The American Financial Regime
CARD CHECK: "You have nothing to lose but your chains"
by Mike Whitney
(Note: Redistribution US Style: In the United States the top 1 percent of wealth holders in 2001 together owned more than twice as much as the bottom 80 percent of the population. If this were measured simply in terms of financial wealth, i.e., excluding equity in owner-occupied housing, the top 1 percent owned more than four times the bottom 80 percent!)
No thanks. Besides, the financial crisis is not an accident of nature, like a tornado or an avalanche. It's a self-inflicted wound that can be traced back to particular policies that were put in place to shift wealth from one class to another. The low interest rates, the massive leveraging, the undercapitalized institutions, the off-balance sheets operations were all concocted with the same objective in mind. The Fed's repertoire may change, but the results are always the same; they reflect the deeply-held class bias which orders the economy according to the interests of rich and powerful.
Besides, there's reason to believe that Bernanke doesn't fully grasp the fundamental problem, that economic growth in recent years was predicated on a flawed model that can't be restored. Consumers were able to spend beyond their means because their personal assets were greatly inflated by the availability of easy credit and lax lending standards. Now that risk is being repriced, debt deflation has set in and prices are plummeting across the spectrum. Homeowners are feeling the pinch because they can't tap into their home equity which amounted to $800 billion in 2006. The process of lowering interest rates by spreading risk throughout the system (securitization) has frozen over, sending investors fleeing from the stock markets to the safety of US Treasurys and cold hard cash. Bernanke's attempts to reflate the bubble by buying up Fannie and Freddie's mortgage-backed securities (MBS) and bundled credit card debt from finance companies is a sign of utter desperation. He's like a man pumping air into a punctured tire, pushing up and down furiously while the air hisses out the other side.
The economy is contracting because the excessive spending was based on artificially low interest rates and debt leveraging. In The End of Prosperity Fred Magdoff and Paul Sweezy wrote:
“In the absence of a severe depression during which debts are forcefully wiped out or drastically reduced, government rescue measures to prevent collapse of the financial system merely lay the groundwork for still more layers of debt and additional strains during the next economic advance.” As Minsky put it, “Without a crisis and a debt-deflation process to offset beliefs in the success of speculative ventures, both an upward bias to prices and ever-higher financial layering are induced." (John Bellamy and Fred Magdoff, "Financial Implosion and Stagnation", Monthly Review)