The Success of Failure
by David Glenn Cox
“Come gather round friends and I’ll tell you a tale, of when the red iron outfits run empty.” A time of prosperity when the options were ours and the moon was a destination rather than a reminder. A time when the boxes of war returned from jungles green only to be replaced by the boxes of war returned from lands of sandy brown.
Who gains from this? A wise man might ask, who gains from loss? Who gains from the cessation of prosperity? I asked a new acquaintance if she was aware that the Federal Reserve was lending money to member banks for 0.10 percent. “No,” she answered, “what does that mean?”
I remain astounded that this story isn’t well known by now. That member banks can borrow at the Fed Funds target rate of one tenth of one percent. One million dollars can be borrowed for the cost of $1,000. The Treasury then offers up one million dollars in treasury bills which will pay the bearer 3.10 percent interest or that one million dollars so casually handed over to the banker for $1,000 will cost you the taxpayer $31,000 . The banks if they like can buy those treasury notes and make three percent without even getting out of bed.
This program was begun in the dark last days of the Bush administration and its purpose was claimed to be needed to prevent economic collapse. Over two years on now and the program remains in place, but even more so, than just in place. The program has had trimmings and garnish added to it to sweeten it even more. The Federal Reserve has decided to expand the money supply by $600 billion dollars. Who gains from this? What good comes from this?
When you live in a country that runs a huge trade deficit each month such as the United States the money actually disappears. The wealth of a nation addicted to Japanese cars and Chinese running shoes soon finds that like old Mother Hubbard that the cupboard is soon bare. The cash for these outsourced products leaves our shores and so on the first of every month we find ourselves fifty or sixty billion dollars in the red. If you are selling these products you are making a handsome profit and don’t care where the bulk of cash winds up, you’ve already gotten yours.
Ten million homes foreclosed, with no property taxes paid or owed on properties in foreclosure. A hundred or two hundred dollars in property tax revenue per month time’s from ten million foreclosed homes leaves gigantic revenue hole in local government budgets. Officially 13.9 million unemployed yet the numbers of those no longer counted in the workforce adds two million more to that number. This months official U-6 unemployment rate of 15.8 percent is probably closer to 17.5 or even 20 percent. These millions pay no taxes into state or local coffers but instead draw out money in social services.
The Federal government through the Obama administration begins to address the problem with its cat food commission chocked full of Republicans and draconian measures to tackle the budget gap caused by a failure of the economy. Hiring freezes, spending freezes and permanent spending reductions as the President’s plan was taken right off the pages of the John McCain’s 2008 Republican National campaign platform.
State governments billions of dollars in debt were offered a slice of the President’s puny stimulus the first year. Then additional money was added to the phony jobs bill in the second year and in the third year the White House told the states to phuck off and die. Almost instantly, Republican controlled state governments simultaneously came up with the idea of breaking public employee unions and defunding pension plans.
Suddenly this crisis and fiasco becomes Christmas for conservatives and the wealthy. A President in the White House who is always willing to meet the Republicans half way even before negotiations even begin. A President who sold us out on health care, sided with the Republican’s on the GM bankruptcy, caved on the Bush tax cuts, showed no leadership what so ever on financial reform. So now ask yourself, why would the Republicans ever want to replace this guy? The Republicans get everything that they have ever dreamed of served up on a silver platter.
Barack Obama’s leadership style has been compared to…Ronald Reagan. Barack Obama’s agenda has been the most conservative since…Ronald Reagan. Barack Obama’s domestic agenda has been the most counter productive since… Herbert Hoover.
Now look at the field of Republican Presidential front runners, Sarah Palin? That speaks for itself, nuff said. Michele Bachmann? A two term local school board member turned three term backwater Congresswoman. She has no legislative accomplishments and no following other than the lunatic fringe evangelicals. Tim Pawlenty, a two term, do nothing, Minnesota governor. Pawlenty rode in on the coat tails of good times and a successful Democratic predecessor. It was Pawlenty’s administration which in an effort to get big government off of your back discontinued regular bridge inspections in Minnesota. The inspection program was suddenly revived after the collapse of the I-35 Bridge across the Mississippi River.
Mitt Romney? The man who couldn’t beat John McCain in the Republican primaries? It soon becomes obvious that even when combined the Republican field of candidates doesn’t contain enough Presidential timber to fill a box of Ohio blue tip kitchen matches. But then, it also becomes obvious, they don’t need too, because failure is success. The conservatives get everything that they’ve ever wanted including the dissolution of civil rights delivered up on a silver platter and they get to blame the Democrats in the process.
Bankers are cashing their bonus checks again while Real Estate losses are swept under the rug. Tax rates for the wealthy are lower than they’ve been in a century. The sales of new Jaguars and Rolls Royce are up, up, up and the sales of new corporate jets are at full capacity with waiting lists. There is no crisis at the upper echelons of society, in fact, things have never been better.
Now these Real Estate properties do create a problem. The Obama administration dealt with it exactly the same way the Bush administration dealt with it. They created a program which leaves the banks in charge of who gets rescued and who sleeps with the fishes. That’s because under the TARP agreement the banks can take your defaulting mortgage loan and present it to the Federal Reserve and the kindly Fed bankers will write the bank a credit for the full amount of your loan. Crisis? What crisis?
Say that you bought your home in 2006 for $200,000 but the homes in your neighborhood are now selling for $140,000. At auction your house might only bring in $110,000 but that’s for the other guys, that’s for suckers. The bank presents its deed to the Federal Reserve and says my customer defaulted owing $185,000 and the Fed writes them a check for $185,000.
Of course the banks must make it look like they’re at least trying to help homeowners. The back log of homes on the market is as high now as it was during the beginning of the mortgage crisis so the banks make a few modifications just to keep up appearances, just to make it look good. Under Obama’s Hamp program the banks can be reimbursed up to $1,800 for each home loan modified.
Hmm, let’s see, what’s a banker to do? Collect the full amount owed from the Federal Reserve or modify a struggling mortgage loan on a property worth 30 percent less than the day when the mortgage was originated? Sure, the bank won’t get the full amount of the loan if they modify it for you and the bank must cut its profit margin but Barack Obama will send them a check for $1,800 after the bank hires employees and completes the paper work process.
So these banks are flush with cash and anxious to spend it, anxious to spend it, that is, on anything but you. This is how conservatism works. Let the free market do what is best for the free market. During Roosevelt’s New Deal the government regulated the banks, they created work programs and public construction programs to restart the economy. This time around under Obama’s Screw Deal the banks have taken over the government. They have through the offices of Bush and Obama obtained a free money policy.
The stock market crashed in 2007 and the banks were reimbursed for their losses and there was money to be made picking up bargains on Wall Street. Goldman Sachs made money every day of the last quarter except one. Ask yourself, if you played cards with a guy who won every hand except one, would you assume that he’s just a really good card player?
“All of Wall Street is just a ponzi scheme,” Bernie Madoff
Recently the Justice Department issued subpoena’s to Goldman Sachs, there is an election year coming up, you know. So somebody’s got to go down, somebody’s going to be made an example of to appease public sensibilities and outrage. A public hanging or two ought to quell the public’s appetite for vengeance.
The economy is sputtering, I wonder why? Home prices are falling faster than ever; prices are falling at double last year’s rate at one percent per month. Home prices have fallen for fifty two consecutive months so the Federal Reserve tries a second round of quantitative easing, quantitative = money, easing = add more.
Suppose then that you owned a hamburger stand and you earned a one dollar profit from each hamburger sold. The hamburger stand is one million dollars in debt; you will have to sell one million hamburgers just to break even. Suddenly the currency becomes inflated or quantitatively eased, your cost to produce hamburgers doubles. You do the only thing that you can do and raise the price of hamburgers. The price of a hamburger has doubled but you now earn two dollars for every hamburger sold. You are now only half a million hamburgers in debt.
Suppose it is not a hamburger stand that you own but a bank. Quantitative easing helps you to bury your debt through currency inflation. Wages for working people have risen on average one percent per year so in effect with three percent annual inflation working people take a ten percent wage cut every five years. This is how consumers were led to spend beyond their means. This is how the economy was brought to the brink of collapse.
This is how the banking industry is subsidized by free money from the Federal government. This is how so called Free Trade empties the treasury while filling the pockets of the investor class. This is how Wall Street is juiced; this is how the deficits soar. This is how politicians justify calling for cuts to Medicare and Social Security. This is how state and local government justify cutting 28,000 employees just last month and cutting benefits to millions more. A class war Hiroshima strike, where failure is success.