On Their Way Out

One facet of troubled times is a spate of economic Darwinism that accelerates the demise and disappearance of familiar names. Huffington Post has a list of 12-brands expected to depart this mortal coil before the end of 2010 including Crocs, GM's Saturn, Avis and Budget rent a car, Hearst, one of Gap, Old Navy or Banana Republic (nod to ON), United Airlines, Eddie Bauer (no, say it ain't so), Palm, a slew of Conde Nast's stable of magazines and Chrysler (although Dodge and Jeep are expected to survive).

http://www.huffingtonpost.com/tag/12-brands-that-will-disappear

Sign of the Times - Free Boats!

Along coastal America, yachtsmen are seeing the unmistakable signs of just how bad America's recession has become - abandoned boats. In some states, it's become a real problem:

http://www.nytimes.com/2009/04/01/business/01boats.html?pagewanted=2&em

When Banks Won't Foreclose

You know that Lewis Carrol has been writing your economic rules when lenders can't be bothered to foreclose on delinquent mortgages. They hold the mortgage, the borrower is in default, the property is theirs for the taking - but they just walk away.

Two problems. A collapse in housing prices. A considerable surplus in housing stocks. The two combine and, at the very bottom, you have houses that are worth so little in today's economy that it's not worth even foreclosing on them. It's cheaper to just walk away. From The New York Times:

City officials and housing advocates here [South Bend, Indiana] and in cities as varied as Buffalo, Kansas City, Mo., and Jacksonville, Fla., say they are seeing an unsettling development: Banks are quietly declining to take possession of properties at the end of the foreclosure process, most often because the cost of the ordeal — from legal fees to maintenance — exceeds the diminishing value of the real estate.
The so-called bank walkaways rarely mean relief for the property owners, caught unaware months after the fact, and often mean additional financial burdens and bureaucratic headaches. Technically, they still owe on the mortgage, but as a practicality, rarely would a mortgage holder receive any more payments on the loan. The way mortgages are bundled and resold, it can be enormously time-consuming just trying to determine what company holds the loan on a property thought to be in foreclosure.

In Ms. [Mercy] James’s case, the company that was most recently servicing her loan is now defunct. Its parent company filed for bankruptcy and dissolved. And the original bank that sold her the loan said it could not find a record of it.

In a city like Detroit, with the automakers on the ropes, and layoffs in the tens of thousands rippling through the economy, bottom-end houses have been selling for less than $10,000. It's a contagious problem. When property prices begin to be set by delinquent mortgagors, homeowners who keep their mortgages in good standing see their equity go into the negative column which can kill their ability to refinance when the mortgage term ends. In that way, the bad mortgage debt can trigger the default in an otherwise good mortgage debt.

America's surplus housing stocks remains an unaddressed problem. With subprime mortgages and "liar loans" fueling Bush's ridiculous "Ownership Society" a lot of people whose income wasn't adequate for home ownership did in fact acquire houses. It moved on right up the chain. People who ought to have had modest houses instead got finer houses than their incomes could support. Others got several houses, sometimes on "interest only" mortgages, hoping that soaring house prices would let them rake in enough profits to let them wind up with one clear-title dream home and a fat bank account to boot. Thus the housing sector, construction and finance, became the engine of America's economy. It became, as Paul Krugman noted years earlier, a fictional land of wealth based on people selling their homes to each other.

Like so many of his initiatives, Bush's Ownership Society proved to be a toxic blessing, an 8-year binge that cemented America's decline. I'd bet that, twenty years from now, the Ownership Society will trump the War on Terror as the greatest scam Bush/Cheney inflicted on their countrymen.

And so America finds itself with far more houses than eligible homeowners. CBC's Neil MacDonald did a feature piece recently that trolled through what were just a year or two back burgeoning Florida subdivisions where most of the homes now sit empty, abandoned. They've been so neglected for so long that these really nice little houses are now being ravaged by the elements as once verdant neighbourhoods come to resemble 21st century ghost towns.

Will this end? Sure, of course it will. What's unsettling everyone today is that nobody knows where the bottom lies and that uncertainty is a plague of its own. Prices will plummet to levels considerably lower than their natural floor and then, as they begin to firm up, confidence will return along with suitable buyers. Maybe there'll even be another bubble but I doubt it. Rash lenders have taken a huge, yet well-deserved hit and the scars will last for decades at least.

Last Call for the Almighty Dollar?

The American dollar has been the currency of international trade for most, probably all of your lifetime. That may be about to change.

At last year's OPEC summit, a mistakenly live microphone transmitted a discussion about dropping the exclusive use of the US dollar for pricing oil in favour of a basket of currencies, including the Euro and others.

Some Europeans have been musing recently about ditching the greenback. Now it's the Chinese. From the Associated Press:

China is calling for a new global currency controlled by the International Monetary Fund. Ahead of a London summit of global leaders, the country is stepping up pressure for changes to a financial system dominated by the U.S. dollar and Western governments.

[Chinese central bank] Gov. Zhou Xiaochuan's essay did not mention the dollar by name.
But it said the crisis showed the dangers of relying on one country's currency for international payments.

In an unusual step, the essay was published in both Chinese and English, making clear it was meant for an international audience.

The world's acceptance of the United States dollar as its reserve currency has helped America cope with its crushing debt situation. China, for example, holds a trillion dollars worth of US reserves which gives it a compelling interest in maintaining the health of the American economy. If a distinct global currency emerged, America could suddenly feel the sting of exchange fluctuations and a weakening of foreign support for its economy.

Obama Makes His Move

The White House may finally move to seize debt-ridden insurance companies. The Washington Post says that Treasury Secretary Timothy F. Geithner has asked Congress for authority to take over non-bank financial institutions whose failure could torpedo the American economy.

The target is AIG, the giant American International Group.

The idea seems to be that it's cheaper for the government to simply take over AIG, pay out its book value to its creditors, and then get it back in business with a clean slate and return it to private ownership. The key is to keep the business operating as a going concern while the government resolves the company's crushing debt load.

"The administration's proposal contains two pieces. First, it would empower a government agency to take on the new role of systemic risk regulator with broad oversight of any and all financial firms whose failure could disrupt the broader economy. The Federal Reserve is widely considered to be the leading candidate for this assignment. But some critics warn that this could conflict with the Fed's other responsibilities, particularly its control over monetary policy.

"The government also would assume the authority to seize such firms if they totter toward failure.

"Besides seizing a company outright, the Treasury Secretary could use a range of tools to prevent its collapse, such as guaranteeing losses, buying assets or taking a partial ownership stake. Such authority also would allow the government to break contracts, such as the agreements to pay $165 million in bonuses to employees of AIG's most troubled unit."

While the Republican insurgency will try to block the move it appears that there's enough support among congressional Democrats to push it through.

The Employment Plunge Continues

The United States lost 697,000 jobs in February, well above the 630,000 forecast by analysts. Of those, 219,000 were manufacturing jobs. Service sector job losses accounted for 359,000 of the new jobless.

http://news.smh.com.au/breaking-news-world/us-private-sector-shed-697000-jobs-adp-20090305-8on5.html

Americans of All Stripes Rally Behind Obama - Republicans Look Like Losers

The Republicans gambled that blind opposition to Obama's stimulus/recovery plans would pay off - and it backfired. From The New York Times:

A majority of people surveyed in both parties said Mr. Obama was striving to work in a bipartisan way, but most Americans faulted Republicans for their response to the president, saying the party had objected to the $787 billion economic stimulus plan for political reasons. Most Americans said Mr. Obama should pursue the priorities he campaigned on, the poll found, rather than seek middle ground with Republicans.

Americans are under no illusions that the country’s problems will be resolved quickly, but the [New York Times/CBS] poll suggested they would be particularly patient when it comes to the economy, with most saying it would be years before there was significant improvement.

A month into Mr. Obama’s term, with his first big accomplishments, setbacks and political battles behind him, more than three-quarters of Americans said they are optimistic about the next four years with him as president. Similar percentages said they think he is bringing real change to the way things are done in Washington and that they have confidence in his ability to make the right decisions about the economy.

Obama reached his hand out to the Republicans - and they tried to bite it off. Tried, but didn't succeed.

http://www.nytimes.com/2009/02/24/us/politics/24poll.html?_r=1&hp

Final Exams for America's Ailing MegaBanks

America's major banks - including CitiBank and Bank of America - are being scrutinized this week by Washington regulators to determine if they're beyond saving. From the New York Times:

These reviews of the banks’ books, known as “stress tests,” are heightening a dilemma for Obama aides about how candid they should be about the health of banks like Citigroup and Bank of America. The tests are expected to take several weeks.

Bank shares were pummeled last week, partly because of rumors that the government might nationalize some of the banks. Officials consider many of the top 20 banks “too big to fail.”

Still, the big banks say they remain relatively healthy and that, with time and support from the government, they will regain their footing. But many economists, Wall Street analysts and even some bank executives contend that some of the banks are already effectively insolvent.

NYT columnist Paul Krugman says the Obama administration needs to find the courage to nationalize the big banks, what he calls "zombie banks" unable to provide credit to the US economy.

The case for nationalization rests on three observations.

First, some major banks are dangerously close to the edge — in fact, they would have failed already if investors didn’t expect the government to rescue them if necessary.

Second, banks must be rescued. The collapse of Lehman Brothers almost destroyed the world financial system, and we can’t risk letting much bigger institutions like Citigroup or Bank of America implode.

Third, while banks must be rescued, the U.S. government can’t afford, fiscally or politically, to bestow huge gifts on bank shareholders.
Let’s be concrete here. There’s a reasonable chance — not a certainty — that Citi and BofA, together, will lose hundreds of billions over the next few years. And their capital, the excess of their assets over their liabilities, isn’t remotely large enough to cover those potential losses.

...But here’s the thing: the funds needed to bring these banks fully back to life would greatly exceed what they’re currently worth. Citi and BofA have a combined market value of less than $30 billion, and even that value is mainly if not entirely based on the hope that stockholders will get a piece of a government handout. And if it’s basically putting up all the money, the government should get ownership in return.

http://www.nytimes.com/2009/02/23/business/23bank.html?hp
http://www.nytimes.com/2009/02/23/opinion/23krugman.html?_r=1

America's Republican Malignancy

Forget the fact that they hatched, and for three decades nurtured, the Era of Greed that has finally brought the United States to its knees. As the New York Times' Paul Krugman writes, the Republicans aren't finished, not yet.

...it’s now clear that the party’s commitment to deep voodoo — enforced, in part, by pressure groups that stand ready to run primary challengers against heretics — is as strong as ever. In both the House and the Senate, the vast majority of Republicans rallied behind the idea that the appropriate response to the abject failure of the Bush administration’s tax cuts is more Bush-style tax cuts.

And the rhetorical response of conservatives to the stimulus plan — which will, it’s worth bearing in mind, cost substantially less than either the Bush administration’s $2 trillion in tax cuts or the $1 trillion and counting spent in Iraq — has bordered on the deranged.

It’s “generational theft,” said Senator John McCain, just a few days after voting for tax cuts that would, over the next decade, have cost about four times as much.

It’s “destroying my daughters’ future. It is like sitting there watching my house ransacked by a gang of thugs,” said Arnold Kling of the Cato Institute.

What Krugman illustrates isn't Republican perfidy - that much we've come to expect. It's that the Republican message continues to resonate with a sufficient segment of the American electorate that the tax cut/trickle down/Voodoo economics scam still lives.

Maybe Americans have been so dumbed down that they're now just too stupid to save themselves - maybe. It seems that the party that decriminalized the fraud that doomed Wall Street - and the global economy - can still peddle its poison. The Republicans have lost Congress and the White House but they're an insidious malignancy that might not quit until they've destroyed the United States.

Riding the Tiger

I've written about this before but Mike ("Rational Reasons") posted a link to this clip at Red Tory.

Canada is straddled atop the tiger that is the United States. We have no choice but to stay where we are because it's just too dangerous to get off.

Wonder what's coming? Check this out:




I love how the American narrative has shifted to evil "entitlement" programmes, a term that plainly implies unearned, undeserved charity. As this clip shows, American workers have done just fine by their Social Security system which, for decades, has been running a surplus (that was money the Boomers were putting in for their retirement). Instead of retaining and investing those "surpluses", the US government simply stole the money, took it into general revenue and used it to fund current expenses.

Now that they've stolen the blue and white-collar workers' contributions, Congress - Republican and Democrat alike - are pointing the finger at "entitlement" programmes, blaming the victims. This is just scandalous.

The National Bank of America. No, Seriously...

Americans may soon have a new banker - the government of the United States of America.

In the land of capitalism and the home of free enterprise, major banks are in such distress that some think the feds may have to inject so much capital that they're bound to wind up the majority shareholder. From The New York Times:

With two of the nation’s largest banks buckling under yet another round of huge losses, the incoming administration of Barack Obama and the Federal Reserve are suddenly dealing with banks that are “too big to fail” and yet unable to function as the sinking economy erodes their capital.

Particularly in the case of Citigroup, the losses have become so large that they make it almost mathematically impossible for the government to inject enough capital without taking a majority stake or at least squeezing out existing shareholders.

“We are down a path that this country has not seen since Andrew Jackson shut down the Second National Bank of the United States,” said Gerard Cassidy, a banking analyst at RBC Capital Markets. “We are going to go back to a time when the government controlled the banking system.”

And there you have it kids, the triumph of conservative capitalist ideology. Brilliant, positively brilliant.
http://www.nytimes.com/2009/01/16/business/16banking.html?_r=1&hp

If Only Bernie Madoff Knew How to Fly

As America's fiscal House of Cards collapses, a number of the really dodgy characters are heading for the woods - literally. 38-year old Marcus Shrenker looks to be one of them.

Now, in fairness, he's no D.B. Cooper but, like old D.B., Marcus decided that taking wing was the answer to his problems. From The New York Times:

"A financial adviser from Indiana disappeared into the Alabama woods early Monday after faking a distress call and parachuting from a small plane that crashed in Florida.
The police in three states were looking for the pilot, identified as Marcus Schrenker, 38.

No one was hurt in the crash. According to the police in Santa Rosa County in the Florida Panhandle, where the plane went down, Mr. Schrenker turned up safely about 220 miles north of there. And there is evidence that Mr. Schrenker was an experienced pilot who might have been trying to fake his own death.

His life seemed to be unraveling. Court records show that Mr. Schrenker’s wife filed for divorce on Dec. 30. A Maryland court recently issued a judgment of more than $500,000 against one of three Indiana companies registered in his name — and all three are being investigated for securities fraud by the Indiana Secretary of State’s Office, a spokesman, Jim Gavin, said. "

Schrenker surfaced in Alabama, told police officers he'd had a boating accident. They checked his ID and drove him to a hotel. When word of the crash reached them they headed back to the hotel but Marcus had bolted. Schrenker was last seen heading back into the woods.

The Strange Case of Harry Markopolis

Vanity Fair contributing editor Michael Lewis has a brilliant piece in today's New York Times in which he dissects the systemic, institutional failure of Wall Street. One of the anecdotal illustrations he uses involves Harry Markopolis and the Cassandra-like nature of his failed 10-year campaign to expose the now infamous Bernard L. Madoff:

"Mr. Markopolos is the former investment officer with Rampart Investment Management in Boston who, for nine years, tried to explain to the Securities and Exchange Commission that Bernard L. Madoff couldn’t be anything other than a fraud. Mr. Madoff’s investment performance, given his stated strategy, was not merely improbable but mathematically impossible. And so, Mr. Markopolos reasoned, Bernard Madoff must be doing something other than what he said he was doing.
In his devastatingly persuasive 17-page letter to the S.E.C., Mr. Markopolos saw two possible scenarios. In the “Unlikely” scenario: Mr. Madoff, who acted as a broker as well as an investor, was “front-running” his brokerage customers. A customer might submit an order to Madoff Securities to buy shares in I.B.M. at a certain price, for example, and Madoff Securities instantly would buy I.B.M. shares for its own portfolio ahead of the customer order. If I.B.M.’s shares rose, Mr. Madoff kept them; if they fell he fobbed them off onto the poor customer.

In the “Highly Likely” scenario, wrote Mr. Markopolos, “Madoff Securities is the world’s largest Ponzi Scheme.” Which, as we now know, it was.

Harry Markopolos sent his report to the S.E.C. on Nov. 7, 2005 — more than three years before Mr. Madoff was finally exposed — but he had been trying to explain the fraud to them since 1999. He had no direct financial interest in exposing Mr. Madoff — he wasn’t an unhappy investor or a disgruntled employee. There was no way to short shares in Madoff Securities, and so Mr. Markopolos could not have made money directly from Mr. Madoff’s failure. To judge from his letter, Harry Markopolos anticipated mainly downsides for himself: he declined to put his name on it for fear of what might happen to him and his family if anyone found out he had written it. And yet the S.E.C.’s cursory investigation of Mr. Madoff pronounced him free of fraud.

What’s interesting about the Madoff scandal, in retrospect, is how little interest anyone inside the financial system had in exposing it."

Lewis' article is a fascinating trip through the corridors of astonishingly high-powered corporate incompetence. If you wonder what happened to your retirement plan, it's a terrific read:

http://www.nytimes.com/2009/01/04/opinion/04lewiseinhorn.html?em

Descent Into Depression

According to Nobel laureate economist Paul Krugman it may be a matter of political will or political posturing that decides whether America recovers from a deep recession or plunges headlong into a second, Great Depression. The New York Times columnist warns that Congressional Republicans are already donning the badly dented armour of Milton Friedman economics and preparing to sabotage attempts to implement a New New Deal:

...recent economic numbers have been terrifying, not just in the United States but around the world. Manufacturing, in particular, is plunging everywhere. Banks aren’t lending; businesses and consumers aren’t spending. Let’s not mince words: This looks an awful lot like the beginning of a second Great Depression.

...Milton Friedman, in particular, persuaded many economists that the Federal Reserve could have stopped the Depression in its tracks simply by providing banks with more liquidity, which would have prevented a sharp fall in the money supply. Ben Bernanke, the Federal Reserve chairman, famously apologized to Friedman on his institution’s behalf: “You’re right. We did it. We’re very sorry. But thanks to you, we won’t do it again.”

It turns out, however, that preventing depressions isn’t that easy after all. Under Mr. Bernanke’s leadership, the Fed has been supplying liquidity like an engine crew trying to put out a five-alarm fire, and the money supply has been rising rapidly. Yet credit remains scarce, and the economy is still in free fall.

John Maynard Keynes... ...argued that monetary policy is ineffective under depression conditions and that fiscal policy — large-scale deficit spending by the government — is needed to fight mass unemployment. The failure of monetary policy in the current crisis shows that Keynes had it right the first time. And Keynesian thinking lies behind Mr. Obama’s plans to rescue the economy.

But these plans may turn out to be a hard sell.

News reports say that Democrats hope to pass an economic plan with broad bipartisan support. Good luck with that.

In reality, the political posturing has already started, with Republican leaders setting up roadblocks to stimulus legislation while posing as the champions of careful Congressional deliberation — which is pretty rich considering their party’s behavior over the past eight years.

It sounds like we're back where this all began - hobbled by partisan politics fueled by fundamentalist, rightwing ideology. Faced with a stark choice between helping America recover from a mess they largely created or defending their supposed honour, the Republicans aren't going to be putting America first. Let's hope that Obama can lead the Democrats and the American people to stand up to Republican saboteurs.

Could America's Army Be Unleashed On the American People?

The very idea of the American military being turned on the American public seems so outrageous as to be unthinkable but think again because the US Army War College is thinking about just that. From the El Paso Times:

A U.S. Army War College report warns an economic crisis in the United States could lead to massive civil unrest and the need to call on the military to restore order.

Retired Army Lt. Col. Nathan Freir wrote the report "Known Unknowns: Unconventional Strategic Shocks in Defense Strategy Development," which the Army think tank in Carlisle, Pa., recently released. ("Known Uknowns?" How very Rumsfeldian).

"Widespread civil violence inside the United States would force the defense establishment to reorient priorities ... to defend basic domestic order and human security," the report said, in case of "unforeseen economic collapse," "pervasive public health emergencies," and "catastrophic natural and human disasters," among other possible crises.

The report also suggests the new (Barack Obama) administration could face a "strategic shock" within the first eight months in office.

Earlier this year, Pentagon officials said as many as 20,000 soldiers under the U.S. Northern Command (NORTHCOM) will be trained within the next three years to work with civilian law enforcement in homeland security.

Why Spending Makes Sense When You're Broke

There's an instinctive tendency when an economy is in meltdown to slash spending. And yet the legitimate economists (the best and brightest who were scorned with contempt by the rightwing louts who spent the past eight years sabotaging the global economy) prescribe massive government spending to get our economies rolling again.

Granted it's not the same sort of chicanery that got the entire planet into this mess. It's not borrowing from strangers to finance tax cuts for the very richest people in the land. No, it's borrowing to spend on investments, it's investing, using government spending to create things that will pay dividends for decades to come. And, no, that doesn't mean more 2,000 pound bombs or more tanks or more military trinkets.

Confused? In today's New York Times, Nobel laureate economist Paul Krugman puts it into layman's terms:

"...let’s step back for a moment and contemplate just how crazy it is, from a national point of view, to be cutting public services and public investment right now.
Think about it: is America — not state governments, but the nation as a whole — less able to afford help to troubled teens, medical care for families, or repairs to decaying roads and bridges than it was one or two years ago? Of course not. Our capacity hasn’t been diminished; our workers haven’t lost their skills; our technological know-how is intact. Why can’t we keep doing good things?

It’s true that the economy is currently shrinking. But that’s the result of a slump in private spending. It makes no sense to add to the problem by cutting public spending, too.

In fact, the true cost of government programs, especially public investment, is much lower now than in more prosperous times. When the economy is booming, public investment competes with the private sector for scarce resources — for skilled construction workers, for capital. But right now many of the workers employed on infrastructure projects would otherwise be unemployed, and the money borrowed to pay for these projects would otherwise sit idle.

And shredding the social safety net at a moment when many more Americans need help isn’t just cruel. It adds to the sense of insecurity that is one important factor driving the economy down."

http://www.nytimes.com/2008/12/29/opinion/29krugman.html?ref=opinion

Yes, the United States economy is in meltdown and, yes, it's governments - federal, state and municipal - were responsible for much of the problem through profligate spending and rash borrowing. But it wasn't the spending that was the real culprit but how the money was squandered - stupid spending with no returns save for massive corporate wealth - and how the government went to foreign lenders to fund tax cuts for the most privileged.

Sadly for we Canadians, we're still saddled with a leader who clings to the Grover Norquist/Dick Cheney model of government. What little moderation we've seen from Harper so far is driven by his insatiable quest for a majority that forces him to restrain his basest, ideological urges. The past six months have clearly shown that Harper's ideology doesn't include a chapter on how to actually lead a country in times of trouble. That's why he has given Canadians such a litany of erratic and contradictory messages about what's coming and what he proposes to do in response.

Coming Soon to E-Bay - Roads, Airports, Lotteries?

How can you tell a government on the ropes? One way is to look at what they're trying to flog to raise enough cash to keep going. According to the San Fransisco Chronicle, some states are looking for buyers for everything from roads to arenas to zoos.

Like families pawning the silver to get through a tight spot, states such as Minnesota, New York, Massachusetts and Illinois are thinking of selling or leasing toll roads, parks, lotteries and other assets to raise desperately needed cash.

Massachusetts lawmakers are considering putting the Massachusetts Turnpike in private hands. That could bring in upfront money to help with a $1.4 billion deficit, while also saving on highway operating costs.
In New York, Democratic Gov. David Paterson appointed a commission to look into leasing state assets, including the Tappan Zee Bridge north of New York City, the lottery, golf courses, toll roads, parks and beaches. Recommendations are expected next month.

Such projects could be attractive to private investors and public pension funds looking for safe places to put their money in this scary economy, said Leonard Gilroy, a privatization expert with the market-oriented Reason Foundation in Los Angeles.

"Infrastructure is more attractive today than ever," Gilroy said. "It's tangible. It's a road. It's water. It's an airport. It's something that is — you know, you hear the term recession-proof."

Now a fine beach, there's something I can see dropping a couple of billion to snap up.

Living on a Disposable Income Tightrope

Las Vegas, the city known worldwide as the place to go to part with cash, was once believed immune to economic setbacks. People would always find money to indulge their appetite for sin, or so the casino crowd thought.

Not this time.

Sin City seems to have fallen prey to America's economic meltdown. According to The Telegraph, gaming revenues in Las Vegas plummeted more than 25% in October alone. The city's formerly robust construction industry has all but ground to a halt. "Lost Wages" now has a brand new meaning.

The party's not over yet, not even close, but it sure has gotten eerily quieter. Don't expect Celine to show up at your table asking for your drink orders anytime soon.

Thomas Friedman and "I'll Be Gone" Capitalism

I'm no great fan of The New York Times columnist Tom Friedman but he had an excellent point today about America's rot capitalism and the global meltdown it triggered. Friedman brilliantly captures what really went wrong as "I'll Be Gone" capitalism:

I have no sympathy for [disgraced investment banker Bernie] Madoff. But the fact is, his alleged Ponzi scheme was only slightly more outrageous than the “legal” scheme that Wall Street was running, fueled by cheap credit, low standards and high greed. What do you call giving a worker who makes only $14,000 a year a nothing-down and nothing-to-pay-for-two-years mortgage to buy a $750,000 home, and then bundling that mortgage with 100 others into bonds — which Moody’s or Standard & Poors rate AAA — and then selling them to banks and pension funds the world over? That is what our financial industry was doing. If that isn’t a pyramid scheme, what is?

Far from being built on best practices, this legal Ponzi scheme was built on the mortgage brokers, bond bundlers, rating agencies, bond sellers and homeowners all working on the I.B.G. principle: “I’ll be gone” when the payments come due or the mortgage has to be renegotiated.

The narrative of the rightwing is true to form - duck the blame and pin it on somebody else. Their target has been visible minorities who got a lot of subprime mortgages. That, in turn, allows them to place the blame on Carter and Clinton. But, from the top right on down, they're liars and they're racists who use visible minorities for whipping boys.

There were bad subprime mortgage loans but there were relatively few when the system worked as it was intended - when mortgage lenders held their mortgage securities, when those lenders actually had to retain the risk. When that happened they didn't make reckless subprime loans because who is going to loan money on a sure loser?

It was the far right that perverted the mortgage lending system by allowing mortgages to become a trading commodity and greasing that trade with credit default swaps. That lies squarely at the feet of the Bush administration and prominent Republicans like former senator Phil Gramm. They alone ushered in "I'll be gone" capitalism and they are responsible for the havoc it wrought on America and just about every other nation on the planet. But, true to rightwing form, they don't have any intention of owning up to what they've done, of taking "responsibility" - that wonderful quality they're so quick to find lacking in others. Why should they when they can stick the blame on visible minorities?

If America is ever to restore its former greatness, it will have to purge itself of this rightwing malignancy.

Mainstream America is Hurting

A Washington Post-ABC News poll found 63% of Americans have already been hurt by America's economic meltdown. From The Washington Post:

...[the] poll also found that a rapidly increasing share of Americans -- 66 percent, up from just over half a year ago -- are worried about maintaining their standard of living. Nearly two in 10 said they or someone living in their household had lost a job in the past few months, and more than a quarter said they had their pay or hours reduced. And 15 percent said that at some point in the past year they fell behind on their rent or mortgage.

The poll found that nearly two-thirds of Americans support new federal spending to stimulate the economy, and majorities of both Democrats and Republicans back the idea. Concern about deficit spending, however, mutes enthusiasm for the stimulus plan. When respondents were asked whether they would back the plan if it increased the deficit, support dropped to 47 percent. Overall, nearly nine in 10 said they are worried about the size of the federal budget deficit, including nearly half who are "very concerned."

The inherent contradiction in American attitudes to taxation, spending and deficits is both deeply ingrained and a huge political obstacle for Obama. Polls taken during the Bush era showed that Americans strongly supported tax cuts and yet strongly opposed deficits without grasping that tax cuts were a major contributor to mounting deficits. It's impossible to reconcile how this attitude squares with a people who have so strongly embraced a "pay as you go" mentality. Then again when you have a vice president who boasts that "Reagan showed that deficits don't matter" it's hard to fault the average citizen for this logic disconnect.

I think if Obama's recovery efforts are to have any hope he'll have to find some way to give the American public a clear understanding of how the existing, massive federal debt represents accumulated deficits, how those deficits were incurred and the role played by reckless tax cuts, and the critical difference between the deficits of the past and the sort of deficits he'll have to run for the purpose of massively investing in America and the country's infrastructure. That's an enormous challenge but without stripping Americans of their phobia about taxation and without giving them a working grasp of the debt and deficit problems they're facing, he might not be able to hold the essential levels of public support he'll need to steer America on a path out of this huge problem.