We’re getting the raw deal. 75 years after the New Deal, Wall Street firms have succeeded in socializing bad debt on the backs of working people. The cost of the mortgage and credit card meltdown will not only be the billions of dollars that will be paid out to recover the excesses created by unregulated banking industry speculation; paying off that debt will also take us further away from healthcare reform, full funding for education, and affordable housing.
A fitting parting shot from an administration that came to power by stealing the presidency through electoral fraud, and then presided over the looting of the national treasury. An administration that will now create a debt so huge that it will be nearly impossible to recover economic ground for working people.
Like at a company store where the debt deepens so much you start to owe on what you owe until you owe so much they own you.
Banks once regulated under the New Deal have since their deregulation become risky investments for White Shoe Wall Street investment firms. This fear of risk has created the impetus for the current bailout. Just how that happens will be illustrated below. But, let’s be clear, this bail out is not about us. It’s about the rich not being able to become more rich. It’s about passing the bad debt created by the housing and credit card meltdown on to us. For example, to stave of a run on its liquid assets, WAMU was seized, reorganized and sold off to JP Morgan. But Morgan only bought the good part of WAMU. The bad part of WAMU we’ll pay for under this bail out. WAMU is infamous for its creative mortgage tools. Wachovia Bank is expected to be next.
Without any regulatory oversight, shaky financial tools like those used by WAMU and other banks created high up front returns and were allowed to proliferate without regard for their long-term consequences. These “buy now pay later” financial tools set up the sub-prime loan and credit card credit card mess that in turn had an impact on financial instruments used by wealthy investors, the White Shoe guys.
That’s when the President started doing a Chicken Little about a financial crisis.
In response, a coalition of labor and community organizations lead by SEIU put out a position that basically said that if we’re going to borrow billions to bail out Wall Street, why don’t we borrow a fraction of that amount to set up affordable health care, bail out our schools, help people keep their homes or at the very least cap CEO salaries so we aren’t paying millions to the people who created the mess in the first place and no more Golden Parachutes for the executives who filled their pockets before jumping out like the Countrywide CEO’s did.
The crux of the current debacle is what is called a CDO, a Consolidated Debt Obligation. It’s a financial tool that is “liquid” meaning that it is a good as cash. A CDO is like a bundle of investments put together in a kind of chorizo made up of mortgages, credit card and other securitized debt worth millions, some of it good, some of it bad but mostly safe. The White Shoe guys buy and sell these bundles or slices of bundles millions when they want to make deals, like to buy or sell a company.
The problem is that these bundles aren’t as solid as they used to be because they are riddled with foreclosed mortgages and bad credit card debt. And like a bad chorizo, when you cook it down, there is nothing left but grease. So now the White Shoe guys don’t trust the CDO’s that they get from the banks because they have to pay out from their profits when debt support collapses. And worse yet for them they are missing out on any new deals they might be able to make. And if they can’t make this deal then they can’t make the next deal and everything starts to slow down creating what they call a “credit crisis.”
That’s what’s got them in a panic; they can’t borrow anymore without increasing their risk. And this is where we come in. In this bail out, Wall Street wants to privatize their profits and socialize the risk. Free Market rhetoric aside, the Free Market approach doesn’t work when it comes to risking their profits. In this bail out they don’t have to risk their money. They can use ours.
I came of age right before the LA rebellion’65. When the fires went out, we took a survey of all the places that were gone. One building that was burned all the way to the ground was a furniture store next to the Thrifty Drug Store. My parents enticed by low monthly payments bought our beds there. For a little more a month, my mother could get a lamp she liked to go with a matching bedside table. After awhile, more was added and pretty soon they could only pay the interest. The lamp broke, the shoddy beds fell apart and my parents were still paying. I remember standing next to my dad in sandals with soles made from discarded tires as we watched the furniture store smolder. I heard my dad wish out loud that the records were burned so we wouldn’t have to pay anymore.Filed under: Archive