Bush's
Booming Economy
For The Rich
By Sheila Samples
14 July, 2007
Countercurrents.org
Sometimes
I'm amazed at how much I know about the financial markets and the economy.
I don't understand any of it, but I know a lot of stuff, thanks to my
friend and mentor, Richard
Walrath, who's been to the market more than once. He says
when George Bush brags that the economy is booming, he's probably right.
The economy is exploding with a big boom, and Walrath says now we are
engaged in a great battle to see how long this country can endure.
The Fed just poured a bunch
of money into the market, which was news to me, but Walrath said the
Fed has been manipulating the market for years, especially during the
Bush years.
"There was great fear
the United States was going to follow Japan into a period of deflation
and recession -- maybe even a depression," Walrath said. "Interest
rates were cut close to zero while hundreds of billions of dollars were
added to the National Debt through tax-cuts for the rich and 'Big Bidness.'
And it gets worse just at the time the National Debt limit has to be
raised again."
With things as bad as they
are, Walrath says it's going to be interesting to see how this crisis
is handled. Congress may have to return early to pass legislation to
raise the National Debt. But it makes more sense to me -- since the
bulk of our lawmakers were so eager to get out of school for recess,
that Bush could decide to handle the whole thing like he does everything
else to avoid partisan jawboning or oversight -- just dash off an Executive
Order.
But the National Debt is
just one of many problems battering our economy. Walrath points out
a major problem is "all those margin accounts out there with people
getting calls to come up with some real money because their stock is
down. As you might expect, this led to speculation in housing -- let's
flip it -- and millions of people who couldn't afford to pay their rent
bought houses."
Wait a minute...Let's flip
it? What does that mean? Nothing comes to mind -- okay one thing does
-- but Walrath never takes such a cavalier attitude about economics.
Let's flip it, Walrath says
is when "--you buy the house with no intention of ever living in
it. You add a kitchen, spruce up a bathroom, and "flip" it,
or put it back on the market, hoping to make a profit.
This goes on all the time,
Walrath says, but there were more flippers than buyers this time around
because it cost almost nothing to own a house while you were waiting
to sell it. That's sub-prime credit. You could buy a house with no money
down, no income, no job, no assets.
Of course! Now I understand.
If you buy a house with no money down, you have little or nothing invested.
Just walk away. Let the banks worry about selling them.
But to whom will banks sell
them? What are the banks going to do? "That's why houses for sale
are now piling up all over the country," Walrath said. "It's
a terrible situation."
Donald Trump begs to differ.
When you're in a hole, keep digging as hard and as fast as you can.
Trump's advice, according to Walrath is to "just go back and make
another deal with whoever holds the mortgage. Trump says you'll get
a better deal this time than the one you had before. Don't walk away
from it -- go make another deal. The last thing the bank wants is your
house. What are they going to do with it? They can't find anybody to
buy it."
So, who's flipping whom in
this credit seizure?
According to an unsigned
editorial in Saturday's Wall Street Journal, the root cause
of this credit correction was the Federal Reserve's willingness to keep
money too easy for too long.
The Journal warns an "emergency
rate cut, as some in the market seem to be anticipating or hoping for
-- carries the risk of introducing even greater moral hazard into the
financial system."
We can't have immorality
in our financial system, now can we? Oh, the horror!
While chiding Democrats such
as Senator Hillary Clinton for proposing a $1 billion federal bailout
fund for homeowners at risk of default and foreclosure, the Journal
goes on to channel Barbara Bush's flash of morality when speaking of
homeless Katrina victims -- "No one wants to see someone lose his
home to foreclosure. But many of those most at risk bought their homes
with little or no money down, and so have very little at stake economically.
Bringing in the feds to bail them out would send precisely the wrong
message -- that risky or overly aggressive borrowing will be rewarded
by the government rather than punished in the marketplace. To the extent
that bad loans were made, the market needs to clear, not be propped
up by federal-aid programs."
Unfortunately, despite what
the Journal and the endlessly bleating "Money Heads" on TV
would have you believe, millions of Americans are in deep trouble. CNBC's
Jim Cramer "flipped out" last week in a torrent
of truth about the current economic situation.
Walrath agrees, and says
if we continue in the direction we're headed, Bush's "boom"
will make the Savings and Loan bail-out look like a Girl Scout Cookie
Sale.
According to Walrath, there
are four sets of losers in this housing meltdown...
~~Those caught with the homes
they bought for flipping purposes are not going to be able to find buyers.
They are going to lose whatever they have invested, plus whatever mortgage
payments they make. It may be cheaper for them just to walk away.
~~Those who own homes will
see the value of their houses go down because of the current oversupply
due to overbuilding when interest rates were lower and people were buying
homes with little or nothing down with the idea of flipping the houses
as soon as possible.
~~Those who bought homes
with variable-rate mortgages are having trouble making payments because
those payments keep going up, and there's nothing they can do about
it. Many did not even realize they had such a mortgage. Millions are
going to lose their homes.
~~And then, there's the murky
many -- the banks and the hedge funds which ended up with mortgages
used as collateral for junk bonds, which ended up as holdings by French
and German and English banks, not to mention those in this country.
"This is the dog that
worried the cat that killed the rat that ate the malt that lay in the
house that Jack built, and we ain't seen nothing yet," Walrath
says.
"When it comes to saving
the rich from losing money, no expense will be spared. Actually,"
Walrath mused, "the economy is good -- if you're rich. For the
rest of us, there's not much to write home about."
Sheila Samples
is an Oklahoma writer and a former civilian US Army Public Information
Officer. She is a regular contributor for a variety of Internet sites.
Contact her at [email protected].
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