H
Harry Hope
Guest
Today's Wall Street fabricators of avant-garde financial instruments
are actually called "financial engineers."
They got their training in "labs" much like Dr. Frankenstein's,
located at Wharton, Princeton, Harvard and Berkeley.
Each time one of their concoctions goes south, like the bewildering
"security investment vehicles" that helped precipitate the mortgage
industry collapse, they scratch their heads in bewilderment -- always
making sure, of course, that they have financial life rafts handy,
while investors, employees, suppliers and whole communities go down
with the ship.
What makes Wall Street's latest crisis so portentous, however, is the
way it is interacting with, and infecting, healthier parts of the
economy.
.......................................................................................
While the old regime, the Reagan-Bush counterrevolution, has lived off
the heady vapors of the FIRE (for finance, insurance and real estate)
sector, it has left in its wake a deindustrialized nation, full of
super-exploited immigrants and millions of families whose earnings
have suffered steady erosion.
Two wage-earners, working longer hours, are now needed to (barely)
sustain a standard of living once earned by one.
And that doesn't count the melting away of health insurance, pensions
and other forms of protection against the vicissitudes of the free
market or natural calamities.
This perfect storm will be upon us just as the election season heats
up, and it will inevitably hasten the already well-advanced implosion
of the Republican Party.
From The Los Angeles Times, 12/9/07:
http://www.latimes.com/news/printed...,1,1306484.story?track=rss&ctrack=1&cset=true
Symptoms of an economic depression
The signs are pointing to a crisis -- and a crash for the GOP.
By Steve Fraser
No one wants to utter the word "depression."
But the truth of the matter is that the American economy may be
entering a state of free fall.
Every day brings more bad news about the sub-prime mortgage debacle,
about home foreclosures, construction industry slowdowns, a credit
drought for consumers and businesses, oil price shocks and the
open-ended devaluation of the dollar.
Where is it all leading?
Together with the debacle in Iraq and the political implosion of the
Republican Party, this economic collapse could make the presidential
election of 2008 a turning point in American political history.
Conservatism first triumphed over New Deal liberalism thanks in part
to the same deadly combination in the late 1970s: a lost war and an
economic crisis.
The Vietnam War plus stagflation and deindustrialization gave us
Ronald Reagan.
Now history is returning the favor, as the free-market conservative
political order of the last generation faces a systemic crisis from
which there is no easy escape.
Even the soberest economy watchers, pundits with doctorates -- whose
dismal record in predicting anything tempts me not to mention this --
are prophesying dark times ahead.
A depression, or a slump so deep it's not worth quibbling about the
difference, appears to be on the way, if indeed it is not already
underway.
Start with the confidence game being run out of Wall Street.
The sub-prime mortgage crisis occupies newspaper front pages day after
outrageous day.
Certainly, these tales of greed and financial malfeasance are
numbingly familiar.
Yet precisely that sense of deja vu -- of Enron revisited, of an
endless cascade of scandalous, irrational behavior affecting the
central financial institutions of our world -- suggests just how dire
things have become.
Once upon a time, all through the 19th century, financial panics --
often precipitating more widespread economic slumps -- were a commonly
accepted, if dreaded, part of "normal" economic life.
Then the crash of 1929, followed by the New Deal Keynesian regulatory
state called into being to prevent its recurrence, made these cyclical
extremes rare.
Beginning with the stock market crash of 1987, however (and followed
by the collapse of the savings and loan industry at the end of the
1980s and the near-meltdown of Long Term Capital Management in 1998
that required an emergency, government-assisted bailout), financial
panics have become ever more common again.
Most notorious -- until now, that is -- were the dot-com implosion of
2000 and the Enronization that followed.
Enron seems like only yesterday because, in fact, it was only
yesterday, which strongly suggests that the financial sector is now
out of control.
At least three factors lurk behind this new reality.
Thanks to the Reagan counterrevolution, there is precious little left
of the regulatory state -- the repeal of the Glass-Steagall Act
separating investment from commercial banking is a prime example --
and what remains is effectively run by those who most need to be
regulated.
(Despite bitter complaints about it in the business community, the
Sarbanes-Oxley Act, passed in the wake of the big corporate and
accounting scandals of recent years in an effort to restore public
confidence in the capital markets, has proved weak tea indeed, as the
current financial meltdown indicates.)
More significantly, for at least the last quarter of a century the
whole U.S. economic system has lived off the speculations generated by
the financial sector -- sometimes given the acronym FIRE (for finance,
insurance and real estate).
It has grown exponentially while, in the country's industrial
heartland in particular, much of the rest of the economy has withered
away.
FIRE carries enormous weight and the capacity to do great harm.
Its growth, moreover, has fed a proliferation of financial activities
and assets so complex and arcane that even their designers don't fully
understand how they operate.
Today's Wall Street fabricators of avant-garde financial instruments
are actually called "financial engineers."
They got their training in "labs" much like Dr. Frankenstein's,
located at Wharton, Princeton, Harvard and Berkeley.
Each time one of their concoctions goes south, like the bewildering
"security investment vehicles" that helped precipitate the mortgage
industry collapse, they scratch their heads in bewilderment -- always
making sure, of course, that they have financial life rafts handy,
while investors, employees, suppliers and whole communities go down
with the ship.
What makes Wall Street's latest crisis so portentous, however, is the
way it is interacting with, and infecting, healthier parts of the
economy.
When the dot-com bubble burst, many innocents were hurt, not just
denizens of the Street.
Still, its effect turned out to be limited.
Now, because of the sub-prime mortgage meltdown, Main Street is under
the gun.
It is not only a matter of mass foreclosures.
It is not merely a question of collapsing home prices.
It is not simply the shutting down of large portions of the
construction industry (which is inspiring some of the doom-and-gloom
prognostications).
It is not just the born-again skittishness of financial institutions
that have, all of a sudden, gotten religion, rediscovered the word
"prudence" and won't lend to anybody.
It is all of this, taken together, that points ominously to a general
collapse of the credit structure that has shored up consumer
capitalism for decades.
The equity built up during the long housing boom has been the main
fallback position for ordinary people financing their big-ticket-item
expenses, from college educations to consumer durables, from trading
up in the housing market to vacationing abroad.
Much of that equity has suddenly vanished, and more of it soon will.
Also drying up fast are the lifelines of credit that allow all sorts
of small and medium-size businesses to function and hire people.
Whole communities, industries and regional economies are in jeopardy.
All of that might be considered enough, but there's more.
Oil, of course.
Here the connection to Iraq is clear; but, arguably, the wild
escalation of petroleum prices might have happened anyway.
Certainly the energy price explosion exacerbates the general economic
crisis, in part by raising the costs of production all across the
economy and so abetting the forces of economic contraction.
In the same way, each increase in the price of oil further contributes
to what most now agree is a nearly insupportable level in the U.S.
balance-of-payments deficit.
That, in turn, is contributing to the steady withering away of the
value of the dollar.
Finally, it is vital to recall that this tsunami of bad business is
about to wash over an already very sick economy.
While the old regime, the Reagan-Bush counterrevolution, has lived off
the heady vapors of the FIRE sector, it has left in its wake a
deindustrialized nation, full of super-exploited immigrants and
millions of families whose earnings have suffered steady erosion.
Two wage-earners, working longer hours, are now needed to (barely)
sustain a standard of living once earned by one.
And that doesn't count the melting away of health insurance, pensions
and other forms of protection against the vicissitudes of the free
market or natural calamities.
This perfect storm will be upon us just as the election season heats
up, and it will inevitably hasten the already well-advanced implosion
of the Republican Party.
The congressional elections of 2006 registered the first seismic
shock, and since then, independents and moderate Republicans have
continued to indicate in growing numbers in the polls that they are
leaving the Grand Old Party.
The Wall Street Journal has reported on a growing loss of faith among
important circles of business and finance.
Hard-core religious right-wingers are airing their doubts in public.
Libertarians delight in the apostate candidacy of Ron Paul.
Conservative populist resentment of immigration runs head on into the
corporate elite's determination to enlarge a large pool of cheap
labor.
All signs are ominous for the GOP.
The credibility and legitimacy of the old order are operating at a
steep discount.
Faced with dire predicaments at home and abroad, they essentially do
nothing except rattle those sabers, captives of their own now-bankrupt
ideology.
Anything, many will decide, is better than this.
_____________________________________________________
Harry
are actually called "financial engineers."
They got their training in "labs" much like Dr. Frankenstein's,
located at Wharton, Princeton, Harvard and Berkeley.
Each time one of their concoctions goes south, like the bewildering
"security investment vehicles" that helped precipitate the mortgage
industry collapse, they scratch their heads in bewilderment -- always
making sure, of course, that they have financial life rafts handy,
while investors, employees, suppliers and whole communities go down
with the ship.
What makes Wall Street's latest crisis so portentous, however, is the
way it is interacting with, and infecting, healthier parts of the
economy.
.......................................................................................
While the old regime, the Reagan-Bush counterrevolution, has lived off
the heady vapors of the FIRE (for finance, insurance and real estate)
sector, it has left in its wake a deindustrialized nation, full of
super-exploited immigrants and millions of families whose earnings
have suffered steady erosion.
Two wage-earners, working longer hours, are now needed to (barely)
sustain a standard of living once earned by one.
And that doesn't count the melting away of health insurance, pensions
and other forms of protection against the vicissitudes of the free
market or natural calamities.
This perfect storm will be upon us just as the election season heats
up, and it will inevitably hasten the already well-advanced implosion
of the Republican Party.
From The Los Angeles Times, 12/9/07:
http://www.latimes.com/news/printed...,1,1306484.story?track=rss&ctrack=1&cset=true
Symptoms of an economic depression
The signs are pointing to a crisis -- and a crash for the GOP.
By Steve Fraser
No one wants to utter the word "depression."
But the truth of the matter is that the American economy may be
entering a state of free fall.
Every day brings more bad news about the sub-prime mortgage debacle,
about home foreclosures, construction industry slowdowns, a credit
drought for consumers and businesses, oil price shocks and the
open-ended devaluation of the dollar.
Where is it all leading?
Together with the debacle in Iraq and the political implosion of the
Republican Party, this economic collapse could make the presidential
election of 2008 a turning point in American political history.
Conservatism first triumphed over New Deal liberalism thanks in part
to the same deadly combination in the late 1970s: a lost war and an
economic crisis.
The Vietnam War plus stagflation and deindustrialization gave us
Ronald Reagan.
Now history is returning the favor, as the free-market conservative
political order of the last generation faces a systemic crisis from
which there is no easy escape.
Even the soberest economy watchers, pundits with doctorates -- whose
dismal record in predicting anything tempts me not to mention this --
are prophesying dark times ahead.
A depression, or a slump so deep it's not worth quibbling about the
difference, appears to be on the way, if indeed it is not already
underway.
Start with the confidence game being run out of Wall Street.
The sub-prime mortgage crisis occupies newspaper front pages day after
outrageous day.
Certainly, these tales of greed and financial malfeasance are
numbingly familiar.
Yet precisely that sense of deja vu -- of Enron revisited, of an
endless cascade of scandalous, irrational behavior affecting the
central financial institutions of our world -- suggests just how dire
things have become.
Once upon a time, all through the 19th century, financial panics --
often precipitating more widespread economic slumps -- were a commonly
accepted, if dreaded, part of "normal" economic life.
Then the crash of 1929, followed by the New Deal Keynesian regulatory
state called into being to prevent its recurrence, made these cyclical
extremes rare.
Beginning with the stock market crash of 1987, however (and followed
by the collapse of the savings and loan industry at the end of the
1980s and the near-meltdown of Long Term Capital Management in 1998
that required an emergency, government-assisted bailout), financial
panics have become ever more common again.
Most notorious -- until now, that is -- were the dot-com implosion of
2000 and the Enronization that followed.
Enron seems like only yesterday because, in fact, it was only
yesterday, which strongly suggests that the financial sector is now
out of control.
At least three factors lurk behind this new reality.
Thanks to the Reagan counterrevolution, there is precious little left
of the regulatory state -- the repeal of the Glass-Steagall Act
separating investment from commercial banking is a prime example --
and what remains is effectively run by those who most need to be
regulated.
(Despite bitter complaints about it in the business community, the
Sarbanes-Oxley Act, passed in the wake of the big corporate and
accounting scandals of recent years in an effort to restore public
confidence in the capital markets, has proved weak tea indeed, as the
current financial meltdown indicates.)
More significantly, for at least the last quarter of a century the
whole U.S. economic system has lived off the speculations generated by
the financial sector -- sometimes given the acronym FIRE (for finance,
insurance and real estate).
It has grown exponentially while, in the country's industrial
heartland in particular, much of the rest of the economy has withered
away.
FIRE carries enormous weight and the capacity to do great harm.
Its growth, moreover, has fed a proliferation of financial activities
and assets so complex and arcane that even their designers don't fully
understand how they operate.
Today's Wall Street fabricators of avant-garde financial instruments
are actually called "financial engineers."
They got their training in "labs" much like Dr. Frankenstein's,
located at Wharton, Princeton, Harvard and Berkeley.
Each time one of their concoctions goes south, like the bewildering
"security investment vehicles" that helped precipitate the mortgage
industry collapse, they scratch their heads in bewilderment -- always
making sure, of course, that they have financial life rafts handy,
while investors, employees, suppliers and whole communities go down
with the ship.
What makes Wall Street's latest crisis so portentous, however, is the
way it is interacting with, and infecting, healthier parts of the
economy.
When the dot-com bubble burst, many innocents were hurt, not just
denizens of the Street.
Still, its effect turned out to be limited.
Now, because of the sub-prime mortgage meltdown, Main Street is under
the gun.
It is not only a matter of mass foreclosures.
It is not merely a question of collapsing home prices.
It is not simply the shutting down of large portions of the
construction industry (which is inspiring some of the doom-and-gloom
prognostications).
It is not just the born-again skittishness of financial institutions
that have, all of a sudden, gotten religion, rediscovered the word
"prudence" and won't lend to anybody.
It is all of this, taken together, that points ominously to a general
collapse of the credit structure that has shored up consumer
capitalism for decades.
The equity built up during the long housing boom has been the main
fallback position for ordinary people financing their big-ticket-item
expenses, from college educations to consumer durables, from trading
up in the housing market to vacationing abroad.
Much of that equity has suddenly vanished, and more of it soon will.
Also drying up fast are the lifelines of credit that allow all sorts
of small and medium-size businesses to function and hire people.
Whole communities, industries and regional economies are in jeopardy.
All of that might be considered enough, but there's more.
Oil, of course.
Here the connection to Iraq is clear; but, arguably, the wild
escalation of petroleum prices might have happened anyway.
Certainly the energy price explosion exacerbates the general economic
crisis, in part by raising the costs of production all across the
economy and so abetting the forces of economic contraction.
In the same way, each increase in the price of oil further contributes
to what most now agree is a nearly insupportable level in the U.S.
balance-of-payments deficit.
That, in turn, is contributing to the steady withering away of the
value of the dollar.
Finally, it is vital to recall that this tsunami of bad business is
about to wash over an already very sick economy.
While the old regime, the Reagan-Bush counterrevolution, has lived off
the heady vapors of the FIRE sector, it has left in its wake a
deindustrialized nation, full of super-exploited immigrants and
millions of families whose earnings have suffered steady erosion.
Two wage-earners, working longer hours, are now needed to (barely)
sustain a standard of living once earned by one.
And that doesn't count the melting away of health insurance, pensions
and other forms of protection against the vicissitudes of the free
market or natural calamities.
This perfect storm will be upon us just as the election season heats
up, and it will inevitably hasten the already well-advanced implosion
of the Republican Party.
The congressional elections of 2006 registered the first seismic
shock, and since then, independents and moderate Republicans have
continued to indicate in growing numbers in the polls that they are
leaving the Grand Old Party.
The Wall Street Journal has reported on a growing loss of faith among
important circles of business and finance.
Hard-core religious right-wingers are airing their doubts in public.
Libertarians delight in the apostate candidacy of Ron Paul.
Conservative populist resentment of immigration runs head on into the
corporate elite's determination to enlarge a large pool of cheap
labor.
All signs are ominous for the GOP.
The credibility and legitimacy of the old order are operating at a
steep discount.
Faced with dire predicaments at home and abroad, they essentially do
nothing except rattle those sabers, captives of their own now-bankrupt
ideology.
Anything, many will decide, is better than this.
_____________________________________________________
Harry