Saturday, January 8, 2011

The Whole System Is Rotten

Guest Post by Free0352

You can read this story and other exceptionally insightful postings at Free's blog, John Galt for President.

The Whole System Is Rotten
President Obama is out telling us all - once again - that we've turned a corner and we as a nation are finally digging out of the hole.

Sorry to say it Barry, but it just ain't so.

We'll get back to Barry, but first I want to talk about Oliver Stone's latest film Money Never Sleeps, the sequel to his most famous film besides Platoon... Wall Street.

Everybody beat this film up but I'm here to tell you folks, I loved it! I remember reading reviews on Pajama's website that called it anti capitalist and thinking "Oh I don't know about seeing that one," but I loved the first film so much I just gave in. I'm glad I did.

First, I found the film a profoundly PRO capitalist film. I don't know if that was stone's goal, but that's what he made. Second, it spends two hours beating up TARP, and so of course you know that kept my attention!

I don't want to ruin the film for you, but I'll tell you the thrust of the film - which made I think two very important points.

The theme is that of "Moral Hazard." It's demonstrated all over the film in many ways and situations. From the protagonist's love of his fiance... and her money - corrupting his intentions toward her however initially honest, to the main antagonist (not Gordon Gekko this time BTW) pleading for a bail out at the NYCFED during the sub prime crash. This movies message is when there are no consequences for our actions we loose our moral footing.

The second point, which can be encapsulated in Michael Douglas' brilliant monologue which he gives speaking to a class of collage students early in the film, is that the system is sick. Surprisingly, I agree with Oliver Stone here 150%.

Now back to Barry and the economy.

We can talk all day about Government's role in our financial crisis. Will things improve under Democrat or Republican leadership? Will this tax policy or that tax policy turn the corner? Stimulus or tax cuts?

But here's the sad fact. While Government certainly played a role in the 2007 crash, there were other's playing roles as well. Government might have pushed some banks to give loans to minorities who could never pay the principle, and it might have relaxed the reserve requirements too much... but at the end of the day private citizens caused the crash. Not just banker's either. It's easy to blame the rich trader in toxic derivatives, but no one wants to blame the family of four that took out a third mortgage and never thought about the bottom. Our Government owes 14.01 trillion dollars. That's disgusting. We citizens borrowed over the years a whopping 16.9 trillion... and most of that money can't be paid back...

We can fix our Government, but we have to fix ourselves first. We're junkies to credit.

And there lies the problem with America. Our addiction. Credit. It's going to destroy America. Our system once upon a time was about building things, manufacturing things, producing things. Production! Today it's sick, it's about spending and consumption and credit, credit, credit. Why else do you think Obama couldn't stop talking about "Getting credit flowing again" when he signed the stimulus. Our economy isn't built on steel, cars, coal, trade, construction, or technology anymore. Today it's built on a giant circular wheel of borrowed money. No new wealth is made, already existing wealth simply changes hands. A system like that cannot last. It's sick, and it has to correct.

It started when Reagan bailed out the savings and loans. That's when the "Moral Hazard" Oliver Stone talks about in Money Never Sleeps came into play. Had we just never made that one move, perhaps today we'd be okay. Not bailing out the savings and loans would have cost Americans a few billion. That's chump change today. But we didn't learn at all. Clinton bailed out the usual suspects when they got into trouble down in Mexico when they leveraged Mexican securities. Goldmahn, Bear Sterns... we saw them all again in 2007. The logical extension of the Moral Hazard had come to fruition. By then, companies like Goldmahn figured why not throw the dice at the biggest, most potentially lucrative short term investments they could come up with and then leverage them to the hilt. It would work, or if it failed the tax payers would make sure that the "too big to fail" golden bull wouldn't die.

They were right of course. Tragically.

You know what... it wasn't just Bear Sterns. It was everybody. It wasn't just banks, it was GM and AIG and Microsoft and Google. It wasn't just Fanny Mae or Freddie Mac it was the Smiths on Main Street up to their necks in credit card debt and home equity loans. Our whole country went mad borrowing. The system got sick because of the moral hazard of simply thinking... "Well, if the bottom drops out, I'll get a bail out." Americans weren't shocked when George Bush signed TARP because he spent 700 billion dollars. They were shocked it bailed out banks and not them. No one even cared about the moral hazard, they just wanted their piece of the tax dollar parachute.

People said I was crazy in 2006 when I was all over Blonde Sagacity and every other blog screaming "Sell your house now! Cash in your 401k and buy gold! Save up a year's salary now! Pay off all your debt!" I even got baned from some blogs because people thought I was literally a lunatic.

Well, those houses likely are worth half what they were in 05-06, your 401k is hemorrhaging money, gold has gained 300% in value, and you're barley making minimum balance payments right? Whose crazy now?

So if I was right way back in 2005 when I saw this coming, perhaps I'm right today in 2011 when I tell you that until we fix our broken system... recovery isn't coming?

Here are some uncomfortable facts.

Recovery isn't coming because at the end of the day, we're propping up the sick system of moving money around instead of producing things that build wealth. Moving money around a consumption based economy isn't going to work. That system collapsed. The more we bail it out, and kick the can down the road the more pain we're going to feel later on.

Corrections are necessary in Capitalism. Capitalism is Darwinism. Survival of the fittest. We've used our government to prop up so many unfit companies and life styles for so long, that weakness has spread like a cancer throughout our economy and now our economy is too weak to stand on it's own. We should have celebrated the death of a company as an opportunity for a stronger one to take it's place. We didn't do that, and the cancer spread. Weak companies, and weak citizens were the result. Now our government is propping up both. It can't do this forever, and when private and public sectors collapse the weight of both crashing will destroy America as we know it.

We as a nation may, or may not, come through it. But the inevitable correction isn't terribly far off no two ways about it. The critical decisions have already been made, and we as a country made the wrong ones. The consequences of that are as more sick companies the government can't rescue die off, more employees turn to the government instead of self reliance and the system gets sicker. As more companies start to die, more of them turn to government and the cancer becomes even more systemic. Our system is terminal, it's only a matter of time now.

I just wish we'd get it over with. It's going to happen, it has to happen.

That's okay too. Our nation might be stronger after the correction, or it might not. At least at that point we can move on and get off this hospice economy. I'm tired of failure. In the mean time, take any announcements of "RECOVERY IS FINALLY HERE!" with the grains of salt such announcements deserve.

You know the truth. Deep down, we all do.

Our country has been through far worse. The Civil War alone killed off nearly 700,000 people in a time when our population was only a tenth of what it is today. The inevitable systemic collapse pales in comparison to that. We need honest leaders to tell the truth so Americans can go into this thing with their eyes open, that's all. Armed with information, they can fight their way through it. We can't afford to deny reality anymore.


If you'd like to see Douglas' great monologue in the film Money Never Sleeps, go here. It's about 30 minutes 15 seconds into it.


John Myste said...

El Rushbo explained that the Native American Indians killed more Americans than any war, as they taught us to use tobacco. Therefore, they owe us.

Aren't you proud to have him on your team?

T. Paine said...

Despite my chuckling at your amusing comment, I must be missing something as to its relevance to this fine posting.

As for the Great Maha Rushie, he does not need me to defend him. He is an articulate and typically very accurate spokesman for the conservative cause, sir. :)