Day of reckoning; America’s economic meltdown

[Mr_Jefferson_24]

By Mike Whitney
Online Journal Contributing Writer

http://onlinejournal.com/artman/publish/article_1183.shtml

<snip>

With wages stagnating since the 1970s, the increase in home equity has been the preferred method for most Americans to “get ahead.” Housing prices have steadily increased since the 1980s and skyrocketed in the last five years. This has created a feeding-frenzy for low interest loans and attracted millions of speculators and (traditionally) unqualified applicants to the real estate gold rush.

It’s been a great deal for the banks, too. Mortgages make up the bulk of the banks' loans in America, more than $400 billion last year alone. If it weren’t for the steady steam of mortgages, many banks would have seen negative growth in the last decade. Now that housing prices are flattening out and expected to fall (precipitously), the easy money has dried up and many over-leveraged homeowners are facing the dismal prospect of having to pay off an asset that is quickly losing its value. Economist Michael Hudson calls this phenomenon “negative equity,” that is, when the current value of the house falls beneath the amount that one has to pay on his mortgage. It is a predicament which now faces an estimated 30 million Americans who are drowning in red ink and skittering towards a life of indentured servitude.

The magnitude of the housing bubble is shocking and unprecedented. According to the Federal Reserve's own figures, “The total amount of residential housing wealth in the US just about doubled between 1999 and 2006, up from $10.4 trillion to $20.4 trillion.”(Times Online) This tells us that the Fed had a clear idea of the size of the equity balloon their low interest policies were creating, but decided not to take corrective action. It also tells us that there will be no “soft landing.” When the market begins to fall, no one knows when it will hit bottom. Ten trillion dollars are more than a “little froth,” as Greenspan opined; it is an earth-shaking, economy-busting catastrophe that will put millions at risk of foreclosure, bankruptcy and ruin.

Greenspan and the privately-owned Fed played a major role in putting us in this mess by rubber-stamping the new system of precarious loans (no down payments, interest-only loans, ARMs) and perpetuating their “cheap money” policies. Greenspan admitted this a few months ago when he said that current housing increases were “unsustainable” and would have corrected long ago if not for the “the dramatic increase in the prevalence of interest-only loans . . . and more exotic forms of adjustable rate mortgages that enable marginally-qualified, highly leveraged borrowers to purchase homes at inflated prices.”...

[razors edge]

1. heck its just money

they print it every day. :sarcasm:

[marmar]

2. Roma sta bruciandosi.

And Nero is fiddling.

[bullimiami]

3. greenspan sold us out to keep the insane bush economy afloat

he is a truly evil man. he plotted the entire generational surplus and future robbery of social security. he allowed this administration to plunder us.
and as a rand disciple i suppose he blames us for letting it happen.

[indepat]

5. Thank you for ratifying essentially what I've opined on the DU board

numerous times: A good case could be made that Greenspan plotted the generational surplus and future robbery of social security, created the stock market bubble, and then created the housing bubble as the country was being sold out to keep W's insane economy afloat.

[bullimiami]

6. a very good case.

[ACK]

4. From cato.org under "Ending Corporate Welfare As We Know It"

The last total I saw is that business subsidies amount to 85 billion dollars of the federal budget. That kind of money could do very well to fund better domestic spending and to begin to cut into the out of control federal deficit.

The following list includes some of the more egregious taxpayer subsidies to industries and firms.

* Through Sematech, a consortium of very large U.S. computer microchip producers, the Pentagon provides nearly $100 million a year of support to the industry. But of the more than 200 chipmakers in the United States, only the 14 largest, including Intel and National Semiconductor, receive federal support from Sematech.<3> Originally designed to help U.S. firms compete against foreign competition, Sematech now subsidizes the largest producers to help fend off smaller domestic competition.<4>


* An estimated 40 percent of the $1.4 billion sugar price support program benefits the largest 1 percent of sugar farms. The 33 largest sugar cane plantations each receive more than $1 million.<5>


* Through the Rural Electrification Administration and the federal power marketing administrations, the federal government provides some $2 billion in subsidies each year to large and profitable electric utility cooperatives, such as ALLTEL, which had sales of $2.3 billion last year.<6> Federally subsidized electricity holds down the costs of running ski resorts in Aspen, Colorado, five-star hotels in Hilton Head, South Carolina, and gambling casinos in Las Vegas, Nevada.<7>


* Last year the Forest Service spent $140 million building roads in national forests, thus subsidizing the removal of timber from federal lands by multi-million-dollar timber companies. Over the past 20 years the Forest Service has built 340,000 miles of roads -- more than eight times the length of the interstate highway system -- primarily for the benefit of logging companies.<8>


* The Department of Agriculture Market Promotion Program spends $110 million per year underwriting the cost of advertising American products abroad. In 1991 American taxpayers spent $2.9 million advertising Pillsbury muffins and pies, $10 million promoting Sunkist oranges, $465,000 advertising McDonald's Chicken McNuggets, $1.2 million boosting the international sales of American Legend mink coats, and $2.5 million extolling the virtues of Dole pineapples, nuts, and prunes.<9>


* Last year a House of Representatives investigative team discovered that federal environmental cleanup and defense contractors had been milking federal taxpayers for millions of dollars in entertainment, recreation, and party expenses.<10> Martin Marietta Corporation charged the Pentagon $263,000 for a Smokey Robinson concert, $20,000 for the purchase of golf balls, and $7,500 for a 1993 office Christmas party. Ecology and Environment, Inc., of Lancaster, New York, spent $243,000 of funds designated for environmental cleanup on "employee morale" and $37,000 on tennis lessons, bike races, golf tournaments, and other entertainment.<11> Such activities give new meaning to the term "corporate welfare."

[bhikkhu]

7. Its hard to see a way out of this one, but...

I have been reading regular reports of the US economic demise since the early 80's. Pessimism has its limits, really, and I begin to wonder if "economics" is not some made-up thing to torment the working poor with while the rich get richer, in firm control of the reins.