Thursday, March 20, 2008

Bush's Economic Fiasco

Bush's presidency is becoming a spectacular level-five disaster. He denies global warming or tries to ignore it on the days when he acknowledges that it might be true. His environmental policy is a joke. He has no energy policy unless one wants to include the invasion of Iraq. Iraq is a war we did not need but it's making Bush's campaign contributors and friends fairly wealthy. Bush's economic performance has been mediocre at best and has partly depended on playing with various economic indicators. For example, inflation was somewhat low last year because the average price of homes was collapsing (Yes, anything to define 'success').

Bush, of course, has had help from a compliant Republican Congress in his first six years and an obstructionist Repubican bloc in Congress now that the Democrats have been trying to deal with various problems. Then there's Alan Greenspan who has recently lost all credibility despite years of being treated as some kind of economic guru. The current Fed Chairman, Ben Bernanke, is in a deep funk because he knows he screwed up and is a year late in dealing with his screwups. It was his responsibility to keep the president's irrresponsible economic policies from getting out of hand.

The fundamental problem besides corruption, ideological nonsense, privatization, deregulation and a few other examples of greed and stupidity is debt. No one has contributed more to the nation's private and public debt than George W. Bush. First, the president's tax cuts, insane build up of the Pentagon budget and the war in Iraq has burdened Americans with debt for at least a generation or two. Then, there is Bush's hands off attitude toward business which translates all too often into hands off corporate corruption, greed, crime, fraud and general antisocial behavior. During the Bush years, the rule in an administration without rules has been to ignore corporate misbehavior except when business leaders are too stupid to keep their problems off the front pages. Even then, many executives have walked away with a hundred million dollars in the bank.

Bush's friends on Wall Street have done very well for themselves without actually contributing much to the economy. Chris Farrell of Businessweek wonders if the government will hold these Wall Street robber barons accountable; he puts the current situation into perspective (well, not entirely, but we'll get to that further down):

"The Federal Reserve continues to bail out major financial institutions without imposing meaningful conditions to improve their conduct and performance," complains Peter Morici, professor at the Smith Business School at the University of Maryland.

Here's a staggering figure to contemplate: New York City securities industry firms paid out a total of $137 billion in employee bonuses from 2002 to 2007, according to figures compiled by the New York State Office of the Comptroller. Let's break that down: Wall Street honchos earned a bonus of $9.8 billion in 2002, $15.8 billion in 2003, $18.6 billion in 2004, $25.7 billion in 2005, $33.9 billion in 2006, and $33.2 billion in 2007.

Those years were the heyday of the hedge fund pirate, the private equity buccaneer, the 9- and 10-figure-salary quant jock, and other financial creatures who created all kinds of complex securities and highly leveraged transactions....

Many of those complex securities and highly leveraged transactions were crooked as hell. This has created a financial crisis based partly on a very simple fact: a lot of these Wall Street types are no longer trusted to handle other people's money. They have lied and, if they were smart enough to squirrel away their money before the meltdown, they have gotten away with it. At least so far.

Without referring to Wall Street crookedness and administration neglect, Steve Waldman of Interfluidity has a simple analogy to explain the essence of the current crisis:
Alice, Bob, and Sue have ten marbles between them. Whenever one kid wants another kid to take over a chore, she promises a marble in exchange. Alice doesn't like setting the table, so she promises Bob a marble if he will do it for her. Bob hates mowing the lawn, but Sue will do it for a marble. Sue doesn't like broccoli, but if she says pretty please and promises a marble, Bob will eat it off her plate when Mom isn't looking.

One day, the kids get together to brag about all the marbles they soon will have. It turns out that, between them, they are promised 40 marbles! ....

But then Alice, who is smart and foolish all at the same time, points out a curious fact. There are only 10 marbles! Sue says, "That cannot be. I have earned 20 marbles, and I have only promised to give away three! There must be 17 just for me."

But there are still only 10 marbles.

A good part of the problem is that too many people were borrowing money either with little money down on the expectation that real estate would continue to rise (shades of the 1929 crash!) or by using collateral that turned out to be worthless (subprime mortgage derivatives that were given mysterious triple A ratings when they should have gotten ratings reflecting their low and precarious worth). There's the added factor, of course, that overseas money has been pouring into American real estate for years, thus driving up real estate values. But sooner or later, money that isn't really earned has a tendecy to bite back, either through inflation or a major economic stumble. We may be facing both inflation and economic hard times. Not that the last seven years have been particularly bountiful for most Americans.

For twenty-seven years, going back to Reagan's mythological and misremembered presidency, Republicans have been undermining America's economic future with games that favor the few. Those few who are growing wealthier and more powerful have a straightforward set of rules: heads I win, tails you lose. These few are the same clowns who pay for focus groups and political consultants who know how to push people's buttons so that they're too angry to notice they've been bamboozled and manipulated against their own good sense.

John McCain, who admits not knowing much about the economy, may become the next president of the United States. Can we survive four more years of Bush economics?

Even if a Democrat wins, Americans may be facing many adjustments in the next few years to come.

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