It chops, it shreds, it dices, slices, cubes and juliennes...well, maybe not but the brand of the American Greenback has been amazingly strong for the past 60-plus years. Many have speculated about the future of the Empire and given its current attraction to spectacle and violence, one needn't wonder why. Is this the sunset?
Recently, American financial markets have approached collapse. Much of the blame for this problem lies squarely with the American people themselves and their lust for bright bobbles and colourful beads. Without regard for how they will ever pay for material goods, Americans continue to consume like there really is no tomorrow. Why won't this generation pass on a better lifestyle? Because this generation has mortgaged the house to buy dinner. Because this generation has put their retirement on layaway. The strongest Generation gave way to the hungriest, thirstiest, most-consumerist generation of people on the face of the planet
I'm never sure how much anyone pays attention to Lou Dobbs but based on the fact that he does have a number of best-selling books, a prime-time Cable News Network show and a nationally syndicated radio show, he does have some ability to sway public opinion. That's a very scary thing for someone with no public record and a seeming inability to link his complaints together! The price of gas should be low, governments shouldn't run deficits, income taxes should be low, politicians should earn less as should Corporate CEOs. Wall Street should be bailed out but so too should the American Consumer who pays, hold your breath, 18 percent interest fees on their 3rd Credit card. My favourite Lou Dobbs position though is on illegal immigrants; who should be neither deported nor granted amnesty (there's a mysterious 3rd option I guess.)
So today (and all week) the news is all about Washington's Wall Street bail-outs. 700 Billion will be loaned to AIG Insurance, coming a few months after the Bear Stearns bail-out, the decision not to help a number of Investment Banks and to allow Morgan Stanley and another Investment Bank to become commercial banks...phew...that's only part of it. Today, Washington (add an R if you're a McCain fan) will be starting to debate this bail-out and much of the sentiment being expressed in the US Capitol reflects much of the Main Street thinking in the US. I'm a main-streeter on this one and I admittedly am not enough of a macro-economist to understand monetary policy extremely well. But that doesn't stop me from being concerned or thinking that somehow a 'fast one' is being pulled as George W Bush exits the Oval Office.
The basis of the problem is that greed spurred Wall Street to bundle and re-sell below-Prime Mortgages, many of which were issued to people with no income, no credit and no paperwork to prove either fact. Loans were being handed out to anyone who could sign their name to a form. Often, mortgage agents were grossly over-calculating buyers' ability to pay a mortgage and signing them up to ridiculous loans that were bound for default from the day they were signed. These mortgage brokers made commissions directly based on the value of those mortgages. So here is one place where greed raises its ugly head. The heads of these bundled mortgages were in some cases, making upwards of $10,000 per day in commissions. Greed on Wall Street.
Onto the homeowner, who is not without fault here. Someone once proposed to me that these homeowners were suckered in by crafty mortgage brokers. But anyone who earns a paycheque will tell you that they know what they can and cannot afford. If you are a minimum wage employee (in a country with very low minimum wages) you probably aren't going to own a home worth a $1/4 Million. That's basic math, which I suppose the US does do extremely poorly in standardized tests compared to other developed nations. But it is also greed. The refusal to accept one's own fate is a factor of greed. While striving to make one's lot in life is admirable, one must also realize the value of one's talents in the market-place.
Now it comes time to address the problem - Americans, both private and in business, are defaulting on loans and mortgages that exceeded their ability to pay for them. The value of homes is decreasing as the market reacts to unprecedented foreclosures. Home ownership is not a right - shelter may be but owning a home is not. Owning a home is a result of hard work, wise investment, posessing an economically valued skill (like being able to dunk a basketball) and a number of other factors.
To paraphrase, Bill Maher: "The US can't simply say we're number 1 and expect it to be so." Like Ontario in the early 1990's, when banks issued far too many Ontario Bonds, the US needs to realize that the sun could set on them if they don't work hard to ensure the robustness of their economy. John McCain is quite rightly calling for people to put country first. But does that mean bailing out Private capital interests with public money to the tune of $700 Billion?
We are seeing the most-free market, non-interventionist President interrupt and interfere in the economy to an unprecedented degree. The lack of rules and regulations on Wall Street over the last 10 years (yes, Clinton bares some blame) has led to runaway greed which has led to this failure. Now, instead of a middle-path creating stable markets, the market has gone wild and needs to be reigned in to a miserable degree. Again, this loan is to prop up the finances of investors - not everyday people with high mortgages, 401Ks and insured savings accounts. No, this is for much bigger money that makes money with money! This is a Sunday morning mulligan at Augusta National, not at your local Muni!
It may also be a good thing that "American confidence" is down. For too long, the US has been overconfident in the resiliance of its economy without working to ensure the fundamentals remain strong.
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