Tuesday, January 22, 2008

Our nation's finances

I want to call your attention to a very brief article entitled "Deregulation and the Financial Crisis". Here's how it gets started:

It would be nice to write off the current crisis on Wall Street and global financial markets as something that only matters to the investor class.

Unfortunately, the effects are already being felt in lower-income communities around the United States. Worst-case scenarios for what spins out from the U.S. mortgage meltdown are truly frightening — a severe world recession is a distinct possibility.

Whether such worst-case scenarios can be averted, or softened — and preventing the recurrence of similar crises in the future — depends on abandoning the laissez-faire financial regulatory regime entrenched over the last decade.

The current crisis is the predictable (and predicted) result of a massive U.S. housing bubble, which itself can be traced in part to global economic imbalances that could have been prevented.

At least five distinct regulatory failures led to the current crisis.

Regulatory Failure Number One: Failure to Manage the U.S. Trade Deficit. The housing bubble (as well as the surge in leveraged buyouts of publicly traded companies (”private equity”)) was fueled by cheap credit — low interest rates. One reason for the cheap credit was an influx of capital into the United States from China. China’s capital surplus was the mirror image of the U.S. trade deficit — U.S. corporations were sending lots of dollars to China in exchange for the cheap stuff sold to U.S. consumers.

Do click through and read about the other four failures.

And take a look at this from the comments section:

They’ve never heard the famous last words, “Let them eat cake.”

One thing history repeats over and over again: when the rich/poor divide becomes too great — in both resources and numbers of people, revolution results.

Right now, the poor are a small enough minority that the huge middle-class can ignore. As long as the middle-class can dream of being rich, the truly rich are safe. Why do you think the middle-class let the past four administrations get away with massive wealth transfers to the already wealthy? Because it was still within most people’s imagination that they could be a recipient of this windfall some day.

But there may be a mood shift happening. Those who once dreamed of being wealthy are now scared of the poor house — not that there is anything as charitable as a “poor house” any more.

As the huge middle-class sees themselves sinking, year-by-year, into poverty, the pendulum may begin to swing back again.

Somehow we've got to educate the populace against voting against their own economic self-interest. But I fear a vast number of people will first have to experience outright destitution for that to happen.

1 comment:

  1. Dear Ellie,

    In the Daily Office, Morning Prayer, Suffrages A, I particularly like:
    V. Let not the needy, O Lord, be forgotten;
    R. Nor the hope of the poor be taken away.

    Our priest reminds us that this was not necessarily written with only the good of the needy and poor in mind. Simply put, if those at the lower end of society become too dissatisfied with life, those at the upper end are themselves in danger of having what they have taken away. Some of our more affluent citizens might want to give that due consideration.


New policy: Anonymous posts must be signed or they will be deleted. Pick a name, any name (it could be Paperclip or Doorknob), but identify yourself in some way. Thank you.