No-Holds-Bar Super-Risk Economy
The Gramm-Leach-Bliley Act is creating more chaos than people recognize. Of course, the scope of free-market anarchy is vast due to the repeal of the Glass-Steagle Act, which prohibited the combination of investment firms, depository banks, and certain lending institutions. Glass-Steagle Act also was aligned with the purposes of the, later, Community Reinvestment Act which was a consumer rights bill that purely focused on requiring financial institutions to meet the qualitative and quantitative needs of every individual community and prohibited redlining (which even the Riegle-Neal Act of 1994, which allowed the interstate merger between banks that was restricted by the Bank Holding Company Act of 1956). Having passed the Gramm-Leach-Bliley Act, financial firms have been given phenomenal legitimate power, where the endgame for the economic behaviors of today's financial mega-firms are rationally contrary to the purposes and powers of the CRA. This translates into drastic increase in devious discrimination in the financial industries against different communities and individuals that's continually harder to address in the courts due to the privacy rights these financial institutions have on their decision-making bases (filled with a variety of mysterious algorithms that is impossible to get information on, let alone analyze their validity).
Where our dollars were once safe in depository and savings accounts, they are now in a highly volatile position inside of deposit and savings accounts dependent on the size and performance of high-risk securities, and a place that is purely ensured by the FDIC ($250K per account, where the FDIC's on finances do not meet the needs of demand...the bankruptcy of Bank of America lone, now, would most likely lead into the next Depression, if not, a half step-away).
Super Size My Mortgage Feds! And Insure It Too!
Deregulated High-Risk financial market + Housing Bubbles x Horrible Debt Coverage Service (or Debt-to-Income Ratio) = Are you nuts!?!?!?!?! Well, that is where we are, and the Federal government is now multiplying the situation! The Federal Government's "investments" into the consumer financial markets has been much more than the TARP and other stimulus funds: let's not forget the trillion dollars in short-term emergency loans the Federal Reserve has auctioned off quietly since 2005, or the coverage of high-risk securities and debts for major banks like AIG (thank you Geithner). Fortunately, the government makes it easier for us to see how they are increasing their multi-trillion dollar investment into the housing markets, both primary and secondary markets. Yesterday, Januay 30th, 2010, the Office of the Special Inspector General on TARP released the quarterly report to Congress. On page 112, it is all outlined:
Remember back in the turn of the new century, in 2003, when Pres. Bush and his Administration were pushing for people to buy new homes and celebrated the sub-prime mortgage market as a "savior for low-income families"? Now, remember how people look back and said that those events were major factors in the recent housing crash that has caused the collapse of major and small banks, and led to the current recession? Apparently, our government didn't get it the first time. Now, instead of the Bush Administration pushing Congress to sponsor new home buyer programs and push for the mass marketing of sub-prime mortgages, we now have a government not only insuring trillions of dollars in high-risk financing within the housing market, but also creating trillions of dollars in government-sponsored monetary tools to put people, yet again, into homes they can't afford! Oh, but its worse as this adds to the multi-trillion dollar super-deficit we have that will be with us for the entire lifetime of this nation, (and will probably last as long as radioactive waste!), as these come directly from the backs of taxpayers and the weak GDP. Not to mention, this Housing Bubble this government is trying to spur will result in another massive Housing Crash, it's all cyclical because we keep doing the same mistakes over again....not a "natural" economic cycle.
So, consumers continue to spend at a rate 40x's your income, save less than 5% of your earnings, and rest assured that the government is insuring the mega-firms that are selling you into mortgages designed to fail!
The World Gets Its Placebo!
Since the robust declaration of the "ennnddd of the recession" last year, I've been saying again and again, "yea, but it's not a recovery". For those of my peers who get to listen to my complaining all day on modern economic behaviors and pie-in-the-sky surrealism, you're used to me saying that our global and national economy is living off of "False wealth". This is true. Imagine you are married, man or woman doesn't matter. Okay, if you are married, then this may be too real for you. Now, you have a job that makes $50,000 a year before taxes, and you know your spouse only brings in $35,000 from his or her job. Knowing how much you two are drowning in debt, you begin to see your spouse walking around happier and more confident: wearing new designer clothes, driving a new SUV you've never seen before, taking you out on vacations, and eating out at five-star restaurants. So, surprised, you ask him/her, "honey, where is this money coming from, did you get a new job?" And he/she responds, "no, I just have more money." You reply curiously, "oh wow, when did you get promoted and a raise!?" And he/she answers, "I didn't get either, I'm just getting more money", and proceeds to tell you that there is no way she/he is making more money: no inheritance, no salary wages, no new jobs, nothing. Well, what's the deal? You ask yourself. So, you check out the bank account and find, indeed, the balance is what you expect from your paycheck-to-paycheck lifestyle. But, how in the hell is your spouse living so lavishly and the cops, nor IRS, banging at your door?
That is what's going on, pretty much.The stock market has recovered some of its major losses since the dark recession. Hedge funds, and other wealthy seasoned investment firms are making billions of dollars a week, recovering some of its YoY (year over year) losses at a moderate pace. The unemployment rate according to the Dept. of Labor, has fallen back from its rapid growth with less reported unemployment claims. You turn on MSNBC, CNN, or FOX! News and the journalists are no longer sweating a threat to their job security (unless you are brave and like to report real news...then you probably don't have a job anyways). "Recovery" is the world of the year. But, how?
The stock markets, which is the public's primary (other than the Consumer Price Index and the Unemployment Rate) source to judge whether they should hide their money or, as Jim Cramer says, "Buy! Buy! Buy!", are operating fully off of the hype created by the TARP and other government stimulus funds. For as happy Keynesians get over the increase government/public sector investments and expenditures, these factors do NOT equate to a real increase in economic productivity because these are temporary factors that are not based on concrete sustainable economic resolution. The savings rate of consumers, private and public institutions are still too close to zero, the number of actual hours worked quarter-to-quarter are down, and the debt service coverage (the ability for people and firms to pay their debts from their income) are remarkably poor (and increasingly). The only positive news right now, from my opinion, is that there will be extra funds given to local community banks and even the mega-banks to increase lending to businesses, which leaves us in a positive position to simply wait and see if the financing for operations and business improvements lead to increase profitability, new jobs, and, hopefully, a positive acquisition of assets and a better ability to pay debts short and long term.
But, right now....it's all primary false wealth, and a false recovery. Take it from my idol, Roubini:
“The headline number will look large and big, but actually when you dissect it, it’s very dismal and poor,” Roubini told Bloomberg Television in an interview at the World Economic Forum’s annual meeting in Davos, Switzerland. “I think we are in trouble.” Bloomberg.com: "Roubini Calls Us Growth 'Dismal and Poor,' Predicts Slowing"
Roubini Calls Us Growth 'Dismal and Poor,' Predicts Slowing
What are my ideas for sound resolutions? That will follow, come back later! =D
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