Sunday, September 21, 2008

We didn't get into Wall Street mess quickly, and we won't exit it quickly either; economic downturn will be a frightfully long one for most

It took 25 years for Wall Street to get into its current mess, and it will take another two decades for this nation and its economy to get out of it.

That's the shocking conclusion of noted author Kevin Phillips, who was interviewed by Bill Moyers for his show broadcast last Friday on PBS.

Former Federal Reserve Chief Alan Greenspan and the Clinton administration come off as the biggest problem-causers in a historical look at this matter. But adminstrations beginning with Ronald Reagan also share some blame.

Reagan bailed out the savings and loan industry in tthe 1980s after its disastrous loan-making. And that set the political precedent that the financial industry was worth rescuing and not the auto industry or other manufacturers. Financial services make up 21 percent of the total Gross National Product.

Greenspan looked the other way on Wall Street wrongs. If a practice made money, then it was all right. The Clinton administration deregulated the financial industries, allowing bank and brojerage firms on Wall Street to do business together.

Other administrations followed with bailouts such as with the Mexican peso.

This decade, brokerage firms and banks started making deals with home mortgages. Loans were made to people who could not afford to buy homes. Adjustable rates were even used to make some buyers qualify for loans from Indy Mac to Feddie Mac to Fannie Mae. Now the federal government, or you, own 80 percent of the bad loan portfoilo of Fannie Mae and Freddie Mac.

If that was not bad enough, Wall Street started buying what are called derivative contracts. These contracts speculate on anything, whether at a future date the cost of a product will be lower or higher. This kind of stuff makes betting on football a sure thing.

So now, Washington is pushing a bailout plan of at least $700 billion.

Phillips said: "Now are are saving capitalism from the capitalits. There is no bailout for laid-off workers."

Shameful. All these supposed free-market capitalists say no to more government, exception when it comes to rescuing their asses and their fortunes.

Capitalism is not supposed to be moral. It just encourages people to buy, buy, buy. Americans now carry $44 trillion in debt. That's up from $11 billion 25 years ago.

So there you have it. What should this nation do? Phillips saw some hope in the Obama campaign for change. But he says that for Obama to do all the things he is promising and keep all the programs his political party wants, then change in the way Wall Street is running will not be possible.

If Washington goes through with the bailout which Obama supports, the Democratic Party will be reduced to civil war within its ranks as each constituency fights to protect its programs from cuts. And Wall Street makes most of its contributions to Democrats.

As for health care reform or universal care, you can forget about it during the Obama presidency.

Sen. John McCain is part of the problem. He was initially involved in the S&L scandal and the bad practices of Mr. Keating. He and four other senators were accused of wrongdoing. But as with anything in Washington, the five were let off the hook.

McCain opposes the bailout. Whether as president he would truly reform Wall Street with more regulation is highly questionable at best.

Our children and grandchildren face a most uncertain future over the next two decades. Home values will have declined by 30 to 40 percent. I wish that were not true. But Phillips' analysis is dead on right and non-partisan.

If we must have pain, then let the pain be where it can do the most good. That means no bailout. And that means keeping the money not to help Wall Street bigwigs but to alleviate the suffering to come of Main Street Americans.

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