Sunday, October 26, 2008

Wall Street: The World's Greatest Welfare Queen

$70 Billion of $700 Billion "Rescue" Funds Being Distributed to Wall Street Executives as Bonuses and Salaries

Can anyone think of a more compelling reason to steeply raise the income and capital gains taxes on high incomes, than the distribution of 10% of the "financial rescue" funds underwritten by our tax dollars, to the top executives of the financial firms whose greed, malfeasance, poor management, and failure to control risk is causing the cascading collapse of our financial system and the financial decimation of almost every non-rich American? These awards are being made while financial firms are shedding middle and lower-level jobs by the tens of thousands, and while the remaining rank-and-file employees are accepting pay freezes and cuts. The funds are definitely not "trickling down".

Does anyone out here believe that the recipients of this incredible largess could be said in any sense to have "earned" these awards? If you make a mistake that costs your firm $100,000, say, will you be given $300,000 of the taxpayer's money, or your company's, for that matter, as a reward for your performance?

By "high income", I don't mean $250K a year, or even $500K a year. I mean $5 million to the stratosphere, for we are talking here about people who commonly receive $10 Million or more in compensation, and sometimes receive hundreds of millions of dollars in return for destroying the value of their companies and our financial system, in the process.

The "rescue" funds are being distributed at the discretion of Paulson, whose first loyalties are to Wall Street, and who has total, unrestricted discretion over the use of the funds. Congress has imposed no guidelines or control on their use, even though this was "suggested", but merely rammed the funding package through with haste that is truly incredible given the stakes involved.

We are being systematically plundered, as well as being set up for complete financial and economic collapse including a treasury default, in order to guarantee lifestyles comparable to those of Saudi Oil Sheiks to the most rapacious and unprincipled passel of crooks, thieves, and con artists ever to manage the finances of a major nation. 90% of our population is being rendered poorer and less secure as a result of the mismanagement of our financial system that has been enabled and subsidized for the past two decades by our authorities, and all hope of a reasonable recovery, and the rebuilding of the economy on a sound, honest foundation, are being destroyed by the ballooning of treasury debt and the wave of hyper-inflation that will surely result. Long-standing businesses are being destroyed, along with many formerly well-off citizens, while the the middle-classes are being driven to near poverty and the poorest among us are losing their last faint hopes of bettering their situations and climbing to the next rung of the ladder. Our cities and towns, and our necessary services, will lose essential funding and "give backs" of the taxes they have sent to Washington D.C., while local taxes whither with dropping incomes and inflating costs, so we can expect less police protection, steeper deterioration of essential water, sewer, and road infrastructure, and higher local tax rates to offset the money we toss into the deepening hole of the federal budget.

What we can now clearly see is that both of our political parties are not only ineffectual at the task of steering our economy, but that both have colluded in bringing the country to the pass we're in now, which is that we are a bankrupt and impoverished country that has squandered its resources and destroyed its ability to make a living by encouraging the destruction of what was once the world's mightiest industrial economy, and fostering the financialization of our economy, with the result that we are dependent upon financial scams and debt creation to make a living, and are now saddled with non-survivable levels of public and private debt

We can also see that our leaders from both political parties have no stake in the well being of either our economy nor in that of the segment of the population that has a net worth of less than $50 Million.

We can see that both political parties are growing increasingly irrelevant, and that neither is fully addressing the concerns and urgent needs of the polity at large, or of most of the citizens who comprise it.

Most of all, we can perceive, or ought to be able to reason by now, that that certain decisions are simply too major and too far-reaching to be entrusted to politicians and policy makers, and that economic policy is one of them. We now know that many major policy decisions that seemed timely and brilliant in the hour they were made had disastrous effects over the years, and often immediately, because they are too large and because their unintended consequences cannot be predicted, and because they cut off the possibility of making the small, local, fine-tuned adjustments to shifting circumstances that enable individuals and entities to adapt to changes in the economic landscape, for these policies cause massive, sudden changes that are too sweeping for successful adjustment.

I'm not optimistic that we will be able to change the course we're set on now anytime soon, and that path seems to be toward greater socialization of our economy in lockstep with an even greater income divide, and with a bias towards guaranteeing lavish unearned rewards to the very wealthiest class of Americans while destroying all incentives and all hope for anyone not born into this privileged order, whose ranks will be this society's owners. In other words, we will have government sponsorship of private ownership by a small oligarchy, whose ranks will be guaranteed an absence of competition or exposure to risks commensurate with their rewards. The rest of us will assume the risks while being permanently blocked from rising from near or total poverty.

Saturday, October 25, 2008

Lipstick on a Pig Cont'd

Leave it to the Party that Wrecked America to display rare sensitivity to the concerns and priorities of female voters out here by publicizing that the RNC spent $150,000 on new duds for Sarah Palin to wear on the campaign trail, in the belief that Sarah's new style would help draw women voters.Now, they're aghast at the unfavorable reaction they've received, notably from women.

I mean, but here is something that just has to touch the hearts and minds of every woman in America. How heartening, at a time when most women out here are are trying to figure out how to get last year's shoes re-heeled and the three-year-old winter coat rehabilitated, while still managing to put food on the table and gas in the car for the 50-mile commute to the job she is about to lose, and still pay the day-care bill; to see Sarah all buffed up with the latest splashy clothes from Nieman Marcus.

The Republicans clearly still view women as just these li'l fluffy things whose whole lives revolve around reading fashion mags, shopping, and having babies, in keeping with their support of pre-feminist "family values", their allegiance to the anti-woman Christian Right, and their stated platform favoring the "privileging", by tax incentives and other inducements, marriage and stay-at-home motherhood. The Republican contempt for women and lack of sensitivity to our issues is evident in their every attempt to pander to us by their selection of some egregiously unqualified Republican Handmaiden as a candidate for a major office, such as championing Stepford Wife Elizabeth Dole for the presidency in the 90s, or selecting Sarah Palin for John's running mate to begin with.

Well, like the selection of this egregiously unqualified woman with her anti-woman policies to begin with, the Wardrobe Caper is backfiring and alienating the very voters whom it was meant to impress to begin with.

But at least Sarah will have some spiffy duds to take home with her as souvenirs of the campaign after she and her running mate get their asses kicked to the curb this November. Let's hope Sarah finds her new wardrobe to be a sufficient offset to the loss of her political career, for indications of sentiment in her home state, Alaska, hint that the scrutiny of her doings as Governor there has cost her much of her support there.

Thursday, October 23, 2008

$5 Trillion and Still Counting

It's not working, and it's never going to work, and our policy makers should have known that it wasn't going to work.

So far, not a single new job has been created, but incomes have continued to shrink while the costs of food and other necessities continue to spiral upwards. The steep drop in oil and gas prices, due to demand destruction, is a relief- let's hope prices hold for a while at this level, so that people can look for jobs and heat their houses- though you have to sense that careening around the freeways to distant suburbs in search of a job that pays just barely enough to cover their car costs is probably just an especially cruel exercise in futility for most people, what with 165,000 jobs being lost per month.

The tote for the "rescue" of our financial system is now reaching $5 Trillion, and the behavior of the markets constitutes a vote of no faith in the efforts of Bush,Bernanke, Paulson, Pelosi, et all to reverse the collapse of credit by inflating the treasury debt and burdening every single taxpayer in the U.S. with an average government debt load per taxpayer of approximately $24,000.

What they're accomplishing, instead, is the utter and probably permanent impoverishment of 80% of our population and the further crippling of our economy. The efforts of individuals and businesses to recover and rebuild on a solid foundation will be critically hampered by the additional taxes necessary to service the largest government debt, as a percentage of total obligations, of any economy that ever existed.

So far our policy makers have shown a lack of ability to do anything other than wreck more destruction on our fragile economy. Pelosi is proposing yet another "stimulus" package. Watch- in weeks to come, ever more and larger bailout packages will be foisted on us, with ever worse results.

Wednesday, October 22, 2008

Did The Free Market Fail?

It's just possible that the worst consequences of the bubble and its inevitable pop is, not the foreclosures or failing banks, or even the hundreds of thousands of lost jobs, but the final destruction of what remains of economic freedom and the nearly complete socialization of the U.S. economy.Even pundits whose opinions I generally respect are joining the chorus and blaming Free Markets for the almost surreal ballooning of debt, and the inevitable disastrous consequences of that, over the past ten years..... just as they did in the 1930s, when a series of expensive and over-reaching government interventions, very much like those be done now, did nothing to stop the rapid deflation of the credit bubble created in the 1920s.

I have just a few little questions: When has the United States ever been a Free Market? And how can an economy that since 1880 at least, been driven principally by far-reaching policy decisions in conjunction with massive direct and indirect subsidies for chosen industries in combination with the deliberate destruction of others, be considered by any stretch to be a "free market?" And is there a single major trend of the past 100 years or so that was not the result of far-reaching policies that, more often that not, triggered wrenching dislocations in our economy and social fabric that not only more than offset whatever good was accomplished thereby, but additionally triggered chains of events and trends that cascaded and amplified over subsequent decades and ballooned into runaway trains in and of themselves, rolling heedlessly through the landscape and flattening everything in their paths? Our pathological automobile dependence and the destruction of our cities come immediately to mind, and so does the withering of our manufacturing economy, and its replacement by the financialization of the economy and our dependence upon monetary manipulation and the layering of debt to drive the economic growth.

One of my favorite exercises in visualization is to try, if I can, to imagine the physical and economic landscapes as they would be without the creations of our policy makers in conjunction with crony businesses and their lobbyists. Would 90% of our population be completely dependent upon autos for transportation, and would our cities and their dense networks of commerce, industry, and public transportation have been utterly destroyed if we had not, 80 years ago, converted the sentimental cravings of Americans for rural live as depicted in Currier& Ives illustrations, into public policies that dictated suburban development further and further into the hinterlands of cities for decades out, financed with massive allocations of tax monies? Might we still have a fully diversified, manufacturing economy had not our major industries been rendered uncompetitive and ossified by the huge guaranteed profits of defense contracting? Would the old cities of the Eastern half of the country, with their favored locations on waterways and rich farmland just outside their boundaries, have lost half of their populations to cities in the desert that could not exist without hundreds of billions of dollars in "investment" in transportation and water diversion, beginning with the massive subsidies to Union Pacific in the form of land grants that made possible the transcontinental railraod, to the pharaonic water diversion and highway projects of the 20th Century, all paid for with tax dollars?

Steve Saville, in "Trying to Get Something for Nothing", identifies with precision the absurdity and destructiveness of government intervention in the financial system and how government policies have been the root cause of this debacle, as well as that of 1929-1933. Saville confines himself to two main facets of government intervention, specifically the belief that rampant infation in housing prices was good and should be promoted by government policy, and that the way to do this was to push interest rates as low as possible and flood the country with easy money available to anyone, regardless of their ability to repay.

I could add that these policies were rendered ever more destructive by removing the very last constraints on speculative excess by the government financing, direct or indirect, of the greed stampede, namely through the alphabet soup of government agencies and government-sponsored entities-HUD,FHA, FNMA, GNMA, and the rest- whose sole purpose was to serve as a place for financial institutions to offload undesirable loans for which there was no other market, and to make "ownership" possible for people who can barely pull their rent together, or people who chronically spend themselves into steep debt no matter how high their incomes are.

We have, over the past century, ceded to our authorities almost unlimited power to steer our economy and our lives according to the dictates of whatever intellectual or social fad holds sway at the moment, and to codify it into policies that become rigidly entrenched long after they've proved to be fallacious, and have become drivers of destruction. Once a program or agency is in place in this country, it is reinforced with layers of bureaucracy that are self-perpetuating and have a tendancy to replicate themselves vorociously, especially those which, like our various housing agencies, dovetail with the business needs of large and profitable industries, such as the home builders and financiers.

Worst of all, at the same time we provide easy, unearned subsidies to certain industries, we destroy others that might better serve our needs, and with greater efficiency and with solutions that better fit the need, than their heavily subsidized competition.

What we have had is not in any sense a "free market", but a mixed economy, an economy in which most goods and services are produced by entities that are organized as for-profit concerns, and owned by shareholders, but whose direction and business are driven by public policy, by means of outright directives, as well as favored tax treatment, and various direct and indirect subsidies. We have so extensively subsidized so many industries in so many ways- indirectly or directly, openly or covertly, that it is now impossible to describe any part of our economy as "free".

A mixed economy almost never remains so, but will always tilt in one direction or the other, and it will usually tilt toward complete statism, as is happening now. This happens as the failures of policy begin to cascade, as they are now, and produce a situation of emergency, causing more and louder calls for more intervention, which usually consists of actions of the sort that caused the problem to begin with... as is happening now, as each intervention is larger and costlier than the last with ever diminishing returns.

And we are now almost at the end of the road toward complete socialization, and our politicians and policy makers are, predictably, attempting to mitigate the situation they've created over the past 20 years by the very actions that created the mess to begin with-by flooding the country with more fake money in the form of easy credit-and attempting to muffle the "feedback" that, left to run its course, would help the situation correct itself. At this time, over half the population of the country is employed by a federal, state, or local government agency, and a substantial fraction of those employed by nominally private concerns are dependent upon subsidies, such as our commercial airlines, major agribusiness, and most land transportation, begging the question of who remains to pay the bills for the bureaucracy, inefficiency, and misallocations of money and resources that inevitably result from government "assistance".

What will the next stage be? A treasury default? The annual budget deficit has now topped a trillion dollars, and the total treasury debt now stands at about $11 Trillion. It's doubtful we will be able to raise more tax revenue in a rapidly deflating economy, so our leaders have opted to inflate our way out of the situation, to the utter destruction of our elderly, our savers, and all of our poor and working poor population. The result will be that our poor will grow poorer, and a greater portion of our middle class will fall into poverty that deepens every year, with no hope of ever climbing out, especially since we now have to compete with other nations for a diminishing pool of resources.

Sunday, October 19, 2008

The Twilight of Belief

"Reality is what doesn't go away when you stop believing in it."- Philip Dick, A Scanner Darkly

"Your reality check is in the mail." - James Howard Kunstler, The Long Emergency

Back in my salad days as a rookie stockbroker, many moons ago, our in-house training consisted, not of analytical tools, product instruction, or prudent money management, but of induction into the Cult of Belief.

Cultivating a Positive Mindset was the focus of most of our sales meetings, which were conducted twice daily, with major meetings scheduled weekly, and division confabs taking place monthly. At these events, the speaker, who would be one of the firm's top producers, or sometimes the CEO or one of his top guns, would strive to imprint us with the notion that you can create the reality you want simply through "visualization" of the outcome that you desired- "Attitude is Altitude!"- and that fabulous success was assured if only you would internalize the necessary beliefs. These meetings were reinforced by more or less compulsory attendance at outrageously expensive seminars (at your own expense, of course) conducted by such stars of the motivation industry as Brian Tracy or Tony Robbins.

In my office, our Branch Office Manager directed us to write down and provide illustrations of our "goals", which were, of course, inevitably of the material sort- a $900K house, say, or a new Mercedes, or other high-priced material goodies. You were- get this- supposed to either draw little pictures of your "goals",or cut them out of magazines, and paste them in a scrapbook, which you would be requested to display at weekly sales meetings, while stating what actions you were taking to bring about the desired results. The idea was that merely by believing that you "deserved" lavish material rewards, that such would accrue to you merely by the rote repetition of the motions.. making the calls, making the closes, and by believing that it would all work......just exactly like the Cargo Cults of the South Pacific,where an American cargo plane made an emergency landing during WW2 and distributed tons of fabulous booty- liquor, prime steaks, luxury clothing, and anything else on board- to the natives, who are doubtless still building bamboo models of the plane and lining a runway with bamboo mockups of runway flashers in the belief that merely by visualizing, that they can score themselves another few tons of manna from heaven.

This is the mentality that informs most Americans of whatever socio-economic rank, level of education, cultural bias, or region, as the collapse of our financial system, and economy, progresses and we roll into the age of permanent energy depletion. Our financial and political leaders and their servant talking heads on shows like CNBC babble about how the unravelling of the tower of fake money is merely a crisis of "confidence" and how prevailing "sentiment" is keeping citizens out of the stores, and that if we can just crank up the fake money press again and harness "alternative energy" to keep 200 million cars and trucks running, that we can party like it's still 2003 and you could make a living on your house appreciation, just by living in the place, and that we can continue to rack up debt and heat our 4,000 sq. ft. crapboxes 78 miles from the city while scrapping the remains of our industrial capacity and fighting ever-widening wars for the remains of the planet's fossil fuels. We can do all this, they say, if only we believe, if only we have "confidence", because, don't you know, the United States is an exceptional country that is especially blessed by Jesus and is bringing "democracy" to the dark corners of the globe, and anyway there'd be "plenty" of oil if only all those enviro-fascist liberals would allow offshore drilling, and there are multitudes of brilliant people out there who will surely find a way to run all our tech when the oil really does start getting short.

"You've heard of mental depression; this is a mental recession." Really, Mr. Graham? I guess that 165,000 job lost per month, reduced hours and pay for those remaining, and trillions of dollars of private and public debt that we don't have the wherewithal to repay and probably never will, are just all in our heads, and so are the maxed out credit cards and stagnating pay that has dropped 1%, on average, since 1999. I suppose that all we have to do is believe that our situations are at least cool, if not improving, and that we have money to spend, and. presto, we will have jobs and money and be able to go back to running up credit bills to "support the economy" and to tapping all that idle "wealth" trapped in our houses.

"You'll do something, Mr. Reardon- ." There exists the blind faith of the more educated middle-class in the ability of our technocrats to just "do something" to "solve" the problem of dwindling resources, and in the doubtful talents possessed by the utterly lame, clueless, and brazenly lying policy makers who created the financial bubble to begin with, to deliver us from the consequences of 10 years of piling on one layer after another of debt in the service of fake "wealth creation"-a belief far less justified than that of Ayn Rand's "wetnurse" character, who at least vested his faith in someone of proven brains and ability. "There are a lot of brilliant people working on these things. They're sure to come up with something, " my mother says in an attempt to reassure me, and I don't doubt that. However, I'm pretty doubtful that they can achieve results that will come close to satisfying the expectations of a population nurtured in feelings of entitlement to the satisfaction of every whim, and in the belief that there are no limits and that you can conjure things into existance despite known limitations merely by believing in them.

Earth to Americans: You are engaging in Magical Thinking, and you are functioning on the mental level of a six-year-old, and you are getting bitch-slapped by reality. The money is gone and the oil is going and we have no way to make a living in this country beyond making lattes and running financial scams and the businesses connected with them. We can't recover all the money that was lost in the past six years just by shifting it to the tax payers and we aren't going to recreate the ease and prosperity of 1965 by tossing more money at obsolete industries. And all the motivational seminars and Positive Thinking and chanting of mantras and Prayer Breakfasts in the world aren't going to help us make the transition from the quagmire of the present to a productive, sustainable society driven by the production of real products in industries that will be relevant in a vastly different world than the one we've been living in for the past 60 years.

Thursday, October 9, 2008

Abolish The Federal Reserve

The Federal Reserve has been responsible for the creation of some of the worst credit debacles since people began using currency and granting credit.

Maybe it's time to return to an economy based on fundamentals and driven by the production of real goods and services, rather than monetary manipulation, debt creation, and asset inflation.

Follow the title link to the petition to abolish the Fed- an institution that shouldn't have been permitted to survive the Great Depression.

Wednesday, October 8, 2008

Citi May Be Next

Nouriel Roubini, NYU Stern School economist and chairman of RGE Monitor, is predicting another failure of a major bank.

"Eventually, a government takeover of the biggest bank in the U.S. is a possibility," he says.

Will Bank of America, Chase, and Wells Fargo make it? Will a single major institution be left standing after this debacle finishes playing itself out?

Will we even still have MONEY after the dusts settles?

Nobody is really surprised that the big bailout is not working. Our policy makers should have know it wasn't going to work, and that we're not going to rebuild the economy by artificially propping up the prices of outrageously overinflated assets (i.e .housing) by shoveling evermore public money into the widening hole, while burdening the treasury with ever more debt.

The only emergency action that the government could have taken that would actually help would have been to guarantee all "demand money"- bank deposits and money markets, to the full amount deposited. This would forestall bank runs and assure that something would be left after all the failures and defaults.

Monday, October 6, 2008

Bailout Fails to Reassure Investors

It appears that the great assistance plan is failing to reassure jittery investors around the globe or to ease credit, and it's increasingly doubtful that the government can do anything at all to restore confidence.

The markets here haven't opened yet, but stocks are already down in Asian and European markets, as panic spreads and credit continues to tighten.

Well-regarded NYU economist Nouriel Roubini, who accurately predicted the present debacle, calls the situation one of "generalized panic", and noted that the numerous government interventions of the past year have been getting larger, with diminishing returns.

What's next? A still-larger allocation of future taxes to be tossed down the sinkhole of collapsing debt? And how do we know it will work, when it's already obvious that the massive intervention of Friday isn't going to work as projected.

We can't continue to take the bait. Too Big to Fail also means Too Big to Bail.

Friday, October 3, 2008

The Day of Infamy: The Official End of the Free Market and the Disaster of Government Intervention

Friday will surely be remembered in history as the most tragic day in the history of the United States, the day when this country's very justification for existence died, as most of our legislators on both sides of the aisle discarded whatever ideological differences they might have, in allowing themselves to be terrorized into legislating the complete socialization of our financial system, and colluding in pushing the country a large distance toward the eventual, and possibly inevitable, complete default on its sovereign debt and the utter destruction of our currency and what remains of our economy.

I had many, many thoughts as I witnessed this past week's ugly spectacle of intimidation by lies, compromise, abject fear, and utter capitulation to the terror-mongering of Paulson and his Wall Street cronies. Why, you had to wonder, would anyone believe that the economy would completely collapse merely because Paulson, who has told us nothing but lies during his entire tenure, and the Wall Street geniuses who engineered this debacle, told us so? Yet this wild claim was taken at face value.

No matter how dismal is the current situation in the credit markets at present, this massive addition to our national debt, which is almost too large to be repaid even now, will not only not arrest the unwinding of the un-repayable debt with which our large financial firms have burdened themselves, but will spread the distress to every corner of the economy.

Given that we are headed into an economic disaster no matter what, and that the great unraveling is proceeding with great speed and is unstoppable at this point, it would seem that the most constructive thing we can do is isolate healthy institutions and activities from the spreading blight, while triaging operations that are too far gone to be salvageable. However, this massively costly intervention, which basically commits the U.S. Treasury to supporting the financial system and its major players at whatever cost to the taxpayers, on terms left to the discretion of Mr. Paulson, will most likely make it certain that the Righteous will die just like the Wicked, and that no citizen and no enterprise will be able to isolate itself from the avalanche of failure.

It's easy to blame the Republicans, for it was Bush and his appointees Paulson and Bernanke, in response to the desperate entreaties of wealthy Wall Street executives- almost all Republicans, who made hundreds of millions of dollars in fees and profits by setting this country up for the most catostrophic financial debacle in recorded history. However, the Democrats have had the major part in creating the structure of entitlements and government agencies that enabled and fueled the speculative binge of the past 10 years, while the Republicans made debt formation, calling it "wealth creation" and the "ownership society", the centerpiece of their economic policy. The public, meanwhile, was unable to pass on the good times to be had by pretending to be rich by means of virtually unlimited credit available to almost anyone.

We are all guilty, but the major responsibility attaches to the policy makers who saw clearly that a disaster of unimaginable proportions was setting up by 2003, yet said not a word in protest as the lending and spending became even more reckless and our institutions continued to layer on evermore unrepayable debt and as homebuilders and mall builders continued to build hundreds of thousands more 4000 sq ft homes in suburbs 80 miles out of the city, and condo builders threw up more and more shoddily built 50- story highrises with $400K one bed apartments in buildings with ever-shoddier construction within the speculation-crazed precincts of Miami, Los Vegas, and Chicago's South Loop.

The ugliest upshot of the collapse of our credit markets, is that the lessons contained therein are completely lost on both policy makers and the public at large, all of whom have managed to draw from the disaster the conclusion that free markets do not work and that the economy can be managed only by the heavy hand of the government.

That this debacle was created by government intervention and that the creation of the credit bubble was, in fact, a centerpiece of Bush economic policy, goes unmentioned. That the disaster that is now unfolding and cascading through our economy, toppling businesses, bankrupting unprecedented numbers of citizens, and triggering tens of thousands of layoffs, was forseen as early as 2003, and many credible experts warned of the developing catastrophe, their cogent, well-worded warnings, backed up by hard numbers, unheeded and mostly unacknowledged by Bush, Paulson, Greenspan, and Bernanke, as well as by executives at financial firms that have now collapsed under the weight of all the worthless garbage paper that they have now succeeded in offloading onto the American public. As the venerable and brilliant former Republican strategist Kevin Phillips, states in his landmark analysis of our current political alignments, American Theocracy, the creation of the monstrous structure of layered debt based on steeply overvalued assets, as a tool to drive our otherwise unproductive economy in an era of depleting resources and dependence on foriegn oil, was well underway by 2004, by which time it was obvious that the chain of utterly reckless debt creation could not possibly be sustained for much longer into the future, and that its inevitable unraveling had the potential to blow our financial system to smithereens:

"If there's a bubble, it's in this four-letter word:debt. The U.S. economy is just awash in it".
-David Rosenburg, Cheif North American Economist at Merrill Lynch, speaking in 2001.

"The United States has never run such large currrent account deficits and no single
nation's deficit hs ever bulked nearly as large relative to the global economy.
- Former U.S. Treasury Secretary Lawrence Summers in a 2004 speech.

"There are disturbing trends: huge imbalances, disequilibria, risks-call them what you will. Altogether the circumstances seem to be as dangerous and intractable as any I can remember.......I don't know whether change will come with a bang or with a whimper, whether sooner or later. But is things stand right now, it is more likely than not that it will be financial crisis rather than policy foresight that will force the change."
_Paul Volker, former Federal Reserve Chairman, The Washington Post, 2005.

And now, the massive intervention, that comes at such great cost to the public till, will not only not change the destructive fiscal policies of the current administration, but will attempt to enable our financial system to do more of what it was doing that caused the problem to begin with, which is the reckless extension of credit to unworthy borrowers for fantastically overvalued assets. Accounting rules are being suspended in order to allow firms holding piles of reeking garbage debt to allow mark-to-fantasy valuations of their worthless crap. Every attempt will be made to prop up stock prices and house prices. The treasury will have unlimited power to buy whatever securities it sees fit at evaluations that may or may not have any basis in reality, for it is the task of the treasury, under this bill, to create an evaluation for the assets, whether they would fetch that in this market, or any market, or not.

FHA loan limits have been raised, as have the limits of conforming mortgages eligible for purchase by GNMA and the GSEs, Fannie Mae and Freddie Mac., what agencies were responsible for the inflation of the debt bubble to begin with, for were it not for these government agencies and GSEs whose whole reason for being is to serve as a dumping ground for risks that would be unacceptable to financial institutions were it not for the explicit and implicit guarantees of such agencies, and by the Federal Reserve. We are in our present predicament not in spite of government intervention, but because of it, for were it not for the multitude of socialized housing programs specifically designed to make housing "affordable" for high-risk borrowers, and the stated and visible willingness of the Federal Reserve to bail out failing institutions and entities on the grounds of the public interest, our institutions would trim their risk considerably, and the normal fluctuations of the business cycle, with its expansions followed by contractions, would be much milder and shorter-lived.

Worse, we will set the stage for more destructive financial binges, for it is now completely understood by all that government authorities will always step in to rescue failing business entities that are considered of key importance because of their size and their executives' connections to powerful politicians.

We will additionally continue to throw good money after bad, in supplying tax-funded support to obsolete, non-competitive "sunset" enterprises, such as our sadly incompetent and uncompetitive domestic auto manufacturers, while killing budding enterprises in promising new industries in the inception, as they are deprived of necessary capital because the tax burden has grown so large by way of supporting failure that capital is scarcer than ever, especially for the innovative and experimental industries that we will need if we are to survive resource depletion and the failure of our financial system and rebuild our economy and lifestyles on a sustainable platform.

A reader of James Howard Kuntler's blog, a citizen from Ohio, remarked that we could completely rebuild our railroads and electrify them, with service to every town with more than 5,000 people, with the money that is being allocated to the bailout of our financial system.

Worst of all, this will not be the last cash call. Expect another desperate call for another trillion dollars or so, or more, in a couple of months when it becomes obvious that this rescue attempt is not working, for $700 Billion is only a fraction of what will be necessary, given the immense exposure in structured debt instruments and other derivative instruments that grossly amplified the leverage, and risk, inherent in the mountain of overvalued mortgages and commercial loans. Commercial credit is only beginning to unwind, and there remains the mass of credit card debt overhanging the economy.

If there's anything that ought to be evident from reviewing past and present financial debacles and the depressions that resulted, it should be that the largest and most far reaching disasters result in the attempts of government authorities to "play God" with the lives and fortunes of hundreds of millions of citizens and thousands of business entities; that the economy is simply too large and too complex for any group of people, no matter how expert and educated, to predict how sweeping policy decisions made at the top will play out over the near term, let alone over decades. We should by now have learned that the policies and instruments put into place 75 years ago by well-meaning people of ability and deep knowledge, had many unintended consequences that played out and amplified over the ensuing decades, with disastrous results, such as the decision, made with the best of intentions in Roosevelt's era, to enable as many Americans as possible to afford, with government assistance, the unaffordable. Roosevelt could not have predicted that the current administration would turn these socialistic enterprises into the agencies by which his administration's disastrous fiscal policies, namely the stated intention to enable the creation of a mountain of debt as the driver of "wealth creation", could be implemented and developed with the results we have seen.

What will be the unintended consequences of this latest disastrous and most far-reaching intervention? Aside from attempting to do what no government has any business doing, which is propping up housing prices at still-unaffordable levels, and stock prices at levels unjustified by the prospects and current financial situation of the underlying companies, for the benefit of dishonest and incompetent financial firms and flagrantly imprudent and extravagant home debtors, it will take us further down the road to government insolvency, which would be the ultimate disaster, and one that no one will bail us out of.

Instead of devising evermore ways to offload the burden of malfeasance and incompetence on the next three or four generations of hapless taxpayers while freeing the guilty from responsibility, we could start the process of unwinding the structure of government agencies and entitlements designed to facilitate easy credit, while returning to lending standards reasonably designed to select for borrowers able to repay, from citizens buying homes to businesses contemplating expansion or startup. We could start the long and painful process of de-financializing our economy and founding it on manufacturing and agriculture, the only true founts of wealth creation.

A system in which your responsibility is commensurate with your liberty would work to restore equilibrium, by weeding out the irresponsible, the incompetent, and the criminal as they failed, while rewarding prudence, responsibility, worthwhile innovation, and accurate judgment. But there is no way a "free market" will work as long as players have absolute license with no commensurate responsibility for the consequences of their failures, and know that they will be rescued by the body of taxpayers whenever they produce the kind of results we are now seeing. It is like handing your manic 16-year-old an American Express card with an unlimited line of credit, while making it clear to him that he will not be held responsible for the bill, and wondering why you get a $360,000 bill in the mail, payable immediately, the following month. Therefore, we must, unfortunately, return to the stricter regulatory climate that prevailed before 1980.