Sunday, December 27, 2009

#6 - The Great Recession

It was the decade when...

The free market cost us a whole lot.

Greed was very good in the aughts. Goaded on by the radical free-market zealots populating the Bush administration, the American economy resembled not so much a self-regulating system in the invisible hand paradigm of Adam Smith as it did a full-blown Reno casino with the taxpayers tied to the roulette wheel. And like a frothy-mouthed gambling addict on a lucky streak, there is no stopping the madness until it was too late. During the better part of the aughts, for the sharks within the financial system, times were good indeed: the Cristal champagne flowed at crowded velvet-roped clubs, credit was loose, and the word "bonus" came to mean a nothing short of a small fortune. The Masters of The Universe were back, "the hostile takeover" being replaced by "the credit default swap" as the archetypal dubious financial transaction of the decade. Complex mathematical financial models, totally inaccessible to laymen, became the backbone of our financial system, an apparatus so complex that even its practitioners didn't fully understand how the economy was working. All that mattered was profit, and, for some, there was plenty of that.

Sub-Prime loan. The quality of the investment is advertised in its name. You think that people making, oh, 20k a year (if that) would know better than to buy a $500,000 home but, hoodwinked by mountebanks peddling low-interest rates and manageable monthly payments, these sad-sacks couldn't help but reach for the American Dream when the carrot of home-ownership was dangled above their heads. "What's an Adjustable Rate Mortgage you ask? Don't you worry your pretty little head about that, that's just technical gobbledygook." And as these real estate robber barons bundled and sold the mortgages to ever-higher strata of financial institutions, the real estate bubble swelled to the point that the whole American economy rested upon the ricketiest of foundations. The pillars of American finance were weighed down with mounds of bad debt that could never be repaid. What happened when all these checks suddenly came due? What happen when that adjustable rate mortgage, well, adjusted? Let me put it thusly: did you ever play Jenga?

After the housing bubble burst, the shock-wave rippled through our economy, all but leveling its totemic institutions to the ground. The wealth of America had become little more than a slight-of-hand trick orchestrated by a few ingenious and unscrupulous bankers who put momentary profits ahead of sound long-term financial planning.

The narrative of the collapse of 2008 is now legendary. A domino metaphor is almost too easy to describe what took place in the fall of last year; perhaps a Nagasaki analogy is actually more fitting: it all just blew up in our faces. A mushroom cloud of cash whose fallout will prove radioactive for years to come. Lehman Bros was the first to fall. The headline was almost unthinkable but, there it was on the front page: Lehman Bros. files for bankruptcy. It was clear that this was a whole new depth of fissure in the capitalist system. Washington Mutual followed suit, the biggest bank failure in American history. It was looking like 1929 again. Insurance giant AIG was next on the chopping block when the United States Government performed a deus ex machina, saving the institution (and maybe the nation) from total financial ruin.

The economic collapse did provide America a living receptacle of loathing, disgust and resentment. His name was Bernie Madoff and, if history is just, the "Ponzi scheme" is no more; "Madoff scheme" will do very well, thank you! Stealing billions (billions!) of dollars from his investors, Madoff kept up his deceitful charlatanism for years, the robust economy allowing him to delay paying the piper as long as business was good. When the bull turned into a bear, and a really mean bear at that, there was no where else to hide. Madoff was through, his investors were broke, and America finally got a sense of just how corrupt and insane the world of finance had become. Yet Madoff is something of a whipping boy. Though he was without question corrupt, Madoff was, in a sense, a product of a system that encouraged behavior which, if not downright illegal, teetered ever so close to impropriety. Viewing Madoff as a singular and isolated example of corruption is to to ignore the myriad Bernie Madoffs that operated within the confines of a deregulated and corrupt system. These 21st Century Gordon Gekkos may have not broken the law but they nonetheless plundered America, turning our entire economy into a big game of "hot potato." Guess who was left holding the vegetable when the music stopped? That's right. All of us.

If there is a silver lining to the bleak clouds that now hover over America it is to be found in the resurgence of liberal Keynesian economics. If the crisis of '08 doesn't put the final nail in the coffin of Monetarism then we are all doomed. The economic meltdown has thoroughly discredited lassez-faire mandarins like Milton Friedman and Alan Greenspan, the latter of whom finally admitted that he "found a flaw" in the system. "I don’t know how significant or permanent it is. But I’ve been very distressed by that fact." Well, about time you stopped jerking off to Atlas Shrugged and took a gander at the real world Mr. Greenspan.

"Experts" like Greenspan set the stage for this grand drama to unfold, blindly confident in the all-powerful wisdom of the "market." What we're left with is a disaster on a par with nothing in America since the crash of '29. But there is also hope. Hope of a future where greed may be kept in check by powerful regulatory forces and the "market" is utilized not as a grand schematic for all social organization but a tool, amenable to control, to help further the prosperity of society and welfare of the general populace. But, until these dreams are realized, we remain isolated in our private hoovervilles, singing the new anthem of The Great Recession: Brother can you spare a 401K?

You AUGHT to remember...

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