How
the Bush Administration
Is Turning The USA Into
A Subprime Borrower
By Heather Wokusch
28 August, 2007
Countercurrents.org
"Our enemies are
innovative and resourceful, and so are we. They never stop thinking
about new ways to harm our country and our people, and neither do we."
- George W Bush
Much
in the same way that US investors were "steered" into rip-off
mortgage loans, the entire country has been "steered" into
an economic crisis. The question is how to get out of it.
In the subprime loan scandal,
unscrupulous brokers conned home buyers with poor credit histories into
deals designed to profit lenders and bleed borrowers. Contract "teasers"
hid ballooning monthly payments while a lack of regulation allowed the
scam to continue unabated. Millions more Americans now face losing their
homes.
The Bush administration similarly
used promises of cakewalks and increased security to con the US public
into wars with Iraq and Afghanistan. US taxpayers have spent over $450
billion on Iraq alone, while Bush/Cheney cronies continue making a killing
from military contracts. Meanwhile, global security has degenerated
and over 4,100 US service members have died in Iraq and Afghanistan,
along with an untold number of coalition troops, contractors and civilians.
Bush's military adventurism,
not to mention his administration's exorbitant tax cuts for the wealthy,
gutted the surplus of $128 billion Clinton handed him in 2001 into a
deficit of well over $200 billion today. And Bush has simultaneously
increased the national debt by over $3 trillion (to roughly $9 trillion),
effectively nailing each and every US citizen with a bill for almost
$30,000.
While heavy borrowing from
Asia has mopped up some stateside red ink, there's an inherent threat:
China, for example, has an estimated $900 billion in US bonds and can
increasingly call the shots on the US economy and foreign policy.
Just weeks ago, Beijing warned
that if the Bush administration pushed for a revaluation of the Chinese
currency, then Beijing would sell dollars, thereby threatening the greenback's
reserve currency status. Washington backed down. It had little other
option.
In other words, the US itself
has become as vulnerable to its lenders as any other subprime borrower.
Overall, the US debt situation
looks so dire that the non-partisan Government Accountability Office
Comptroller recently warned, America is on a path toward an explosion
of debt. And that indebtedness threatens our country's, our children's,
and our grandchildren's futures. With the looming retirement of the
baby boomers, spiraling health care costs, plummeting savings rates,
and increasing reliance on foreign lenders, we face unprecedented fiscal
risks."
Financial analysts say credit
markets are facing a Minsky moment - the inevitable downward spiral
when over-leveraged investors have to sell valued assets just to pay
back their loans. Some analysts have even coined a new term, suggesting
we are in a "Minsky meltdown" - the prelude to a wider market
crash.
But it looks more like a
"Minsky massacre," not an unavoidable economic downturn but
rather a coldly-calculated hit, with the intention of transferring wealth
from the lower and middle classes to an unaccountable few at the top.
Bottom line, this economic
downturn isn't hurting everyone. Select brokers and lenders made a fortune
off the backs of subprime borrowers, and now that the related hedge
funds are collapsing, well-leveraged private equity firms can buy assets
at fire-sale prices.
And as Jim Hightower recently
noted, a "hands-off regulatory ideology" is complicit: "There
are no less than five financial agencies at the federal level that could
have protected people, yet the subprime surge was allowed to proceed
.... The Federal Reserve Board, for example, has direct authority under
the Home Ownership and Equity Protection Act to 'prohibit acts or practices
in connection with mortgage loans that the board finds to be unfair,
deceptive or ... associated with abusive lending practices, or that
are otherwise not in the interest of the borrower.' The Fed simply ignored
this law."
The US has been down this
road before. The Savings and Loan (S&L) crisis of the late 1980s
was also characterized by loose lending requirements, lax regulation,
obscene profits for the few - and US taxpayers left holding the bag
for $125 billion.
Ironically, the Bush family
was involved in that scandal too, with Bush Jr.'s brother Neil serving
on the board of the disgraced Silverado Savings and Loan, which went
bust and stuck US taxpayers with a $1.3 billion debt. Regulators accused
Neil of "multiple conflicts of interest" but he never did
jail time - thanks at least in part to the S&L bail out engineered
by his father, Bush Sr., who happened to be President at the time.
Just as in the S&L crisis,
the poor and middle class have borne the brunt of the current subprime
disaster, an especially nasty fact given the nation's huge wealth gap.
As Inequality.org points out, "The richest one percent of U.S.
households now owns 34.3 percent of the nation's private wealth, more
than the combined wealth of the bottom 90 percent. The top one percent
also owns 36.9 percent of all corporate stock."
It's probably no coincidence
that terms associated with both corporate and developing country indebtedness
are being used to discuss the US subprime meltdown (payment defaults,
vulture funds, distressed debt, etc). Perhaps the US hasn't reached
banana republic status yet, but the increasing wealth gap, not to mention
ballooning budget deficits, low capital spending and reliance on foreign
capital are disturbing signs.
Doesn't help either that
the Federal Reserve stopped releasing M3 money-supply data in 2006.
M3 data (covering Eurodollars, repurchase agreements and large-denomination
time deposits) is critical in determining how fast the Fed is printing
money, which in turn impacts inflation.
So, what further fallout
from the subprime scandal can be expected? Millions more Americans will
lose their homes, and as The New York Times recently reported, "for
the first time since federal housing agencies began keeping statistics
in 1950," the median price of homes in the US will fall.
Ratings agencies, such as
Standard & Poor's and Moody's, will take some heat for their role
in the scandal, but the Bush administration will focus on bailing out
predatory lenders rather than helping Americans keep their homes. Congress
and most presidential candidates will protect financial services campaign
donors by not pursuing true reform.
Meanwhile, Asia and Europe
will continue "decoupling" from increasingly volatile US markets,
threatening the dollar's reserve currency status even more. Fresh off
its recent war games with China and four Central Asian republics, Russia
will more actively confront the US on the world stage. The Bush administration
will move closer to a war with Iran.
Of course, these dire predictions
don't have to materialize - we can regroup and fight back. One avenue
is by urging Congress members to take action, such as changing foreclosure
rules to protect homeowners and supporting Rep. Barney Frank's (D-MA)
National Affordable Housing Trust Fund Act (H.R. 2895). Rep. Ron Paul's
(R-TX) push to have the Fed start releasing M3 data again (H.R.4892
) is also urgent.
At the very least, we must
frame the Bush administration's war-making as a direct threat to the
US economy, not to mention national security, and just like maxed out
home buyers, confront our nation's culture of debt.
Action Tips:
1. For online videos about
the subprime issue and "Money as Debt," visit Brasscheck TV
(www.brasschecktv.com/page/135.html)
2. Check out two groups working on affordable US housing: the Community
Land Trust (www.iceclt.org/clt/)
and the National Housing Trust Fund (www.housingmatters.net)
3. Learn more about "America's growing economic divide" Inequality.org
(www.demos.org/inequality/index.cfm)
4. Concerned about predatory lending? So is The Center for Responsible
Lending (www.responsiblelending.org/).
Leave
A Comment
&
Share Your Insights
Comment
Policy
Digg
it! And spread the word!
Here is a unique chance to help this article to be read by thousands
of people more. You just Digg it, and it will appear in the home page
of Digg.com and thousands more will read it. Digg is nothing but an
vote, the article with most votes will go to the top of the page. So,
as you read just give a digg and help thousands more to read this article.