How the Bubble Destroyed the Middle Class (via Yahoo! Finance)


There is a new article on Yahoo. It’s written by  Rex Nutting.

These are key paragraphs –

There are a hundred different ways of looking at the economy, and a million different statistics. But if you wanted to focus on just one number that explains why the economy can’t really recover, this is the one: $7.38 trillion.

That’s the amount of wealth that’s been lost from the bursting of housing bubble, according to the Federal Reserve’s comprehensive Flow of Funds report. It’s how much homeowners lost when housing prices plunged 30% nationwide. The loss for these homeowners was much greater than 30%, however, because they were heavily leveraged.

In brief, the economy can’t turn around. There isn’t any money. The American Middle Class has been flattened. With stagnant wages for more than two generations, the great American Middle Class no longer has enough money to recover.

It was inevitable. From the time of the Reagan Administration when the financial industry supplanted manufacturing as the key economic engine of growth, the great majority of Americans have been losing their standard of living. Why? Because manufacturing is the actual making of value. It requires cooperation among many. It requires time, skill and large bodies of organized workers. This kind of process spread value around. Workers profit. Companies profit. The nation profits.

The Financial Industry, when it loans money for production goods, like housing, automobiles, business startups and business improvements is a powerful engine for growth, a great asset for any society. Many banks serve the interest of their community in this way.

But finance for the sake of finance is a different animal. Money made in community investment is low-interest, long-term money. That is small potatoes. So, they speculate. They take the money entrusted to them for investment and invest in foreign nations, risky new industries and most strange (and horrifying) they create never before seen instruments of finance that they themselves do always understand. These kinds of investments divert money from creative and useful endeavors and siphon that cash into more and more speculation creating enormous financial profits that give the illusion on paper of a prosperous society.

What happened during the 1980’s? The financial industry became predators, buying up companies and disassembling them like toys. It’s been like that ever since. Every few years the great masters of finance develop a new method of making huge profits. One these phases which continues today is out sourcing. Outsourcing is where you take stable, profitable, American companies and move them overseas to corrupt or totalitarian or, just plain, unstable nations to maximize profit. World communism has been one of the greatest benefactors of out sourcing as the Chinese regime (and now the Vietnamese) had previously lurched from one financial disaster to another. American “entrepreneurship” helped them become a stable nation whose industrial and military power will increasingly challenge our own.

It is obvious that an intelligent person acting morally, patriotically and with an eye toward the long-term would find the United States with its well-educated population, immensely dedicated, highly productive workforce, a fully developed infrastructure, and a stable, well-organized system of business law, an ideal place for manufacturing. In fact, large companies like Toyota have located here on that basis.

But the financial industry acting to maximize profit on the short-term, turns all these facts upside down. An uneducated population is easily manipulated, cheap workforces while less productive and efficient over the long-term are effective in the short-term, nations with educational systems and fully developed roads and highways are to be avoided because of higher taxes, and a legal system where a company can be held accountable for its crimes is to be avoided at all costs.

Patriotism, morality, even religion are intellectual burdens the financial industry shed a long time ago.

The process of looting the American people continues.

Globalization is considered by many to be an inevitable process. This is nonsense. There have been previous periods notably in the 1920’s when free trade was in vogue. But that ended with the financial crisis of 1929. These historical movements are not mindless changes like continental drift, they are the result of decisions made by governments, opinion leaders, philosophers, industrialists, financiers and speculators. People can make choices. People can do things differently.

That Fascism would triumph in all Europe was considered a straightforward inevitability by many in the 1930’s. Yet even today the war criminals of that defunct idea are still being chased down like the pitiful rats they are.

What will history think of the American financiers who bankrolled the Communist resurgence? In 1989, it seemed that all the remaining Communist dominoes would fall. That will not happen as long as the cash flows, American cash.

What will future generations think when they look over these days and see a nation looted by speculators with scarcely a complaint from a compliant judiciary, legislature and presidency?

I believe that people should make money and a good amount of it from making and doing useful things. I don’t think that’s radical. But in many circles it is.

James Pilant

Please read the attached article from Yahoo Finance.

Nobody Goes To Jail?


Matt Taibbi has it right –

Nobody goes to jail. This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world’s wealth — and nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant and pathological celebrity con artist, whose victims happened to be other rich and famous people.

The rest of them, all of them, got off. Not a single executive who ran the companies that cooked up and cashed in on the phony financial boom — an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities — has ever been convicted. Their names by now are familiar to even the most casual Middle American news consumer: companies like AIG, Goldman Sachs, Lehman Brothers, JP Morgan Chase, Bank of America and Morgan Stanley. Most of these firms were directly involved in elaborate fraud and theft. Lehman Brothers hid billions in loans from its investors. Bank of America lied about billions in bonuses. Goldman Sachs failed to tell clients how it put together the born-to-lose toxic mortgage deals it was selling. What’s more, many of these companies had corporate chieftains whose actions cost investors billions — from AIG derivatives chief Joe Cassano, who assured investors they would not lose even “one dollar” just months before his unit imploded, to the $263 million in compensation that former Lehman chief Dick “The Gorilla” Fuld conveniently failed to disclose. Yet not one of them has faced time behind bars.

Two kinds of justice? Is there one for you and I, and another for the great financial elites? Let’s say that I steal $100,000 dollars from my employer, if they press charges would I go to jail? Quite likely. What if I work for a giant investment bank and I commit fraud and other security violations to the tune of several hundred million dollars? Will I go to jail then? No.

What is going on here? This isn’t fair.

Why do we put people in jail or prison? To punish them and discourage others from committing the same offenses.

What message does this “two-tiered” system of “justice” send? It says that wrongdoing is okay if you are properly placed in the economy. If you are not placed in the right industry with the right friends and the right “law enforcement,” you can expect to be penalized when you commit crimes. The impact is clear, if you work in the financial industry you will not be punished for your financial crimes.

Do I have to tell you that giving sectors of the economy the right to commit crimes at will is bad policy? They will continue to do it.

In 2007, these crimes almost brought down the world economy. The damage done did through us into the Great Recession.

They walk free even after this.

What can be done?

James Pilant