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On Our Way to a Second Tier Economy

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One of the things I find extremely humorous is the claim regularly made by some of the commentators that the American economy is doing so well. It leads one to wonder why, since they are so cocksure, they aren't the ones running it. Maybe it's because they aren't qualified to herd empty piggy banks at Wal-Mart.

Throughout American history, fiscal crises have often been caused by the economic malfeasance of a select few, aimed at enhancing their personal portfolios with the gleanings of a market on the way down. The Panic of 1857 was caused by the failure, due to widespread embezzlement, of the New York City branch of the Ohio Life Insurance and Trust Co. British investors insured themselves against further losses by removing their funds from U.S. banks, much like Japanese investors are reportedly doing of late.

Several years later, after the Civil War, The Fisk-Gould Scandal was caused by two speculators' efforts to corner the gold market on the New York Gold Exchange. We'll see this act played out again in the future, as you will soon see.

The Panic of 1873 was instigated by the bankruptcy of the Philadelphia banking firm Jay Cooke and Company due to excessive speculation in railroad stocks. Funding railroads at that time was much like pushing NINJA loans.

Once railroads found profitability, they attracted venture vultures. The Panic of 1901 was caused in part by stock manipulations among E. H. Harriman, Jacob Schiff, J. P. Morgan, and James J. Hill against the holdings of the others, all vying for the financial control of the Northern Pacific Railroad.

J. P. again heads the playbill just a few years later during The Panic of 1907, which featured a tussle between J.P. Morgan and other "established" bankers versus the "upstart" F. Augustus Heinze and his bank, the Knickerbocker Trust Company. The second crash during the Panic, in October 1907, was caused by a scheme of Heinze's to corner United Copper. As a result, asset runs by depositors occurred against nearly every trust in New York.

Morgan organized a rescue effort to shift money into affected banks (much like Bernanke is currently doing), with some of these monies borrowed from foreign sources (while being secured mainly by Morgan's personal guarantee) and used to purchase stock of affected companies which were otherwise financially sound, just as his namesake descendant did for Bear Stearns.

In more recent times, the Hunt Brothers attempted to corner the world's silver supply, managing to acquire one-third of it before margin calls ended their effort. A rare after- effect of this scam was that Nelson Bunker Hunt was convicted for his actions.

Charles Keating led a fiscal cabal, aided and abetted by five sitting US Senators – including the current eventual Republican nominee for president, Lame John McCain – in an effort to make personal use of other people's money taken from Lincoln Savings and Loan. McCain was "rebuked" by the Senate Ethics Committee for exercising "poor judgment" for intervening with the federal regulators on behalf of Keating.

But that's OK now, isn't it? After all – the family of the current Republican occupant of 1600 Pennsylvania Avenue is regularly involved in such events!

For instance, think back to 1988, when a Director of Silverado Savings and Loan – one Neil Bush, son of then Vice President of the United States George H. W. Bush – caused it to collapse and cost US taxpayers $1.6 billion to clean up the mess. The penalty assessed to Neil Bush was an out of court settlement for $50,000.

But that is all past history. Current history is being made as we speak, not that the commentators want to admit it. By instead paying attention to those outside the Bush administration who are running the economy – such as Martin Feldstein, president of the Cambridge group that is considered the official word on economic cycles – one learns that the United States has already slipped into a deep recession that could be the most serious since World War II. More than 70 percent of economists surveyed by those Marxist-Leninists over at The Wall Street Journal agree with Feldstein's assessment. None reportedly were bragging about the bargains available for the taking on the way down.

While in Florida [where Australian coins have in the past been discovered in vending machines], Feldstein reported the severity of this recession "could well be longer and deeper than the recession in the early 1980s that lasted 16 months." That would be during the reign of that noted fiscal conservative, Ronnie the Grate Communicator. Was he not the champion of the Laffer Curve, which purportedly demonstrated that lower taxation produces enough additional tax revenue in sufficient quantity that the American Republican government can go to war with a 600 ship fleet (bolstered by WWII battleships fitted Rube Goldberg-style with Flash Gordon's arsenal) launched against the working class all over the world without worrying about paying for it?

Who, then, could blame the executives of Bear Stearns for following this fine example of sound leadership? One can understand their declaring war on the lower-working class of the United States, fought by dropping houses on them which they couldn't afford without a huge increase in their incomes! And, when reality bites, and the truth is discovered, to attempt to pass the debt burden along to those of the investor class (while assuming that the true value of the assets would remain undiscovered)!

The sad thing for the execs of Bear Stearns is that their plan failed in the final stage. All along Wall Street, the investors aren't taking unverified value claims for granted anymore. Once Bear Stearns is digested by JP Morgan Chase, appetites will be whetted for the next victims, slated to be Lehman Brothers and Merrill Lynch.

Now that the investor class have been burned by Bushwa economic policies, their media properties have been given the green light to spotlight the lightweight who is nominally in charge of this entire mess. Maureen Dowd snipes, "Now that he's mucked up the world and the country, he can finally stop rebelling against his dad and relax in the certainty that the Bush name will forever be associated with crash-and-burn presidencies."

I wish you would have said that years ago before he mucked it all up, MoDo! You might have helped to prevent this.

MoDo's employer, The New York Times, editorialized:

Americans are ill-prepared for hard times. That makes the need for clear-eyed policies all the more urgent. We need them from the president, Congress and the contenders for the White House."

But columnists Walter Williams and Bryan D. Jones expressed doubt that this wish will be realized, stating:

"Bush policies put U.S. on road to second-tier economy and vanishing middle class …. aided and abetted by the continuing reluctance of the congressional Democrats to take a stand against Bush's destructive tax cuts. It is just one more depressing example that the federal government lacks the will to cope with the major economic problems that threaten the United States."

The will is lacking in the government because the will is lacking in the electorate. I expect that this will change as more borrowers fall into the yawing maw of the burst housing bubble.

It's now time for me to keeping George's economy from being a total failure by attending to my employment, so I yield the floor for another stream-of-consciousness rant with full-blown ignroance (sic), misinformation and propagandbits (sic) included. It emanates from all of that muzak :) spewing forth from the off-key organ of arrogant economic self-righteousness performed by self-made tycoons. I would explain further, but you all come up with the most entertaining speculations.

Until next time! Don't take any wooden nickels!

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About pessimist

  • dee

    My fellow Americans, my friends, my fellow citizens… just remember who has given us this wonderful recession, George Bush and his Republican cronies… don’t forget this come election time

  • Baronius

    That’s freaky weird. Apparently there are two columnists named Walter Williams. The one quoted above is an anti-Reaganite at the University of Washington. The one I’m familiar with is an ultra-Reaganite at George Mason University.

  • http://www.republicofdave.com Dave Nalle

    One of them – I think the one who’s not an insane socialist – has taken to going by the name Walter Jon Williams.

    Dave

  • http://www.republicofdave.com Dave Nalle

    I note that Realist missed the South Sea Bubble back in what, 1832? Oh and he missed the Florida Land Bust of 1925 and the Panic of ’93 too.

    For once I think he has a point with his ravings, but he probably doesn’t see it.

    What his litany of past banking crises illustrates is that these things happen all the time, they end up not really being the end of the world they are predicted to be and we recover and move on.

    Dave

  • Baronius

    Got it:

    Walter Williams, left-wing political science author
    Walter E. Williams, right-wing economics author and columnist
    Walter Jon Williams, science fiction writer

  • JustOneMan

    Unrealist…you left off the fact that since the Keating Scandal the stock market has risen dramatically. The average bank and housing related stock (which were hit the hardest) have grown by over %300 percent.

    “With all yer fancy book learnin and writin” do you understand that is the way capitilism and economic cycles work?

    JOM “HINT – Buy low sell high!”

  • Tony

    “Any great nation that goes off the gold standard ends being a great nation.” — Ronald Regean

    We have messed with interest rates and run up deficets for too long. Spending trillions on the defense budget, creating a federal school regulatory system, and expanding the bureaucracy have put this country on the brink of economic collapse.

    Ron Paul tried to speak the truth but no one wanted to listen. It’s really too bad.

  • Pablo

    Interesting article. I would like to offer the following comments:

    JP Morgan and Chatham House formally known as the Royal Institute of International affairs formed and started the Council on Foreign relations. Link. They also are part owners of the FED through Chase. Link

    You the reader can draw your own conclusions as to what is going on today in this country. My own personal belief is that both the FED and the CFR want to destroy the middle class in this country, which has more than anything let to the recent real estate bubble burst. A society of owners and serfs. Welcome to der new vorld Order.

  • Zedd

    Dave, Clav, Alessandro, Maurice,

    Where are you???

    I would think that the rabid, proponents (loyal) of Capitalism would be up in arms with the bailout of Bear Stearns. I thought Capitalism says let the chips fall where they may.

  • REMF

    “Walter Williams, left-wing political science author
    Walter E. Williams, right-wing economics author and columnist
    Walter Jon Williams, science fiction writer”

    And don’t forget…Walter “No-neck” Williams, rightfielder for the Chicago White Sox, late 1960s.

  • Pablo

    Zedd,

    I too have notice that these guys are strangely quiet regarding this issue. Assuming for the moment that some of these guys are homeowners, their relative value of their homes more than likely has decreased perhaps well over a hundred grand in worth, you would think that they might be a bit more peeved and offer up their assesment of the situation. Enjoy your devaluation fellas, I am assure you that some of these guys at the CFR, and the FED are. SMIRK

  • http://drdreadful.blogspot.com Dr Dreadful

    #10:

    Don’t forget Walter Wall, carpet layer extraordinaire.

    :-p

  • bliffle

    All these guys who are now whining that we MUST bailout Bear Stearns for financial stability and market confidence, were happy to let a million homeowners lose their homes last year. Partial?

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    Dave, Clav, Alessandro, Maurice,

    Where are you???

    Dave showed up in comments #3 and #4. Most of the other capitalists are out making money – that is rapidly becoming devalued.

    I know that in anything I do, I demand prices in denominated in shekels – the dollar as plummeted in value in the last two years.

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    This article from Ynetnews (the English on-line site of the daily, Yediot Ahronot) confirms much of what I have reported to you about the decline of Israeli society, which has aped America, thinking it was indeed a success story. As we now see, the free market is not free, for it socializes tis losses (that is pushes them onto the taxpayer to deal with) and privatizes gain (effectively denying society at large the benefit of immense amounts of money pocketed by CEOs. In addition, the capitalist economy of America de-links executive performance from income. Fantastic failures waltz home to huge golden parachutes while the rest of society gets the golden middle finger of lectures on “pulling oneself by the bootstraps”.

    From Dan Caspi’s Yediot Ahronot article:

    The global financial crisis requires an Israeli process of self-examination. In recent years, we have seen an incisive debate take place around here between two different economic worldviews – a planned economy and a free market. For the time being, the latter has the upper hand.

    The neo-liberal approach blossomed along with the political revolution that took place three decades ago when Likud came to power for the first time. What we saw was accelerated and uncontrolled Americanization of the Israeli society: whatever we see in America is good for us too! The Israeli followers of this worldview have been relaying on the American model of a free market – although at this time we can refer to it as “seemingly free.”

    In the name of obsessive adoration of market forces, Israel’s economic leaders accelerated the privatization of public assets and vital services – welfare, health, education, etc. However, the gravest financial crisis since World War II, as former Fed Chairman Alan Greenspan characterized it, has in fact shattered the “American dream” of many Israelis.

    To a large extent, the selective coverage of success stories and successful figures and almost complete disregard to the losers and failures allowed for almost ideal dreaming conditions. Journalists and editors were intoxicated by grandiose parties thrown by newly wealthy Israelis who realized the American dream. They have been glorified and characterized as the Israeli economy’s engine. Meanwhile, those who attempted to point to the maladies associated with the free market, and particularly the high social cost expected to be paid by Israeli society, have been condemned and expelled from the confines of the consensus and public discourse.

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    Oh yes, just in case anybody is interested, the shekel has risen to NIS 3.3785 to the dollar or 29.6 cents per shekel. In short, NIS 1,000 now equals $296 instead of the $212 it equaled in March, 2006.

  • bliffle

    It sounds like the US government was happy to stand aside while unscrupulous loan salesmen sold unfavorable loans to homebuyers. The salesmen and execs got unusually large commissions and bonuses for these loans based upon the face values of the loans (you know, ‘points’).

    Then the US government was happy to stand aside while homeowners found they couldn’t make the escalating payments and went into forfeiture. Bush was content to wag a scolding finger at homeowners for making risky ‘speculative’ investments.

    But when large companies like Bear Stearns faced problems the government leaped into action to save them, using taxpayer money as necessary, and putting the Fed at risk for financial transactions that never paid financial insurance premiums and were never subject to regulation.

    First they hit citizens low with bad loans, then they hit ‘em high by using tax money to bail out the big guys. The old one-two.

    Does this look like a systematic scheme by a Governemnt Financial Industrial Complex to defraud US citizens?

  • Clavos

    “Does this look like a systematic scheme by a Governemnt Financial Industrial Complex to defraud US citizens?”

    No.

    The Federal Government is incapable of doing anything systematically.

    As for the Bear Stearns “rescue,” The Economist had this to say about it:

    “Rescuing Bear Stearns and its kind from their own folly may strike many people as overly charitable. For years Wall Street minted billions without showing much compassion. Yet the Fed put $30 billion of public money at risk for the best reason of all: the public interest. Bear is a counterparty to some $10 trillion of over-the-counter swaps. With the broker’s collapse, the fear that these and other contracts would no longer be honoured would have infected the world’s derivatives markets. Imagine those doubts raging in all the securities Bear traded and from there spreading across the financial system; then imagine what would happen to the economy in the financial nuclear winter that would follow. Bear Stearns may not have been too big to fail, but it was too entangled.”

    I suppose you would rather see Bear Stearns go under, taking a substantial portion of the credit market (and ALL those mortgages, bad AND good) with it?

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    Just in case anybody is interested, the shekel has fallen to NIS 3.553 to the dollar or 28.13 cents per shekel. In short, NIS 1,000 now equals $281.30 instead of the $212 it equaled in March, 2006, down $15 from the value it had on 19 March, 2008.

    Someone (or a group) is buying up dollars and selling shekels – possibly raking in the profits from short selling the dollar.

    That’s how things are done in relatively small economies like ours where a few families hold most of the wealth – a felafel reepublic….

    This still does not solve the fundamental problem of the dollar and the American economy. The American government is stuck pouring all of its money down the sewers of the Tigris and Euphrates, and this puts painful pressure on a weak economy.

  • http://www.republicofdave.com Dave Nalle


    Dave showed up in comments #3 and #4. Most of the other capitalists are out making money – that is rapidly becoming devalued.

    I’m overseeing the massive remodeling of our master bathroom while the dollar is still low so I can get it on the cheap. Solid gold fixtures (probably the next crazy thing my wife asks for) don’t come cheap.

    Dave

  • bliffle

    It looks like Bear Stearns successfully held the US economy hostage to extract billions in tribute from the US government and it’s citizens.

    “I suppose you would rather see Bear Stearns go under, taking a substantial portion of the credit market (and ALL those mortgages, bad AND good) with it?”

    Wouldn’t it be prudent for government to take steps to avoid being heldpup by highwaymen like that? Wouldn’t it make sense to limit the power of such private unregulated financial institutions?

    Wouldn’t it make sense to breakup pig-sized financial institutions under the anti-monopoly laws?

    And yet, the Clavos and Nalles of the world will step forward to loudly protest any regulation, crying “Free Markets!” where there can be no free market when one dictates market choices to another.

  • bliffle

    Looks like Dave is telling another madeup fable:

    “I’m overseeing the massive remodeling of our master bathroom while the dollar is still low so I can get it on the cheap. ”

    Oh, that would mean switching from expensive Foreign fixtures to the newly inexpensive american products. Let me see, a Chinese bathroom mixer water tap (Yiucco) cost about $30 2 years ago, while a similar American tap (Kohler) cost about $90. Is Dave saying that the American Kohler tap is less than $30 now? A 70% drop? How does that figure?

    A chinese toilet cost $80 while an American toilet cost $300 2 years ago. Has Dave found a place to get a Kohler toilet for less than $80 so he can save money over the (now) more expensive Chinese toilet?

    Same thing for granite and marble countertops.

    Dave must be making this up.

    Apparently, Dave has no shame about the stories he’ll tell to make his unsupportable claims.

  • Clavos

    “Dave must be making this up.”

    Or, his tongue was firmly planted in his cheek.

    Duh.

    Sheesh…

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