Party Time on Make Believe Street

Party Time on Make Believe Street
By David Glenn Cox


In 2008, as the clock ran out on the Bush administration, a collapsing stock market prompted Treasury Secretary Hank Paulson to make a somber call on the President at the White House. In his hand was a one-page plan to rescue the economy from certain collapse. I think what Paulson actually gave the President was a crudely drawn cartoon of stick-figure cowboys holding up a stage coach with oversized dollar signs all around them. In the next frame the cowboys rode off into the sunset with the caption “So long, suckers!” written underneath.

The crash was a real event as the bubble was bursting, but the problem was that the Bush administration always sought good publicity over good policy. The media blamed not the bankers or the brokerage houses that were bankrupt, but you! You consumers who went out and spent too much and borrowed money against the equity in your houses, it was all your fault. Where did you ever get such a stupid idea? Oh, right, the round-the-clock TV commercials run by the banks telling you to.

The Paulson plan was simple; you’ve seen it a dozen times in science fiction movies. The aliens are coming and we need a trillion dollars to build a machine to communicate with them or a ray gun to destroy them or to build arks to save humanity. It’s the old give us the money and don’t ask any fool questions or the end of the world will be all your fault.

If you owe ten to fifteen thousand in credit card debt, your annual interest is around $2,500. If you are a bank, that’s what it costs you to borrow one million dollars. The deals made under the guise of the Paulson plan will go down in history as the greatest robbery since the great train robbery. The Treasury made loans to the banks to cover their losses and to give them new capital to work with. Then the Federal Reserve lowered interest rates to historically low levels of .25 percent. You borrow a billion or ten from the Treasury at 3.5 percent then you borrow another billion or ten from the Fed and pay the government back. It makes for great headlines; the economy must be getting better because the banks are all paying back their loans.

With the free money policy in place the Obama administration took a benign attitude towards Wall Street, a sort of live and let live policy. They talked about health care reform and made speeches in Egypt and proposed a stimulus package that even the US Chamber of Commerce and the Wall Street Journal admitted was too small and was made up of 35 percent tax cuts. The administration pointed to the stimulus package whenever the state of the economy was criticized but due to declining revenues and the states used the stimulus package to preserve jobs rather than to create them.

Meanwhile, on Wall Street the bankers were suddenly flush with free money. They began to buy other banks and to invest in other businesses. Stock prices were at record lows so they bought like a tour bus full of grannies in a gift shop. Demand fueled rising stock prices; each upward tick was viewed as proof positive that the economy was on the mend. The media began to talk about a jobless recovery and unemployment as a lagging economic indicator. Yet how can an economy that is 70 percent dependent on consumer spending have a paycheckless recovery?

Each time reality would intrude into the Wall Street children’s hour of playing good times and make believe, it would be discounted as an aberration. Rising unemployment was an aberration, rising foreclosures an aberration, commercial defaults an aberration. For all the efforts of the White House and the Congress and the Fed, all that they have succeeded in doing has been to create a mini bubble which has now collapsed. Since April 26 the market has lost 1,200 points.

The jobs bill was just more tax cuts and window dressing and the administration signed it into law and now sees their work as done. In the next thirty odd days or so 1.6 million college graduates from the class of 2010 will enter the workforce as well as millions more leaving high schools and trade schools. The admitted unemployment rate for people under twenty-five is 19.6 percent. The problem with that number is that to be counted as unemployed you must have first been employed before you can be counted as unemployed.

Unemployment for teens aged sixteen to nineteen is officially at 46 percent so it would be safe to guestimate that the true unemployment rate for those under twenty-five is somewhere between 20 percent to 50 percent. Maybe we should try… I don’t know; maybe some more tax cuts!

Had this administration taken a serious look at the economic problems facing this nation then it might have formulated some serious answers. They could have created a jobs program instead of just pumping money into the banks. They could have tackled the problem of mortgage rescue head-on instead of retooling the Bush plan and leaving it up to the banks that made the loans in the first place.

The New Deal through the Homeowners Loan Corporation purchased over one million mortgages outright. Rather than just give the money to the banks they purchased the bad debts and refinanced them cutting in half the number of foreclosures in twelve months. This administration’s plan has rescued less than 300,000 in a year and a half. These foreclosed homes are driving down home prices and pushing more and more homeowners under water. Not only that but as home prices fall the property tax bills fall pushing cities and counties further in the hole.

Higher unemployment means lower tax revenues for federal and state coffers making Obama’s jobs bill plan of a waiver on employer-paid Social Security contributions downright insane. During the New Deal the WPA employed over 8.5 million workers over the course of its life. The CCC (Civilian Conservation Corps) employed half a million young men under the age of twenty-six. They built roads and airfields and parks and sewers. They got paid and because they worked at a job and got paid they bought things and paid taxes. It created not only new infrastructure but also pumped new blood into an anemic economy.

There is a very simple reason why the Obama administration hasn’t tried any jobs programs. They don’t want to.

They have sided with GM over union workers, sided with for-profit healthcare corporations over Medicare for all. They have sided with oil companies and the nuclear power industry. They have continued the Bush economic policy and mortgage bailout plan. They have sided with the Pentagon and increased funding for missile defense, even giving Israel an extra $250 million for missile defense, just because.

For Wall Street it's been “Laissez les bon temps rouler.” It's party time on make believe street, but now the party is over. Wall Street is guided by either fundamentals or fear, and it has ignored fundamentals so now fear reigns supreme. Friday has been the traditional sell-off day, and after Thursday's 376-point drop, this Friday looks like it will be a doozy.

The administration has wasted billions of dollars and the good will of the voters only to find itself right back where it started. Tax cuts for the wealthy and big business and slogans and promises for the working people. I guess trickle-down economics really doesn’t work after all. Perhaps they will try a Democratic solution next time, but probably not.

The futures on the Dow were down 150 points. The market opened down 111 points and then suddenly just like magic the market swings 120 points led by financials ostensibly because of the Senate passing their version of financial reform where the consumer protection agency will be run from inside the Federal Reserve. Why not Tony Soprano?

It defies logic and belief but in any case 120 points swings can’t signal a strong market

that's too obviously a farce.

as usual, harsh, accurate and glaringly to the point.

Your journals are about the only reason I even visit DU anymore.....

Thanks for all of your efforts, hard work and insights. Hopefully, someday, more than just a handful of folks will start seeing the light.

T.

the Senators that voted 80 to 18 to put consumer protection in the hands of the Federal Reserve. The same ones who voted for a jobs bill that is 95% dependant on tax cuts.

Its like the President said "We're not going to tell GM where (China) or when (tomorrow) to open factories"

It is important that GM succeed after the Federal government took over their pension liabilities, broke union contracts and accepted responsibly for GM's $3 billion dollars in environmental clean up costs.

Bookmarking for future reference.
Sending a copy to my friends with your permission.

The American Working Class has NO representation in Washington.
The few Democrats that still work FOR Working Americans have been completely marginalized by the Big Money Wing of the Democratic Party.

Remember THIS Democratic Party?


THAT is the "Democratic Party" I joined 44 years ago.
I miss THAT Democratic Party.

From the OP:
"The administration has wasted billions of dollars and the good will of the voters only to find itself right back where it started. Tax cuts for the wealthy and big business and slogans and promises for the working people. I guess trickle-down economics really doesn’t work after all. Perhaps they will try a Democratic solution next time, but probably not."---David Glenn Cox


"If we don't fight hard enough for the things we stand for,
at some point we have to recognize that we don't really stand for them."
--- Paul Wellstone

"Not only our future economic soundness but the very soundness of our democratic institutions depends on the determination of our government to give employment to idle men." FDR

...is trading on ancient Brand Loyalty, and the absence of an alternative.
How long can that last?

K&R

This is worth wider distribution.
:dem: