Monday October 13, 2008, 1:37 pm
Good question ... Thanks Mae.

Monday October 13, 2008, 1:47 pm
Meltdown : Economist James Galbraith shows how (neo)conservatives engineered financial free-fall


Reviewed by John Sakowicz

AS LIFE as we know it seemed to be ending—bailouts pushing $1 trillion on Wall Street, the stock market plunging, credit markets seized up around the world, with banks even refusing to lend to each other, never mind lending to their customers—James Galbraith and I talked. In his recent book, The Predator State, James Galbraith does what his famous father, John Kenneth Galbraith, never did: he makes a moral case. He argues that our country has been hijacked by the neoconservatives of the Bush administration. The "ideals" extolled by those neoconservatives—free trade, monetarism, balanced budgets, deregulation, privatization—are nothing more than a bunch of bull, says Galbraith. Moreover, he says, their true agenda was always greed. Taken together, these "ideals" came to represent a worldview whose basic principle was largely unchallenged by liberals. And what was that basic principle? Socialism—socialism for the rich.

During the last decade, the United States has become a nation of predators vs. the rest of us. As Galbraith explains it, neoconservatives in Washington and on Wall Street have conspired to steal elections and occupy the most powerful political and financial institutions in the land so that they might abuse that power. How does it work? When times are good, extol the virtues of privatization. Then reward politicians for betraying the public trust. Finally, let the robber barons rob the country blind. When times are bad, extol the virtues of socialism. Say you're asking for bailouts not for yourself but for the greater good. Nationalize whole industries, like the financial sector, whatever the cost.

Here's a quick economics lesson from Galbraith: Wall Street reinvented itself after the Glass-Steagall Act (which instituted banking controls in the Depression) was repealed in 1999. Then-Sen. Phil Gramm proceeded to deregulate every damn market you can think of: stocks, bonds, commodities, etc. Every form of debt was also "securitized" in exotic financial instruments like CMOs, CDOs and SIVs (like many military acronyms, these acronyms are innocent-sounding names for things that are harmful). Eventually, a newfangled market called swaps and derivatives was ushered in, a market that has a notional value in the hundreds of trillions of dollars—a market as esoteric as it is unregulated. Think of it as make-believe money that made very real people really, really rich. Printing this make-believe money on Wall Street was a new species of bankers called "prime brokers."

Things were good until last summer, when Bear Stearns went bust. Then things turned bad because those really, really rich people went crazy speculating in make-believe money at the encouragement of prime brokers—and at the encouragement of the banks and broker dealers the prime brokers worked for. Words like "value" and "risk" became meaningless. Something had to give. Banks and broker dealers started going bust. First, one by one, then, in waves. But those really, really rich people were allowed to keep their money. A funny thing happened at the same time, too. Those very same ruthless capitalist archetypes became hypocrites. "We're too big to fail," they hollered. "You've got to save the rich to save the poor."

Don't call them neoconservatives or conservative anything, says Galbraith. Call them by their true name: predators. And Galbraith continues, predators are almost entirely responsible for the problems confronting us at this moment in history: the subprime crisis, our new national debt ceiling of 14 digits; the deepening divide between the rich and the poor; the still-persistent inequality across the spectrum of race, gender and immigration status; climate change; our collapsing bridges and other infrastructure deficit; and, last but not least, the falling dollar.

What can America do to save itself? Simple, says Galbraith. Bring back the real ideology of free markets. If Fannie or Freddie have to fail, let them fail. New mortgage guarantors will spring up. When you think about it, Fannie and Freddie were just in the insurance business, plain and simple. The market will recover. Have faith. Also, start repairing government. Publicly finance campaigns and elections. Send the lobbyists packing. Finally, start regulating again. Regulate the new Wall Street—its new products, i.e., swaps and derivatives, and its new services, i.e., prime brokerage. Robber barons cannot be expected to police themselves. And for God's sake, stop labeling yourself and others as "liberals" or "conservatives." Those labels are meaningless. There's only the super-rich and the rest of us. There's only predators and prey.

Monday October 13, 2008, 2:03 pm
Thanks Blue. The neocons engineered it, but what did they do with the money? Over the years since they have gutted the Treasury and Iraq? I suspect much of this money is being used against Americans via security, exploration, science and military FOR the neocons and elites.

Example:

FEMA wasn't there for the folks during the Katrina fiasco. But FEMA was heavily funded, and the folks there were doing something...but towards what?

The military was/is heavily funded. Yet, the troops had poor equipment and other supplies. Where was that money diverted to?

With almost zero accountability, deregulation and little oversight, the Bushies have been able to divert massive funds to their own, personal projects and wish lists.

Massive looting and corruption. Heads should be cut off and rolling...

Yes...there's only the super-rich and the rest of us.

Monday October 13, 2008, 2:10 pm
By John W. Schoen
Senior producer
MSNBC
updated 11:24 a.m. ET, Mon., Oct. 13, 2008

The Article -There have definitely been winners in the ongoing collapse of the financial system. And there will be many more as it gets back on its feet.

In the case of stock market gains and losses, the math is pretty simple. If you sold me 100 shares of IBM at the market peak (about $131 a share), you locked in a gain on stock that is now “worth” just $87 a share, according to Friday’s closing price. To me, it looks like the money evaporated. But, depending on when you bought it, you can take a nice vacation trip at my expense.

One the other hand, if you bought IBM stock on Friday, the seller almost certainly lost money if they bought within the last two years – the last time IBM traded for less than $87 a share. (Correction: apologies to alert readers who pointed out our original historical stock quote was off the mark.)

But IBM is the same company it was a few months ago before the market sold off. It’s very likely the price is going to rebound – based on the value of all of IBM’s assets, its business prospects and its highly skilled workforce. The same is true for hundreds of other companies whose stock have gotten hammered. So today’s buyers are likely going to capture some of the “lost” value of stocks. It may take awhile to recover, but the value is almost certainly still there.

The losses related to the housing market are a little more difficult to trace. But despite the continued rise in mortgage defaults and foreclosures, one of the biggest winners of the collapse of the housing market was the American homeowner. Or at least those who sold or refinanced a house before the bubble burst.

As we’re now seeing, the rapid rise in the prices of homes — probably the biggest single asset for most homeowners — was not rooted in a real increase in value. Home prices were rising by double digits in the late stages of the bubble — even though wages were flat.

With their true purchasing power limited by wages, the only way home buyers could keep bidding up prices was by taking advantage of the flood of money from lenders — who began handing out mortgages to anyone who wanted one. Appraisers — hired by the mortgage brokers writing these loans — went along with the rapid run-up in prices.

These lenders didn’t have to worry that some borrowers couldn’t pay the money back — because they sold the loans off to Wall Street, which wrapped them up in a package with a big bow that said “Triple-A Rated.” As long as house prices kept rising, no one bothered to look under the hood to see how risky these loans really were.

But when prices were rising, sellers during that period made real profits. Of course, many had to buy another house at similarly inflated prices. But the gains on those sales were very real — and represent the flip side of the losses we are seeing now.

Some people locked in those gains by refinancing their mortgage — more than once — as home prices rose. Others took out loans against the rising equity in their homes; though that equity has evaporated, they still get to keep the money. They still have to pay back the loan, and that money is going to come out of consumer spending — which is a big reason the economy is at risk. Something like one in six homeowners are “underwater” — they owe more than their house is worth. As everyone tightens their belt at the same time, the contraction in spending would be a huge drag on the economy.

The banks and investors holding all those mortgage backed investments are also big losers, now that millions of homeowners are defaulting on their loans. The winners there are all the folks who profited from the lending boom. The mortgage brokers collected their fees and commissions on those mortgages, lenders took a slice when they sold them to Wall Street, which collected fees for packaging all them and selling them to investors. When the music stopped, there weren’t enough chairs. So if you're holding this mortgage backed paper, you’re going to have a tough time finding a chair to sit on.

Why are mortgage rates going up since the Fed's lowered the rate yesterday? Will they ever reflect the current rate decreases?
— Sandy, Santa Fe, N.M.

Despite what you see in those Web ad pitches with annoying wacko dancers, the Fed has little direct control over long-term rates like 30 year mortgages.

Even under normal circumstances, the Fed’s impact on all interest rates is limited. And these are anything but normal circumstances.

The money market ultimately sets the true “cost” of money — just like the stock market sets the value of shares. Banks and investors with money to spare sell it in the credit markets; interest rates rise and fall as borrowers offer more or less interest to “buy” money. Just as supply and demand set price in any market, if there’s lots of money sloshing around the system, rates go lower. If money is “tight,” rates go up.

When the Federal Reserve's policy makers “set” a short-term interest rates, they’re really just setting a target they’d like to hit. They then try to steer shorter-term rates by buying and selling of Treasury bonds on the open market. (Rates are set by the Fed's Open Market Committee.) Selling those bonds takes cash out of the system (buyers of the bonds have to pay cash) and buying bonds pumps more money into the system.

But the Fed only targets very short term rates; the “fed funds” rate you read about is for loans banks make to each other overnight to make sure they maintain the level of reserves set by regulators. A bank with a little extra money lends it to one that needs a few dollars — and pockets some change on the overnight interest. (When you’re a large money center bank moving billions through the system, that overnight interest adds up.)

Long-term rates like mortgages are also set by the money market, based on the supply of money and the level of risk associated with lending it out for 30 years. That’s why interest rates on long-term loans like mortgages are typically higher than very short term rates like those set by the Fed.

At the moment, the conventional rules are out the window. The credit markets are not behaving normally, and the price of money is based on full-blown panic. Banks have stopped lending to each other because they’re afraid the bank they lend to may be the next one to blow up. Mortgage lending is in slightly better shape — as long as you’re willing to put down a large sum of money to cover the risk that the price of the house you want to buy will fall further.

It remains to be seen how long banks remain locked in panic mode. The Fed and the Treasury are flooding the system with cash, but that doesn’t seem to be enough. It may take a complete government-backed guarantee of all loans between banks before these folks settle down and start lending again.

Monday October 13, 2008, 2:11 pm
Thank you Blue and Marion!!!

Tuesday October 14, 2008, 6:15 am
You don't' really think this interest rate cut is going to trickle down to us, do you? WaMu is rescued, but they raised the interest rate on my credit card to 32%. No missed or late payments, and fortunately a small balance. I won't hold my breath waiting for that rate to come down.

Tuesday October 14, 2008, 9:01 am
Lol Ombretta, no I don't think anyone here thinks the interest rate cuts are going to trickle down to us. I am personally waiting for the Amero's. This whole thing is smoke and mirrors. There is no saving of the collaspe -printing money to make it look like is simply a mirage. Those inerest rates may be lowered for the elite -as in the ones who have enough equity to cover their loan in the first place -but even that will be short lived.

Tuesday October 14, 2008, 1:19 pm
Thanks for bringing up the topic.

I worked on Wall Street as a technologist from 1990 to 2002 -- and I swear I never heard a word of truth.

I took all my retirement money out of the stock market in 2002 because I saw the following problems:

1 -- the US destroyed it's "old economy" by putting its factories in other countries, most noteably China

2 -- it raped its "new economy," or the technology market, and then sent it to other nations, most noteably India

3 -- it went into a real estate economy which produces nothing except evironmental destruction, and jobs for illegal workers at slavery wages

How can we survive this? It seems impossible unless there is extreme exploitation planned for the futures of both humanity and especially the environment

I am moving my Radical Empathy group (finally) in the direction Empathy Action
Please Click to take a look, I am hammering the present capital system

The empathy model I am working on sees the human race as empathic but controlled by an elite of hate, which the model defines as mentally empathically defective.

Also, my traditional revolutionary approach still stands, calling for all --especially Red Necks-- to fight for small business and a local economies and connection to the environment, and an end to hunting !!

Tuesday October 14, 2008, 1:22 pm
Oops, link for my traditional rebellion: thinman.com/rattlesnake

Tuesday October 14, 2008, 10:26 pm
thank you very much john!!! i'm on my way to check it out -greatly appreciated.

Wednesday October 15, 2008, 8:38 am
Great Mae -- this group has had a lot of ups and downs, but I believe that we can succed in dealing w/ issues by going to the psycho- and sociological roots of the illnesses of our society

Wednesday October 15, 2008, 9:51 am
From: http://en.wikipedia.org/wiki/Talk:Stock_market_crash#2008_Crash
By me

I worked on Wall Street as a technologist from 1990 to 2002, and in 2002 I took all my retirement money out of the stock market because I saw a series of problems that I believed--correctly--could only lead to a crash. With 20/20 hindsight, I have expanded on my initial fears with real estate realities that I witnessed up-close as a concrete mixer driver:

* The shipping of American factories and factory jobs to other countries, most notably Communist China
* The raping of the technology "new economy," with "pump and dump" strategies
o The prosecutor who pursued the technology investment corruption became the New York State governor, and then became a criminal himself: sexual perversion
* The shipping of American technology to the upper-caste of India
* US Government obfuscation of information about the shipping of money overseas for manufacturing, and a complete blackout of information about shipping money overseas for services
* Development of a real estate economy which produces no returns
o A bubble in this model
o Purely illegal jobs at slavery wages
o Mexican border drug smuggling associated with its illegal labor base
o Environmental destruction
+ Destruction of wildlife habitat
o Sub-prime lending to fuel home sales
+ Initiates crash
o Construction of poor quality but huge homes, or McMansions
o Congestion
o Destruction of existing stable local economies to build low-salary "mall economies"

This I would describe as simple economic model that has produced returns in comparison to the losses of those who followed other more complicated models. The other models will be "corrected" with an obviously socialistic bailout by the US government. If the US actually had a free market economy this bubble would be allowed to deflate, and the guilty would be fired: the policy-makers who created it