Bovine Scatology

"The richest 1 percent of this country owns half our country's wealth -- five trillion dollars," "One-third of that comes from hard work, and two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do -- stock and real-estate speculation. [And] it's bullshit. "You got 90 percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. You're not naive enough to think we're living in a democracy, are you buddy? It's the free market. And you're a part of it."
---Michael Douglas as Gordon Gekko in Oliver Stone's Wall Street.


That was in 1987. It's only gotten worse since. In 1965 the average CEO made 24 times the amount of the average worker. Which seems pretty reasonable when you consider that by 2005 that ratio had increased to 262 times that of the average worker. Over the last 8 years the average weekly earnings for the middle class has increased by 1% while the price of everything else has gone up exponentially. Gas: up 24%. College tuition up 28%. Health care premiums up 36%. Milk: up 26%. So the wages of the workers were essentially flat while during 2003-2004 corporate profits rose 30%.

Now, after the economic meltdown of 2008, the working class aren't even concerned with wage increases. No. They are primarily concerned with either keeping the job they have or replacing the job they lost. All this while the stock market continues to surge back from the depths of the meltdown (low point was about 6700) to this week cresting over 10,000. So happy days are here again on Wall Street. However, this "recovery" has as of yet not trickled down to the average American. To be fair, the last piece of the puzzle to fall in place after a downturn is job growth. But, one has to wonder what type of jobs will be out there and when. Will they be quality paying jobs? All the patterns and trends point in a negative direction for the average worker. However, the banks are having it both ways. They are reinstituting big bonuses as if nothing happened and denying credit as if they are still on the edge despite the tax payer funded bail out. And here's the terrible thing, if we hadn't bailed out the banks, we would have likely seen a complete cliff dive for the economy. Were these banks that became too big to fail (this means you: Citi and Bank of America) not propped up, then the Federal Reserve would have gone bankrupt (yeah, I know technically we can always print more money and devalue our currency, but still) and the people most harmed would not have been the guys in the penthouse, but us here on the ground looking up.

So, how in the hell did this happen? Why were these banks allowed to become so large that the failure of one or two would have produced mass economic casualties. I'm not even sure I understand as I'm writing this, but I'll try.

First, came a series of deregulation bills that slowly, inexorably created the bank as monster.

In 1980, President Jimmy Carter signed the Depository Institutions Deregulation and Monetary Control Act. This allowed banks to merge (too big to fail) and allowed financial institutions to charge interest rates at any level they would choose (screw you consumer).

Then in 1982, President Ronald Reagan signed into law the Garn-St. Germain Depository Institutions Act. This bill allowed for the creation of adjustable rate mortgages (screw you consumer part deux).

President Clinton followed by signing the Gramm-Leach-Bliley Financial Services Modernization Act which allowed banking, securities, and insurance institutions to traffic all three businesses under one roof, so to speak (too big to fail part deux). By the way, the Gramm whose name is in the title of the bill is the infamous former Republican Senator Phill Gramm of Texas who only last year while supporting John McCain for president referred to the American people as "a nation of whiners" when the economy was collapsing. He was about 6 percentage points from becoming Secretary of the Treasury. Excuse me, I just vomited in my mouth a little bit.

Perhaps even worse yet was the fact that the regulations that remained on the books were not enforced under the Bush administration. Of course, Phil Gramm was an F.O.B. so there were no real expectations that Bush would do anything to affect the free market anyway. To make matters worse, when Bush finally did react to the financial crisis with the unfortunately necessary bank "bail out" or Troubled Asset Relief Program (TARP) in 2008, they included no stipulations regarding what the banks could do with the money. So, what did they do? They either sat on it or bought other banks (see JP Morgan Chase's purchase of Washington Mutual, PNC Bank's acquisition of National City, or Citi's merger with Morgan Stanley). This would be too big to fail part trois.

Of course, any discussion of the bank "bail out" is not complete without considering what they did to get themselves in this mess to begin with. While there are many issues at hand that effected their near collapse, I think there are two areas in particular where they were most culpable. Sub-prime mortgages and complex financial instruments.

Of the two, the sub-prime half is the easier to explain. Referring back to 1982 and the passage of the Garn-St. Germain Depository Institutions Act which allowed the creation of adjustable rate mortgages, this is where the banks and consumers overreached. Roughly 80% of all mortgages issued in the last few years were adjustable rate mortgages. As housing values began to plummet it became more difficult for consumers to refinance and the rates on their mortgages began to soar. This led to mass delinquencies and foreclosures, leaving banks with devalued homes and the former owners on the streets. Here was a case where people who could not afford homes at a higher interest rate were preyed upon by mortgage lenders who were being pushed to "make the sale" at all costs. As Alec Baldwin said in the classic David Mamet drama Glengarry Glen Ross, "A-B-C. Always. Be. Closing." Which is great advice in the short run. Unfortunately, this was proven not to be the way to run a successful business in the long term. Now, I know that the people who signed for these homes have to take some responsibility for their actions. However, I saw first hand while working in the execrable banking industry that these folks were sold a dream. A dream called home ownership. And the sad fact is, not everyone should own a home. Especially not one where the payments can increase by 30-40% in any given year. In other words, the lenders were the experts and they told people what they wanted to hear. This is how you ruin lives.

Now this brings me to the complex financial instrument portion of the program. Also know as derivatives. What's a derivative you might ask? Well here's the definition on Wikipedia:

A derivative is a financial instrument that is derived from some other asset, index, event, value or condition (known as the underlying asset). Rather than trade or exchange the underlying asset itself, derivative traders enter into an agreement to exchange cash or assets over time based on the underlying asset. A simple example is a futures contract: an agreement to exchange the underlying asset at a future date.

And if you understand what in the hell that means, please get in touch. Ok, fine. I'll give it a shot. Basically, derivatives allow investors to gamble on the future value of a security or commodity without actually buying the underlying investment. In other words, it's bullshit. It's a made up speculative value on something that is not even tangible. These derivatives also created incentives for false accounting practices. As the profit or loss of the derivative was booked by the company even though no actual money changed hands. This type of accounting is what led to the Enron disaster. All the value was on paper. And in many cases it wasn't worth the cost of a single 20# sheet. So, what you end up with is a phantom value that leverages real debt.

This is the bastardization of capitalism. I know, I know, capitalism is one of the things that made this country great. It came from the wellspring of democracy and created a system that rewarded risk-takers, entrepreneurs, and inventors. All well and good. But ask yourself, when this system sprung from the loins of our forefathers, is a complex financial instrument or a sub-prime mortgage what they had in mind? Would Alexander Hamilton, if he rose from the dead today defend this nonsense?

We are becoming a country that no longer makes anything, pays anything, or saves anything. It's all service and consumerism. But then what would you expect from a country that created the derivative and the sub-prime mortgage? A country whose leader after the terrible attacks of 9/11 told us to "shop." A leader who cut taxes for the richest one percent, nevermind the war in Iraq or Afghanistan, let alone the national debt.

There is a war going on. I'm not talking about Afghanistan or Iraq, no. I'm talking about the war at home. It's the haves vs. the have-nots. During last year's election there was a lot of talk about "socialism" and "wealth redistribution." What we have failed to notice is that the wealth redistribution has already started. It's being redistributed alright and up is the direction. Much of the modern economy has been affected by the Reagan administration's "trickle down" theory. The idea that if you continue to lesson the tax burden on the rich they will then take that money and create or expand business in a way that benefits the lower classes. So, ask yourself, how's that working out? Many people in this country decry the "welfare state" that exists for the poor, but what about the one that exists for the rich?

This used to be a country of multiple classes. The truly wealthy, the rich, the upper middle class, the middle class, the lower middle class, the poor, and the impoverished. How many people do you know that are struggling to keep there spot on that ladder? Forget climbing it. just holding on right now would be good enough for most.

For many years South Africa languished under the diseased form of government known as apartheid. The upper class white minority ran the government, controlled all the wealth creation, and repressed the black majority. All you have to do in this country is take away the racial component (for the most part) and the violence (physical that is), and it's not hard to see the road we're on.

So what do we do? Well, I remember something Bono once said when he was describing the difference between the Irish and Americans. He said that in our country we "drive by that big house on the hill and say, one day I'm gonna be that guy." Whereas in Ireland that we "drive by that big house on the hill and say, one day I'm gonna get that guy." Well, it's time to get that guy. Now, please understand I'm not suggesting violence (not yet anyway-half joking, calm yourself), I'm saying get vocal. The only way we can change anything is to put our leaders at risk of the thing they fear most, not getting re-elected. So, call, e-mail, fax, or even better write your congressman. Tell them "we're mad as hell and we're not going to take this anymore." The other night I was watching Hardball's Chris Matthews say that our congressmen are old school. The thing that gets their attention most is a carefully written, signed letter with a local return address on it. In other words, a piece of pulp from someone who can vote their ass out.

However, please, please, please don't confuse my suggestion of civil activism with that of Glenn Beck. Before you write this letter, e-mail, or make this phone call, do your homework. Know what you are talking about. It's so much harder for them to ignore the well-informed. In other words, "if you're gonna hate, then hate correctly" (thank you Bobcat Goldthwait).

Now, I know it's easy to feel hopeless and that things will never change, but as Morgan Freeman said in The Shawshank Redemption, "get busy livin' or get busy dyin." That's damn right. If you're going to go down, go down swinging.

Sumo-Pop
October 16, 2009

Here is a link for the contact info of Indiana congressmen: http://www.visi.com/juan/congress/cgi-bin/newseek.cgi?site=ctc&state=in

And Michigan:
http://www.visi.com/juan/congress/cgi-bin/newseek.cgi?site=ctc&state=mi