Thursday, May 27, 2010

Not So Fast Wall Street Spin Doctors! (Polemic) By Edwin L. Young, PhD

Not So Fast Wall Street Spin Doctors!
By Edwin L. Young, PhD

Yesterday evening I saw a PBS show called “Mind Over Money” subtitled “Can markets be rational when humans aren’t?” After recounting various critiques of the mathematical techniques that brokers and investors use to predict market behavior and make profits, they concluded that their formulas were flawed and that combined with their flawed human judgment had made it impossible to anticipate our economic bubble and recession, the worst since the Great Depression. Well, I am here to tell you that as early as August 2001 Noble Laureate Economists (à la program from CNBC ) were predicting a Global Economic Crash would result from Bush’s economic policies.

In August 2004 Economist Marti Van Cleef sent a letter to Bush with support from dozens of renowned economists around the world in which they strongly opposed the Bush economic proposals.

In 2005, Mother Jones published a report on the Nation’s credit situation and it showed that American’s had suddenly and dramatically increased their credit card debt. The people were already beginning to feel the economic downturn and turning to credit to survive. Oil rose to $104 a barrel and gasoline soared along with it. Credit card rates were going up as a credit card debit was increasing. Gold, a traditional protection against depression or recession, had been around $300 and ounce in 2000 and from then to now at nearly $1,200. In February of 2008, employment began to drop dramatically. The stock market DJ Average reached 14,000 in October 2007 and then dropped to around 7,000 around the beginning of 2009. Meanwhile, the big corporations had suddenly had a windfall, essentially a gift from Bush economic and were swimming in $2 trillion in cash.

In July 2007, I wrote about how the economic crisis Bush had brought about was evolving.

And again in March 2008, I wrote about how Bush was spinning what was now a global economic crisis.

In March of 2009, I wrote about the escalation of home prices from 1964 to 2007; how the changes in the electronics of trading on the stock market influenced the crash; what the difference was between bailing out the auto industry (loans not bailout actually) and the TARP for the financial sector; how loosening control over mergers and acquisitions facilitated the change to multinational corporations and a global economy; and the role of the IMF in further exploitation of third world nations. Finally, in that essay, I suggested changes the Obama administration could make in the economic superstructure to ward off even worse and furthermore multiple, global financial and environmental catastrophes.

There are mounds of evidence that the Bush people rigged the economy to benefit the super rich and promoted the very conditions to bring about the crash. It was not just the unjustified tax breaks, which, as you know, both houses of Congress voted for. One small but powerful example of the Bush strategy illustrates this out in broad daylight conspiracy. Consider Bush’s repeated speeches about the ownership society and that everyone should own a home. The media were the White House and Wall Street front men. For a handsome fee of course, the media allowed the Savings and Loans corporations to run ads to promote ARM’s, second mortgages, and home equity loans which resulted in extravagant spending on real estate investments by the upper middle and lower upper class.

Many in these semi-wealthy classes also made huge purchases of stock. The sellers, that is the large corporations, made those stock go down and when they were down, the corporations would buy back. There were years in the bush administration when the stock markets were on a wild roller coaster ride. Therefore, while the stock market skyrocketed, the corporate world’s profits went straight into their bank accounts. Corporations began to be swimming in liquidity. With the buy-backs, they bought out their stockholders and therefore there were fewer dividends to be paid them.

The extravagant real estate investment at the beginning of this boom sent real estate prices soaring and the interest rates of ARMs along with them. The barely rich now had not just the principal to pay but soaring interest rates as well. When the economy was plagued with outsourcing in the executive, scientific and engineering professionals, as well as skilled workers, our people were laid off. When corporations outsourced manufacturing jobs, another segment of our work force went unemployed. The semi rich were getting less stock dividends. Everyone from the semi-rich down to the skilled middle class was in a serious financial squeeze. Together, these factors meant that retail sales fell off. The economy tanked. Now all of that extravagant spending of these semi-well-to-do classes left millions of them with swelling bills and shrinking income. Defaults on loans and foreclosures escalated. All of which had by around 2007 started to ruin millions home owners and put hundreds of thousands of smaller businesses into bankruptcy as well.

Then, just as the housing downturn was about to hurt the big corporations in the financial sector, finally, at the eleventh hour rescue, there was the de-regulation legislation of investment banking firms that led to splitting up and spinning off risky loans into derivatives. Since these derivatives were mostly for the sake of distribution the really bad risk that resulted from bad home loans that were made at the beginning of the irrational exuberance, most of the big corporations in the financial sector were holding worthless titles on their book. This necessitated the big bailout, namely the TARP (Troubled Asset Relief Program).[7] This was a program of the United States government to purchase assets and equity from financial institutions to strengthen its financial sector. It was the largest component of the government's measures in 2008 to address the subprime mortgage crisis.[8] The ordinary citizen taxpayers were the ones supplying the approximately Trillion dollars for the TARP. This was really just added to the national debt which future generations would eventually have pay, just at the moment in history when mandatory government expenditures would become enormous.

Greenspan seemed to me to know what was going on and his reports to the Senate Finance Committee were just too complex for anyone to understand because he was to intelligent. I strongly suspect it was deliberate obscurantism to avoid what he knew would be possible future recriminations for not telling the Committee what the Bush Economists were up to. He had to know there was near universal consensus among the top economists all over the globe that Bush economics was a recipe for global financial disaster. And, by the way even Greenspan meekly warned of “Irrational Exuberance”. Now everyone complicit during those days is working overtime on CYA strategies.


Author bio:

Edwin is a 76 year old, retired, psychotherapist/institution reformer. His greatest satisfaction came from reforming many juvenile correctional institutions, a maximum security prison, a West Texas mental hospital, and the huge Job Corps in San Marcos, Texas. All in all there were thirteen institutions that he successfully reformed. In the last year of his PhD program, Edwin was one of the two PhD graduate students to be awarded the annual University Research Institute grant. His dissertation committee said his was the longest, best, and most complex in the history of the department. Since retiring, Edwin spends his time writing. His site is: The Natural Systems Institute.

No comments: