iceberg, for there are literally dozens and dozens of books and countless articles on racism and housing. If you enter “racism” and “housing” in Google you will find over four million entries. Yet despite over half a century of studies, reports and papers about discriminatory lending, little was done about it.

The most damning piece of evidence in this entire story is not that racism fostered predatory loans, but that like organized crime going from petty bootleggers and drug dealers to big time operators, the practice of predatory loan sharking expanded and went mainstream– moving from being the providence of small-time shady operators to mainstream banks. Essentially, loan-sharking cast off its sleazy past and the bigger it became the more people looked the other way.

That is until it suddenly threatens to take down the entire American economy. Now like the figures in that painting of Constitution Hall, fingers are pointing and people are staring.

If racism played a big role in creating the mortgage crisis, the solution to our current problems will prove tougher to deal with than what the so-called experts have been telling us. We could be witnessing the fourth American revolution. The first was the war for independence, the second the Civil War, the third the Great Depression and now the present crisis which combines the themes of the previous two–race and economics.

The next essay in this series focuses on how we got here and why, for only by understanding that journey can we see a way out of the current morass. What is clear so far is that this crisis is not merely the fault of a few misguided CEOs, but rather the culmination of decades of discrimination in which all of us are culpable.

Now the time has come to stop pretending there is no elephant in the room and deal with it.

Resources

For a good bibliography on the subject click here.

Crossposts: The Strange Death of Liberal America, My Left Wing, Progressive Historians, The Wild, Wild Left

Fiscal Conservatives


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copyright © 2008 Betsy L. Angert.  BeThink.org

In the tradition of the Grand Old Party, this election year Republicans had hoped they had nominated a fiscal Conservative.  In March 2008, Columnist Bonnie Erbe mused; John McCain might return the messianic rule Republicans think “Right.”  The Journalist scribed.

Is McCain the Return of the Fiscal Conservative?

USA Today

March 26, 2008 03:57 PM ET

Ah, finally, one of the presidential candidates actually offers a common-sense approach to resolving the mortgage crisis.  Sen. John McCain yesterday “derided government intervention to save and reward banks or small borrowers who behave irresponsibly . . .”

The Senator from Arizona and Presidential aspirant has often spoken of the need to be economically accountable.  Financial folly is conduct John McCain does not favor.  John McCain rejects earmarks.  He wants no Senator to spend dollars on local projects.  He is proud of his rigid record; he has not supplied his home State with money for roads or bridges to nowhere.  As President of the United States, the “maverick” Republican, will not reward capriciousness.  Yet, perhaps he has and will when in the White House.

Irresponsibility is a term not easily defined.  American history illustrates, the interpretation varies dependent on how the arrears accrue and for whom.

John the Caterer, Pam the Antique Shop owner, Tito the Truck Driver, or possibly, Jane the Dressmaker believe a responsible person takes care of them self first.  Money in my pocket matters more than dollars for those on government programs.  Uncaring or less than conscious of consequences; you dear reader decide.

These small business entrepreneurs work hard for the cash they earn.  In these tough times, John, Pam, Tito, and Jane cannot afford to contribute to the goodwill of others in their communities.  They are strapped.  In McCain Palin commercial after commercial, proprietors proclaim as the candidate they support does, it would be fiscally irresponsible to spread the wealth or to have tax dollars pay for plans that might buy more body armor, build more roads, better hospitals and schools, or stimulate a green economy.

Each of these mini-tycoons, along with the now third person on the Republican ticket, Joe the Plumber,  tells the American people of personal concerns; the trials and tribulations of taxes.  These citizens crave policies that typify the Republican tradition of economic restraint.  McCain Palin supporters, common folks such as Carole the Cook and Charles the Contractor muse; it is reckless to grow debt.  American workers, businessmen, and women think it is prudent to hold on to every hard earned dollar.  They too have no love for an economic adventurous policymaker.

That has been the mantra for many American’s for decades.  “We want a fiscal Conservative in the White House!”  However, frequently, the fine people of this country elect other than a President who is cautious with American dollars.  United States citizens intend to cast ballots for those who practice economic restraint.  Yet, annals reveal, too often they do not.  Responsible, reckless; you dear reader decide.  (Please review the chart)

Recent Republican Administrations exemplify the dichotomy between monetary judiciousness and those who adopt the title, fiscal Conservative.  Past Presidents Ronald Reagan, George Herbert Walker Bush, and the current Chief Executive, George W. Bush brought this country to its economic knees.  While the latter may be a bit bruised, it seems his supporters are happy to follow in a Republican tradition.  They will vote for the John McCain, the candidate who now represents the Republican Party.  Fortunately, for the Arizona Senator, past Grand Old Party fiscal follies does not tarnish the reputation of the “Right.”  Republicans and Independents, who think taxes are irresponsible, endorse the Bush protégé, John McCain in the current 2008 Presidential campaign.  

Although Republican Administrations accrued billions in national debt, these former Commanders-In-Chief personally prospered.  They, did as John the Caterer, Pam the Antique Shop owner, Tito the Truck Driver, and of course, the now famous Joe the Plumber hope to do, held their dollars closely and benefit at the expense of others.

The third person on the Republican Presidential stump, Joe the Plumber has already accomplished as his political leaders did.  Samuel J. Wurzelbacher’s debt resulted in liens.  However, he also garnered greater monetary wealth.  Irresponsible, accountable; only you the American taxpayer can decide for yourself.

It appears there is a perceptible pattern.  People who prosper from the hardship of others leave enormous sums unpaid.  Former Presidents and the few big or small business owners thrive, while the average American, lives on meager wages, or salaries that do not allow much money to be saved.  Responsible behavior, or the ruinous result of regressive taxes; individual readers will choose what they wish to trust as truth.

However, no one will negate, common people find themselves in a financial crisis, that for him or her, perhaps feels more dire than the national or global catastrophe.  Circumstances, may force the poor and Middle Class to be more fiscally Conservative.  As the economy tightens, remunerations are reduced.  Expenses expand.  People who work hard may have little to show for the blood, sweat, and tears of toil.

The Center for American Progress reports, in recent years, as another a Republican ruled the White House, America’s Middle Class has fallen deeper into a financial abyss. Income growth slows, and costs climb for the average person in the United States.  For the common folks, financial solvency is on a downward descent; fiscal liability ascends.  

A typical middle income family earning around $45,000 a year saw its debt burden grow by 33.1% between 2001 and 2004, even after adjusting for inflation.  Debt relative to income rose even more, to 33.9%, during this period for middle-income families.  Personal bankruptcies among these households are rising steeply.

The reasons for greater economic distress among middle class households are not hard to pinpoint.  Slow income growth between 2001 and 2004, the last year for which complete data is available, has not kept pace with the rising cost of big ticket items such as housing and education loans, medical expenses and transportation.  Family budgets have been squeezed.

A common but misplaced assumption is that the growth in debt among middle-income families – those with incomes roughly between $25,000 to $70,000 a year – is the result of over-consumption through increased credit card debt.  Rather, growth in debt is primarily due to heavier borrowing for investments in homes or education, both of which saw dramatic price increases in recent years.  The cost of a college education, for example, grew by 24.6% between 2001 and 2004, after adjusting for inflation.

These rising debt levels are also beginning to affect groups of middle income families that historically have not struggled with debt.

As the ordinary American grapples with the newer reality of reduced revenue, under the auspices of a Grand Old Party Administration, the affluent enjoy greater gains than ever before.  The Middle Class who lack funds are forced to be money-wise, not pound-foolish.

Wealthier Republicans, such as John McCain, who wail of personal responsibility, take no note of what occurs to others less fortunate or financially not fluid.  

Indeed, when President, John McCain intends to make the tax cuts established in the current Administration permanent.  The Presidential aspirant disregards the damage done.  Perchance, a desire to discount the cause and effect of an economic crisis could be considered fiscally imprudent

Republican President George W. Bush does not worry of what his irrational policies produced He offers with emotional detachment, “The fact is that income inequality is real — it’s been rising for more than 25 years,”  For Mister Bush and Senator McCain that truth is just the way it is, and perchance, they think the disproportionate distribution is the way it should be.  This is known as a redistribution of wealth . . . upwards.

The moneyed move millions, billions into preferred pocketbooks.  The super-rich, and those who represent them in the Oval Office, do this through duties that divide the population.  The regressive tax system subtlety imposed upon the nation by recent Republican Administrations helped supplement substantial income and capital gains.  Might this tax  practice be rash or rational?

Today [in 2003 and since], with state taxes becoming more regressive – and the two Bush tax cuts providing large tax savings for the rich – the tax system is moving in the direction of a flat tax, but doing so out of the spotlight.  For example, despite sharp debate about the administration’s tax cuts on the campaign trail, talk about whether taxes are regressive or progressive is hardly material for the stump speeches of presidential candidates  . . .

[A]t the top, the tax system has already become regressive.  The super-rich pay proportionately less in federal income tax than the merely rich.  In 2000, the nation’s 400 richest taxpayers, making an average $173 million, paid an effective tax rate more than 5 percentage points lower than those making $1.5 million to $5 million, notes economist Martin Sullivan in Tax Notes magazine.

That gap has probably shrunk a bit since then.  In 2000, the peak year for stock market prices, the super-rich probably saved some taxes on their huge capital gains.  (Capital gains are taxed at a lower rate than ordinary income.)  Since then, stock-market capital gains have diminished.  But Congress also cut the capital gains rate from 20 to 15 percent – a provision especially beneficial to the rich.

“At the rate we are going, in which more and more investment income is simply untaxed, we will end up with a federal income tax that is not only regressive at the top, but regressive overall,” warns Richard Kogan, an economist at the Center on Budget and Policy Priorities in Washington.  “The middle class will be the tax-bearing class.”

Then, in 2003, and now, a levy structure put in place by the Grand Old Party benefits the moneyed, and punishes those with less dollars.  Under the auspices of Republican rule, the average American has and will realize greater debt.  So too will the country.  

Self-invested proprietors, a collective of self-interested persons, or Republican Administrations that do not require people of means to contribute to the greater good soon realize they have created an economic calamity.  These persons who prefer a Conservative in the White House, have opted for deregulation of banks and brokers.  Depositories built on free and open markets, without restraints, have done as individuals, Presidents, and property owners have.  They sought to endow self and sacrifice service to the community.  Are they prudent, practical, fiscally Conservative, or just careless . . .?

America, under the direction of the last three Republican Presidents, fiscal Conservatives who were not prudent with cash, encouraged the electorate to charge it.  Now, Joe the Plumber, John the Caterer, and Betty the Baker who [kneads] needs more dough before she can purchase a storefront understands why everyday people borrow from banks.  

The regressive Republican tax structure has made it hard for these individuals to manage on the money they have set aside.  Those who advocate for less taxes and look out for their personal gains, as the mammoth monetary monuments crumbled do well when the consumer wants more. However, as history shows us, amongst Grand Old Party Presidents and the more prosperous, too much is never enough for people with plenty.

When faced with a monetary meltdown after years of irrational, irresponsible, exuberance, self-proclaimed fiscal conservations like John McCain morphed.  The love of money does that to people, even if they wish to think themselves traditionalist.

The Bush Administration proposed a government bailout of big businesses who behaved irresponsibly.  The newer Grand Old Party, leader, and Presidential aspirant, understood that he was expected to be standard-bearer for self-sufficiency.  However, if he stood that ground, those he helped to thrive through deregulation would go down.  Thus, as a faithful Republican soldier, John invoked the plea that would point out that he is perchance, not a fiscal Conservative.  In September 2008, Senator McCain offered an early election year surprise.  The once traditional Republican requested, Please, “Let the government bailout business.”  As a fiscal Conservative, John McCain said, “Let my corporate cohorts eat cake.”  Americans may ask as Journalist  Bonnie Erbe did months earlier; Is McCain the Return of the Fiscal Conservative?

References for Republican Resources . . .

Let the Bailouts Begin



Bush’s Billion-Dollar Bail Out

copyright © 2008 Betsy L. Angert

Tis true.  For days, if not weeks, months, or years the country has been in a state of financial crisis.  Americans experience what it means when the President of the United States says he will act boldly.  Economically, he has been brazen.  Our current Chief Executive unabashedly embraces businesses, just as he had in his private pursuits before he entered the Oval Office.  Bush policies allow corporations to run free.  If need be, he says, as he did early on in his Administration, Let the bailouts begin.  

Today the need to extend financial relief to American corporations is far more dire than it had been in the past.  Estimates place the figure at 1.8 Trillion dollars; that is trillion.  with a “T.”  

Conservative calculations state the amount needed as $700 billion.  However, several say that appraisal only refers to an aspect of the aid, the shaky assets now on the books of financial firms.  As he reflected on the exact amount to be paid out and the delicate balancing act of bailouts, Thomas A. Renyi, former chairman of Bank of New York Mellon, said, “Psychologically, it’s very, very important.”  What is said and done must be amenable to the people, big and small.

What George W. Bush and his Administration have done was in accord with the desires of the few; the millionaires and billionaires were pleased.  Enterprise has always been the way of entrepreneurs.  The others, the masses did not realize how the decisions might matter to them.  As long as the plebs worked as economic slaves had for eons, no questions would be asked.  Workers believed in the American dream.  Doubt rose only when the size of bailouts grew.  Now, in September 2008, what began as a bailout or two has emerged.  Americans are faced with an enormous nightmare.  However, this need not be a surprise.  Citizens of this country might instead inquire, are they willing to compromise the future.  Americans could also consider the question; can the United States economy continue to survive on credit.

As of last week, people pondered as they had not before.  Countless considered American history and how each Administration altered financial stability.

It seemed the poor, the wage earners, and the salaried associates poured their hearts and souls into work.  None realized substantive reward.  Nonetheless, for the most part the populace was content.  Everyday people paid taxes.  Yet, the public received few services.  Under the direction of President Bush, the blood sweat and tears of American labor went mostly to the levies that were and perhaps will be lent to those who earned billions in profits.

In recent years, rich business owners manufactured only liabilities.  Still, their securities were preserved by a business friendly President Bush.  

For decades, as deregulation flourished, more so since Bush, the American people lived on credit, as did the conglomerates.  The difference being, with George Walker Bush in the Oval Office, businesses had a friend on Pennsylvania Avenue who would help them out.  Those who reside on Main Street did not.  There was no one to turn to if you were among the working people.  Yet, a conversation has begun.  Recent talk of greater bailouts for bankrupt businesses reminds Americans of what they hoped would pass without fanfare; recession, depression, financial despair.

Since George W. Bush and his corporate cronies came into power, average Americans have experienced one economic catastrophe after another.  Budgetary surpluses realized in the 1990s were depleted.  Monetary gains for the Middle Class are but a myth.  Perchance, in the past an individual could realize an increased income.  However, that was then, pre-President George W. Bush.  Today, economically, the United States has failed.  Earlier in the year, a Los Angeles Times poll concluded 75% blame Bush’s policies for an economy gone badly.  The American Research Group, Incorporated states, at present, George W. Bush’s Overall Job Approval is at an all time low.  Eighty-two percent (82%) say the national economy is getting worse.  Countless cannot imagine that is possible.

As President Bush and his appointees protect the nation from monetary doom, banks file for bankruptcy.  Bear Sterns, one of the largest global investment banks and brokerage firms, finally buckled under pressure, after two brushes with near death.  Billions of dollars in toxic mortgage-backed debt could no longer be erased from the books.  Liabilities could not be hidden from view.  Arrears ultimately appear, if not in ledgers, in the effect it has on an affluent culture gone wild with irrational exuberance.  The corporate love of cash has created what America now experiences as a crash.

Businesses benefited from the Bush budget.  Decrees of deregulation allowed for imbalance.  Income inequity became common.  The public struggled to save greenbacks.  Most, in what was once the Middle Class had adequate access to the dollars they needed.  

Currently, Americans can barely count on a regular paycheck.  Permanent employment is thought to be a luxury of the past.  Companies are strapped for cash as are employees.  Some, in the richest nation on the planet, are barely able to survive.  The common folk are fearful of what might happen if the economy sinks further into a doldrums.  People run to banks only to withdraw their holdings.  They sense the fiscal boom has gone bust.  

In July 2008, there was little time to indulge.  The lazy days of summer did not calm those with substantive concerns.  Only George W. Bush, his family, and friends found solace in the statement, “The fundamentals are strong.”  Presidential candidate, John McCain’s use of the words only hours ago did nothing to quell the concern citizens in this country have felt for too long.  A Nobel laureate, Joseph E. Stiglitz, envisions a generation will be lost in the struggle to recover.  He writes in the The Economic Consequences of Mr. Bush, The next president will have to deal with yet another crippling legacy of George W. Bush: the economy.

Average Americans understood this.  They knew they could not rest.  The poor and those far from prosperous realized they had reason to act.  In droves, people ran to retrieve their assets.  IndyMac, a large mortgage bank, was seized by Federal regulators.  The second-largest bank failure in United States history occurred after anxious customers attempted to claim their deposits.  A massive run on the bank left the financial institution short of reserves.  George W. Bush sat tight, safe in the sanctuary of the Oval Office.

One business after another collapsed.  Conglomerates crumbled.  Corporations tumbled.  The people in the middle were taxed.  Most of the news coverage focused on the fiscal devastation companies felt.  Men and women without jobs, people who were fearful of an eminent foreclosure read of the monster mortgage firms, Fannie Mae and Freddie Mac.  The Federal Reserve pledged to provide as much as $100 billion for each of these ill-fated establishments.  Stunned, John and Jane Does said nothing.  They only wondered why no one made funds available to them.  Few thought the President would come to their aid.  Visions of the victims of (name a recent calamity) raced through the heads of those hurt by an economic crisis.

Then, security firms stepped into the mix of mergers and mega-moneyed bailouts.  Lehman Brothers, another global investment bank declared itself in a state of crisis.  This firm also concluded they would file for bankruptcy.  On this occasion, historians affirmed, this liquidation was the largest in United States history.  The company founded in 1850 had flourished.  Now, it was said to have perished.  However, as death waited at the door, some associates did not feel they could rest in peace.

The staff in Britain was furious when they learned Lehman Brothers’ colleagues in the New York office were expected to share in a $2.5 billion bonus bonanza. Associates in the United Kingdom were told they  would be paid just until the end of the month.  Perhaps, wealth is not meant for everyday workers.  A spokesman for the Trade Union Congress, the national trade union centre in the Great Britain, which represents the vast majority of organized workers surmised: “It looks like those that will suffer the most from the Lehman Brothers collapse are those at the bottom of the corporate chain while many of those at the top will be looked after.”  

The Union representative went on to reflect; junior staffers would suffer.  “Few may have sympathy for the red braced bonus receivers but there will be many more lowly staff facing real hardship.”  A British employee of Lehman Brothers mused only those in the United States are saved from financial ruin; however, in truth, even in America, those without remain without.  

For ages, personnel did not prosper whether they lived here in the States or abroad.  Ordinary people feel the pain corporations complain of.  If the cost of doing business climbs, the consumer is required to pay the price.

Health care premiums have increased by over 80 percent. . . .  Premiums are rising twice as fast as wages and inflation.  . . .  The number of uninsured Americans has increased every year since President Bush took office, from 39.8 million in 2000 to a record high of 46.6 million in 2005.  (1) . . .

Gas prices have climbed over $3 a gallon.  Prices at the gas pump have jumped 107 percent from $1.47 per gallon the week President Bush took office in January 2001 (3) to $ 3.05 in the latest week of energy price data.  (4)  . . .

Housing affordability has reached a 15-year low.  In 2006, housing affordability reached its lowest level since 1991.  (9)  According to the Washington Post, “the scarcity of affordable housing is a deepening national crisis, and not just for inner-city families on welfare.  The problem has climbed the income ladder and moved to the suburbs, where service workers cram their families into overcrowded apartments, college graduates have to crash with their parents, and firefighters, police officers and teachers can’t afford to live in the communities they serve.” (10)

The tragedies did not end.  On September 15, 2008, Merrill Lynch, expressed a fear.  Might this company suffer the same fate as Lehman.  Merrill Lynch tycoons moved quickly.  The company sold itself to Bank of America for $50 billion.  Many mused; the transaction was quite a steal.  However, few were relieved.  Americans, now savvy soothsayers said, what would be next.

Less than twenty-four hours passed before there was news.  September 16, 2008, was a typical day for Americans.  However, that changed when The Federal Reserve agreed to rescue the American International Group.  The United States government was slated to control an 80 percent stake in the insurer.  Yes, even Insurers seek assurance from the Administration when they cannot pay their bills.  Only citizens cannot come to the White House with claims.  

The American people are the Insurer under George W. Bush.  The people are expected to bailout every business, and they do.  Yet, now, the load, the loans have become too great a burden to bear.  Americans are angry.  Most feel powerless.  For too long they have stayed silent.  No one seems to know what to say anymore.  Perhaps it is too late to protest or proclaim.  Yet, fortunately some one has.

Senator Bernie Sanders reflected upon the Hard Truths About the Bailouts, or the ultimate bailout.  This week, the Bush Administration pledged to pay seven hundred billion to one trillion in taxpayer dollars to businesses that engaged in dubious credit practices, and the Vermont Senator voiced his trepidation.

Sanders Op-Ed: Billions for Bailouts!  Who Pays?

By Senator Bernie Sanders

September 19, 2008

The current financial crisis facing our country has been caused by the extreme right-wing economic policies pursued by the Bush administration.  These policies, which include huge tax breaks for the rich, unfettered free trade and the wholesale deregulation of commerce, have resulted in a massive redistribution of wealth from the middle class to the very wealthy.  

The middle class has really been under assault.  Since President Bush has been in office, nearly 6 million Americans have slipped into poverty, median family income for working Americans has declined by more than $2,000, more than 7 million Americans have lost their health insurance, over 4 million have lost their pensions, foreclosures are at an all time high, total consumer debt has more than doubled, and we have a national debt of over $9.7 trillion dollars.

While the middle class collapses, the richest people in this country have made out like bandits and have not had it so good since the 1920s.  The top 0.1 percent now earns more money than the bottom 50 percent of Americans, and the top 1 percent owns more wealth than the bottom 90 percent.  The wealthiest 400 people in our country saw their wealth increase by $670 billion while Bush has been president.  In the midst of all of this, Bush lowered taxes on the very rich so that they are paying lower income tax rates than teachers, police officers, or nurses.

Now, having mismanaged the economy for eight years as well as having lied about our situation by continually insisting, “The fundamentals of our economy are strong,” the Bush administration, six weeks before an election, wants the middle class of this country to spend many hundreds of billions on a bailout.  The wealthiest people, who have benefited from Bush’s policies and are in the best position to pay, are being asked for no sacrifice at all.  This is absurd.  This is the most extreme example that I can recall of socialism for the rich and free enterprise for the poor.

In my view, we need to go forward in addressing this financial crisis by insisting on four basic principles:

(1) The people who can best afford to pay and the people who have benefited most from Bush’s economic policies are the people who should provide the funds for the bailout.  It would be immoral to ask the middle class, the people whose standard of living has declined under Bush, to pay for this bailout while the rich, once again, avoid their responsibilities.  Further, if the government is going to save companies from bankruptcy, the taxpayers of this country should be rewarded for assuming the risk by sharing in the gains that result from this government bailout.

Specifically, to pay for the bailout, which is estimated to cost up to $1 trillion, the government should:

a)  Impose a five-year, 10 percent surtax on income over $1 million a year for couples and over $500,000 for single taxpayers.  That would raise more than $300 billion in revenue;

b) Ensure that assets purchased from banks are realistically discounted so companies are not rewarded for their risky behavior and taxpayers can recover the amount they paid for them; and

c) Require that taxpayers receive equity stakes in the bailed-out companies so that the assumption of risk is rewarded when companies’ stock goes up.

(2) There must be a major economic recovery package which puts Americans to work at decent wages.  Among many other areas, we can create millions of jobs rebuilding our crumbling infrastructure and moving our country from fossil fuels to energy efficiency and sustainable energy.  Further, we must protect working families from the difficult times they are experiencing.  We must ensure that every child has health insurance and that every American has access to quality health and dental care, that families can send their children to college, that seniors are not allowed to go without heat in the winter, and that no American goes to bed hungry.

(3) Legislation must be passed which undoes the damage caused by excessive de-regulation.  That means reinstalling the regulatory firewalls that were ripped down in 1999.  That means re-regulating the energy markets so that we never again see the rampant speculation in oil that helped drive up prices.  That means regulating or abolishing various financial instruments that have created the enormous shadow banking system that is at the heart of the collapse of AIG and the financial services meltdown.

(4) We must end the danger posed by companies that are “too big too fail,” that is, companies whose failure would cause systemic harm to the U.S. economy.  If a company is too big to fail, it is too big to exist.  We need to determine which companies fall in this category and then break them up.  Right now, for example, the Bank of America, the nation’s largest depository institution, has absorbed Countrywide, the nation’s largest mortgage lender, and Merrill Lynch, the nation’s largest brokerage house.  We should not be trying to solve the current financial crisis by creating even larger, more powerful institutions.  Their failure could cause even more harm to the entire economy.

The words ring so true.  Several, too many, or most have not spoken of what caused them great distress in recent years.  The public accepts and allows this Administration to run rampant.  The electorate acknowledges what is reality for them only when in seclusion.  American people have become apathetic.  However, the statistics scream out and a Senator shrieks.  Perhaps it is time to ask, can citizens of this country permit this latest proposed policy to stand.  Might it be time to face the financial crisis, or will more days, weeks, months, or years go by.  Will the people remain passive and agree to another bailout, bigger than any other has been?

Might Americans again adopt the refrain, “Let the Bailout begin,” or will the people ponder their own fate first and declare it is time for a complete change.  Could it be time to embrace other than a free market mentality and the plans of a President who put us into this precarious situation.  Will the commoner and the conglomerate submit to the counsel of Senator Bernie Sanders and say, we must no longer rely on credit to survive.  The United States is at a turning point.  Might the average American chose to state, “Let the Bailouts end!”  “Lets us balance our books!”

Sources For Financial Security and Strife . . .