Welcome to the 1970s.
I know, I know… a lot of people have been predicting a return to the Great Depression, thanks to Bush’s Hoover-like economic stewardship, but I’m slightly more, um, optimistic. I think it’s going to be more like the 1970s than the 1930s. And if Bush and Cheney want to heave a sigh of relief that the economy will be more like the 1970s than the 1930s, then they should thank the Lord for Franklin Delano Roosevelt.
What’s happening right now, economically speaking, is really, really bad. it is likely we will lose our status as the greatest economic power in the world, and may even drop to third or fourth by the time this shakes out. The dollar is beyond shaky, and we’re running out of ways to make money.
Here’s the problem, in a nutshell; we’ve spent most of the last 30 years pretending to have a strong economy. Thanks to the neocons who have run the government since 1981, most of our economic "growth" has been through sleight of hand. We have essentially been creating money out of thin air, and then shifting it from one pocket to another, and convincing ourselves that we were rich. Our economy has been kept afloat through a series of bubbles, thanks to the neocons.
The first bubble, which had been deflated for a bit, and then re-inflated to record levels by the Bushies was the government spending bubble, in which the economy was faltering, but by borrowing unprecedented amounts of money, the government made it look as if it was healthy.
Then came the tech bubble, in which new technology was seen as the economy’s "savior," and irrationality took over for a while, until people figured out that a company whose only product is a browser that they have to give away for free can’t possibly promise to make billions of dollars over the course of a few years, and that people weren’t likely to buy trillions of cans of cat food via the Internet.
The next one was what is unfairly referred to as the "Enron Bubble," in which large corporations inflated their value, their profits, their assets, and anything else that would get people to buy their stock, so as to have enough money to actually run things. I know a lot of people (mostly neocons) blame the first Bush recession, and the stock market collapse on September 11, but that wasn’t the cause. It happened because companies were forced, en masse, to restate their financial figures.
But the fourth bubble, which started off being referred to as a "mortgage crisis" is the most dangerous bubble yet. I know it’s tempting to look at it as little more than a spate of foreclosures, but it goes far deeper than that. Combined with the continuing government spending bubble (otherwise known as "the deficit") will probably sink our economy for some time.
Here’s the problem, if it’s possible to put all of this into a nutshell.
It starts with the constant deregulation of banking and mortgage markets that happened over the last 30 years. One would think the Savings and Loan mess of the early 1980s would have taught us that regulation of commerce is a specific Congressional duty set in Congressional stone, for a very good reason. Greed is hard-wired into some people, and the rest of us have to keep them on the straight and narrow.
Between deregulation, the creation of some ridiculous mortgage mechanisms, little or no oversight, and a neocon administration who could point to the number of homeowners and crow that the economy wasn’t as bad as we thought, we created a situation ripe for fraud and abuse, and the crooks came running.
Mortgage "brokers" would put ads everywhere, advertising something that should have been outrageous, like a $400,000 home for $600 a month, or some such nonsense. You’ve all seen them; they’re all over the Internet, people leave flyers on your door saying "buy for less than you can rent!" — these people were all over. And they preyed on people who didn’t make enough money to actually qualify for a home. Not that it mattered, really. Potential buyers would fill out an application, knowing they would never be approved, but magically, they were approved. And they were approved because brokers would falsify the details of the application. The broker goes to the underwriter, gives them a line of crap, the underwriter goes to the bank, the bank approves the mortgage, and the broker takes his commission and runs. Then, after the mortgage is approved, it’s sold and resold and re-resold, parts of it are sold off to different groups. Often, it’s difficult to figure out who owns a mortgage, because it’s been sold so many times.
You can see what this is so difficult to put into a nutshell.
For years, mortgage "brokers" were allowed to get away with this, because it meant tons of home sales, and with the stock market only doing so-so, and the tech and corporate crook bubbles having burst, there just were no more major investments that could make someone a whole lot of money in a really short time. All sorts of people became "brokers," and many of them sold homes to people who couldn’t afford them, because no one was watching, and they could make good commissions by doing so. Everyone looked the other way, because it was so lucrative. Home builders sold their inventory in record time, banks wrote record numbers of mortgages; no one lost on such a situation. As home values artificially increased, even the states made a lot of money in property tax revenues. People who owned existing homes suddenly found themselves flush with equity, and took out cash loans against it, to consolidate bills, fix up their house, or take a great vacation. the entire economy benefited on the short term from this bubble.
The problem is, when a bubble like this one bursts, everyone loses. It’s not possible for someone who spends more money than he has to be better off later, and that’s the situation in which we find ourselves. There are still millions of mortgages in the hands of people who can’t afford them, so the foreclosures won’t abate for a few more years yet. But worse than that, home values are dropping like a rock, because so many homes shouldn’t have been built and/or sold in the first place. This means a lot of homeowners with legitimate mortgages are suddenly finding themselves upside down. Plus, a whole lot of home equity loans are suddenly unsecured, which puts the banks who lent the money in a difficult situation. Suddenly, banks have a whole lot more unsecured credit than they normally have, which makes credit extremely tight, and causes interest rates to increase.
Bottom line; we have a glut of available homes on the market, with no one available to buy them, combined with a tight credit market, in which those who want to buy a lot of them can’t get approval. We have condo buildings that are being forced into becoming apartment buildings. As homes are revalued, states and municipalities will have to make cuts, as revenues from property taxes decline. Add to that the still spiraling federal budget deficit, and what we are facing is a precarious situation that can’t simply be cured by throwing money at it.
And yet, the Bushies are throwing money at it, and leaving the clean up to the next president.
Thanks again, President Hoover-Bush.
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