Third World America: Drowning In Debt And Choking On Lies
Janet Tavakoli, Tavakoli Structured Finance
Jun. 24, 2011
drunk driver crashed his speeding rental car crashed into your house and killed your spouse, you would be outraged if law enforcers took bribes and refused to give the driver a blood test. If the judge then gave the killer a small fine and ordered you to pay the fine and pay for all the damages, you’d be outraged. If the government then handed the drunk-driver keys to a bigger faster rental car, handed the drunk driver an even bigger bottle of whiskey and then gave you the rental bill, you’d storm Washington and blizzard elected officials with protests and organize friends and associates to vote these malefactors, the elected officials that betrayed your trust, out of office.
Yet, we’ve remained largely silent in the face of the same sort of behavior by Wall Street and Washington. Bonus-seeking bankers crashed into Main Street’s economy and ran control frauds within the banks that would have failed without taxpayer bailouts. Bureaucrats and elected officials bailed them out without demanding consequences. Bankers are revving their engines again in credit derivatives, currency derivatives, and commodities trades. “Financial reform” addresses none of the latter problems.
Arianna Huffington’s Third World America: How Our Politicians are Abandoning the Middle Class and Betraying the American Dream explains that the $787 billion American Recovery and Reinvestment Act, the bank bailout package also known as TARP, allotted only $72 billion to infrastructure projects. Another feature of the bill was to have banks agree to lend money to medium and small sized businesses to stimulate the economy. That didn’t happen and official unemployment numbers remain above 9%, while unofficial figures for underemployed Americans soar above 20%.
The number one stimulus for any economy is not consumer spending, although that is a powerful secondary effect. The number one stimulus is capital spending, investment in the production of real goods and consumables. As Third World America explains: “There were three flaws with the old economy that has crashed. It favored consumption over production, debt over small savings, and environmental damage over environmental renewal.”
Our ongoing bank bailouts included the miospricing of around $4 trillion of toxic assets that the banks cannot afford to honestly price, since bank capital would be wiped out sparking another global financial meltdown. We continue to provide cheap taxpayer funding through the Fed. New accounting rules allow banks to cover-up the low price of impaired assets, and government debt guarantees provide ongoing subsidies to banks that have a value of trillions of dollars.
Ground Zero for America’s Debt Crisis