5.56 Million continuing unemployment claims were reported this week – an all-time record. There are now at least 12 Million unemployed Americans. And unlike Europe or even Japan, we have no real safety net here, save depending on the kindness of strangers.
Welcome to Tent City, USA.
I remember such enclaves from 1999-2001, under the overpass near (ironically enough) Caesar Chavez exit South of Market Street in San Francisco near katmango.com (now defunct) offices.
Bottom line: regardless what Geithner and Obama tell you, there is no quick fix – not for American Piggy’s $4T and growing insolvency problem – read Krugman, et al. -- there's simply no bottom to bounce off -- not any time soon.
I began studying the post-Dotcom leverage phenomenon in 2003/4 via websites like Daily Reckoning, Prudent Bear, RGE and John Mauldin. Like Fox says in its X-Files advertisements -- the truth is out there.
Today the truth is that American Piggy is basically insolvent and the worldwide backlash has us literally on the verge of financial collapse. In short, the Chinese don't (really) want our Piggy dollars. The Russians and Europeans don't want our Piggy dollars. And now we all know the Piggiest got out early with so much profit it probably doesn't matter (for them) what the U.S. dollar is ultimately worth. But it matters to me. And it matters to you.
So that’s where your retirement went. While you were playing by the rules and buying on credit like the magic screen said you should -- No down. No doc. No problem -- Piggy stole it all, then broke the bank and left the whole world holding the bag.
So just remember, when your money market “breaks your buck” and there is nothing left of you but (hopefully) your ability to draw breath – at least accept who/what stole the American Dream you were socialized from birth to hold faith in.
- Ronald Reagan's dimwit optimism stole it.
- Alan Greenspan's Ayn Rand inspired American hedonism stole it.
- Surly Republican Congressional selfishness, masquerading as reform, stole it.
- Wall Street's Harvard MBA "Masters of the Universe" sense of entitlement stole it.
- George W. Bush's Antoinette inanity and "War on Terror" arrogance stole it.
- Television: QVC, Snuggie, Sham Wow, et al. stole it.
- Jesus of Suburbia stole it.
As we and our elected government watched live on 50 inch plasma screens.
It finally collapsed because for 30 years American Piggy cared for little more than getting richer faster, exploiting unregulated access to ever-less valuable Alan Greenspan Federal Reserve dollars.
When cheap money leveraged 10-t0-1 as junk bonds stopped working fast enough for parasites like Michael Milkin and Ivan Boesky, Piggy changed the rules and resorted to 40-to-1 leverage.
When 40-to-1 leverage wasn't fast enough Piggy began trading debt instruments, like credit default swaps (CDS) and mortgage backed securities (MBS) in a process called "securitization," which is just a Piggy word to describe bundling then trading illiquid assets (like corporate machinery or homeowner mortgages) then making (what has proved catastrophic) bets on which parasite firm would default first.
By 2006 Piggy had bundled Trillions of such "investments" and concocted elaborate insurance scams to "AAA" rate them so that normally conservative (slow money) investors -- like the fund/broker that defaults on your retirement account or the insurer that can't pay your workers’ compensation claim -- could soak it all up. And when every saved Greenspan dollar in every account yielded zero (less, relative to inflation), all were forced to take the bait.
Near the end, when such trading failed to deliver fast money obscene and obsequious enough, Piggy simply ran Ponzi schemes.
But there were serious flaws in the model.
What Piggy rarely tells us is that today securitization accounts for 2 of every 3 dollars in the global financial system. And that a disconcertingly high ratio of the system's "legacy" assets are now toxic, worth at best 60 to 80 cents on the dollar, though most firms still carry them on the books at 100% of face value, which explains why FASB rules were recently changed.
It also explains de-leveraging, where trillions in stocks, bonds, commercial and residential real estate, swaps, tranches, etc. recently halved in price since peaking in 2007 -- and likely must halve again to restore rational (trade-able) valuations.
Finally it explains why attempts -- e.g. Geithner's plan --to reinflate assets will inevitably produce an inflationary run on the dollar.
That's right. The United States of America may become a Banana Republic? And the only thing preventing the rest of the world from forcing IMF style "austerity measures" on it is that, like it's banks, America is "too big to fail." But imagine the price of a loaf of bread or a gallon of gasoline if gold ever trades at $3000 or $5000 an ounce.
What precipitated this sudden realization leading to de-leveraging and a collapse in U.S. asset values?
Near the end of the housing boom in 2006, when home prices had become unattainable for a majority of Americans, millions of foolish borrowers saw houses as investments not houses -- at least until they discovered what a balloon payment and an adjustable rate mortgage really meant. Meanwhile Piggy lenders and asset bundlers were all too happy to oblige.
But soon enough overextended borrowers and "equity" driven consumers realized Piggy had missed a major loophole in its strategy by insufficiently institutionalizing financial slavery.
Eventually, millions of people -- that wanted little more than granite countertops as trifling imitations of the billionaires they saw daily on CNBC -- realized the only way to break their chains was to walk away from underwater mortgages. Take This House and Shove It! It's not worth it any more...
But don't worry! The new administration has yet another fast fix in mind.
So that's how we got here. Thirty years after uncle Ronnie, uncle Newt and cousin Grover convinced us that Greed is Good. That if we only made the top 1 percent 200 percent richer, while our own wages stagnated and our best paying jobs became the primary export of American corporations, we'd all soon live in a Shining City on a Hill.
In corporate Information Technology (IT) we sometimes resort to a simple aphorism to defend our best efforts to make management's ill fated software purchases succeed: You can't fix stupid!
Somehow, in the midst of this collapse, 99% of us owe it to ourselves and our families to finally stop assuming the ruling class is smarter than we are, demand an official declaration of bankruptcy from Piggy, claw back profits stolen in the greatest swindle in the history of Western civilization, then find our own, better way forward...
The social and economic consequences of parasitism
40. This account of the impact of Blackstone's operations—whose chairman, Steven Schwartzman, has a net worth of more than $7 billion—calls attention to their essential social significance. The activities of outfits like Blackstone are not socially neutral. The phrase "creating shareholder value" is a social euphemism that is employed to conceal and justify the brutally exploitative, socially destructive and essentially criminal character of these financial transactions. The merger and acquisitions wave of the 1980s required and could not have succeeded without a massive assault on the social position of the working class in the United States. The policies implemented by the Reagan administration—with the support of the Democratic Party—created the necessary political framework for the operations of the corporate raiders. Paying down the huge debts incurred in the leveraged buyouts of the 1980s required intensified exploitation of workers, realized in the form of union-busting, wage cuts, reduction of benefits, more onerous work rules, and the outright elimination of hundreds of thousands of jobs.
41. The repeated occurrence of economic disasters cannot be explained as unfortunate accidents, which might have been avoided had investors been less greedy, executives more responsible, administrators more watchful, etc. Every five years or so, since the 1980s, there has been a major disaster. In the 1980s, the so-called "Decade of Greed," there was the Savings and Loans scandal, the junk bond mania (Ivan Boesky and Michael Milken), and the 1987 Wall Street crash. In the 1990s, there was the Mexican peso crisis, the dot.com bubble, the Asian crisis, the ruble crisis, and the collapse of Long Term Capital Management. In 2001 Enron collapsed almost overnight, when its fraudulent bookkeeping, in which prestigious accounting firms acted as accomplices, was exposed. Then, abetted by the decision of the Federal Reserve to cut interest rates to their lowest levels in decades, the housing boom developed. Underlying all these speculative operations is the decay of the real productive foundations of American capitalism, the separation of the process of the ruling class's self-enrichment from the processes of production and the creation of real value.
The end of dollar dominance
42. This crisis cannot be reversed by reviving a mythical "Golden Age" of American capitalism. First, the objective position of American capitalism in the world economy has deteriorated dramatically over the past 40 years. As I explained earlier in this report, the weakening of the dollar as far back as the late 1950s was among the earliest signs of the deterioration of the global position of the United States. In 1971 the US ended dollar-gold convertibility. Still, the dollar has remained the world reserve currency even as the United States became the largest debtor nation and accumulated a massive current accounts deficit. But, in yet another sign that this crisis marks a historic turning point, Chinese Prime Minister Wen Jiabao has publicly expressed concern about the future viability of the American dollar and the safety of Chinese dollar holding. "We have lent a huge amount of money to the US. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried," he said recently.
43. The financial viability of the United States has been called into question by a major economic power—one that happens to be the largest foreign holder of US dollars. While American commentators have, for the most part, brushed off Wen's statement—on the grounds that China would not, for its own sake, risk the global financial consequences of lowering its dollar holdings and igniting a run on the American currency—it is difficult to exaggerate its significance. Up until now, the global role of the dollar provided the United States with a unique financial advantage. The United States controlled the printing of a currency that functioned as the world reserve currency.
44. Were the dollar to lose its unique global status, this would have immediate consequences not only for the global position of American capitalism, but also for the conduct of its domestic economic policies. It needs only to be pointed out that the entire stimulus package of the Obama administration, which entails running multi-trillion-dollar deficits, depends upon the willingness of foreign creditors to hold US dollars.
A systemic crisis
45. The analysis presented in this lecture has stressed that the present crisis is of a systemic, rather than conjunctural character; and that its development is the outcome of the protracted decline in the global position of American capitalism. The rampant financial speculation, fueled by debt, is not the cause of the crisis, but, rather, a manifestation of deep-rooted contradictions in the American and global economy. As we have sought to explain, the very measures undertaken by American capitalism to respond to economic pressures that it confronted more than four decades ago prepared the foundations for the crisis that it confronts today.
46. Precisely because of the historic and global character of the contradictions that underlie the present crisis, the claims of the Obama administration that the present downturn will give way, within some sort of reasonable timeframe, to renewed and sustained economic growth, accompanied by a recovery and improvement in the living standards of the broad mass of the population, will be discredited by events. Regardless of fluctuations in the economic conjuncture from month to month and quarter to quarter, the enduring impact of this crisis will be a long-lasting and deeply painful deterioration in the living standards of the working class in the United States.
47. Moreover, if history teaches us anything, it is that an international systemic breakdown of capitalism leads inexorably to violent political convulsions. Capitalism in crisis becomes the breeding ground of political dictatorships and rampant militarism. Out of the economic breakdown of the early 1930s emerged first fascism and, later, world war. The restabilization of capitalism in the aftermath of World War II was purchased with the blood of tens of millions.
The social physiognomy of the American ruling class
48. To recognize the dangerous implications of the unfolding crisis is not alarmism, but political realism. There is no reason to believe that the ruling elites will respond in the first and second decades of the 21st century to the breakdown of capitalism with any less brutality than they did in the 1930s and 1940s. Nothing in contemporary culture suggests that the super-rich of the corporate and financial elite has grown more civilized and less prone to violence in defense of its interests than the magnates of the last century. The operation of the capitalist economy cannot be abstracted in some sort of metaphysical way from the class relations and interests to which it gives rise and in which it is embedded. During the past quarter century, the decay of American capitalism has created a powerful social constituency, commanding vast wealth, whose social and political arrogance has been magnified by its economic parasitism. If any conclusion can be drawn from its initial response to the bankruptcies and collapses produced by its own policies, it is that the ruling class is determined to make the mass of the population pay for the cost of the crisis.
49. Observing the response of the ruling elite in the United States to the economic crisis, one cannot help but note the parallel to the French aristocracy on the eve of the revolution that erupted in 1789. Every effort to find a rational solution to the financial crisis that confronted France was blocked by the aristocracy, which was determined to exploit the crisis in its own interests. The nobility would not tolerate any measures that threatened to undermine its wealth, status and prerogatives. In the end, their intransigence drove the mass of society, the "Third Estate," to ever-more radical measures.
50. The brazen contempt for public opinion displayed by the executives of failed banks and corporations as they reward themselves with multi-million-dollar bonuses, looted from funds provided by taxpayers, exposes the unalterably reactionary and socially destructive character of the American ruling class. It will do anything to protect its wealth and privileges. The AIG affair is typical of a society in which the rich, intoxicated by privilege, believe that they can do what they wish, unencumbered by legal, let alone moral restraints. President Obama's Treasury Secretary Tim Geithner, a multimillionaire (like many other members of the administration), cheated on his taxes—with no legal or professional consequences. Paying taxes, as we were once told by a real estate mogul, "is for little people."
51. One is struck by the degree to which the American ruling class has acquired the characteristics of a decadent aristocracy. Self-obsessed and narcissistic, it seems utterly impervious to the feelings and sentiments of that portion of society that is compelled to work for a living. In the midst of the AIG scandal, one of the leading business columnists for the New York Times, Andrew Ross Sorkin, argued that the $160 million bonuses must be paid to AIG, in the interest of preserving the sanctity of contracts! And yet, the same columnist has called for the ripping up of the contracts of autoworkers and the elimination of benefits and the lowering of wages. Legal standards, as we see, are determined by class interests.