Financial analysts say credit markets are facing a Minsky
moment – the inevitable downward spiral when over-leveraged investors
have to sell valued assets just to pay back their loans. Some analysts
have even coined a new term, suggesting we are in a “Minsky meltdown” –
the prelude to a wider market crash.
But it looks more like a “Minsky massacre,” not an unavoidable economic
downturn but rather a coldly-calculated hit, with the intention of
transferring wealth from the lower and middle classes to an
unaccountable few at the top.
Bottom line, this economic downturn isn’t hurting everyone. Select
brokers and lenders made a fortune off the backs of subprime borrowers,
and now that the related hedge funds are collapsing, well-leveraged
private equity firms can buy assets at fire-sale prices.
And as Jim Hightower recently noted, a
"hands-off regulatory ideology"
is complicit: “There are no less than five financial agencies at the
federal level that could have protected people, yet the subprime surge
was allowed to proceed .... The Federal Reserve Board, for example, has
direct authority under the Home Ownership and Equity Protection Act to
‘prohibit acts or practices in connection with mortgage loans that the
board finds to be unfair, deceptive or ... associated with abusive
lending practices, or that are otherwise not in the interest of the
borrower.’ The Fed simply ignored this law.”
The US has been
down this road before. The Savings and Loan (S&L) crisis of the
late 1980s was also characterized by loose lending requirements, lax
regulation, obscene profits for the few - and US taxpayers left holding
the bag for $125 billion.
Ironically, the Bush family was involved in that scandal too, with Bush
Jr.’s brother Neil serving on the board of the disgraced Silverado
Savings and Loan, which went bust and stuck US taxpayers with a $1.3
billion debt. Regulators accused Neil of
"multiple conflicts of interest"
but he never did jail time – thanks at least in part to the S&L
bail out engineered by his father, Bush Sr., who happened to be
President at the time.
Just as in the S&L crisis, the poor
and middle class have borne the brunt of the current subprime disaster,
an especially nasty fact given the nation’s huge wealth gap. As
Inequality.org points out, “The richest one percent of U.S. households
now owns 34.3 percent of the nation's private wealth, more than the
combined wealth of the bottom 90 percent. The top one percent also owns
36.9 percent of all corporate stock.”
It’s probably no coincidence that terms associated with both corporate
and developing country indebtedness are being used to discuss the US
subprime meltdown (payment defaults, vulture funds, distressed debt,
etc). Perhaps the US hasn’t reached banana republic status yet, but the
increasing wealth gap, not to mention ballooning budget deficits, low
capital spending and reliance on foreign capital are disturbing signs.
Doesn’t help either that the Federal Reserve stopped releasing M3
money-supply data in 2006. M3 data (covering Eurodollars, repurchase
agreements and large-denomination time deposits) is critical in
determining how fast the Fed is printing money, which in turn impacts
inflation.
So, what further fallout from the subprime scandal can be expected?
Millions more Americans will lose their homes, and as The New York
Times recently reported,
"for the first time since federal housing agencies began keeping statistics in 1950," the median price of homes in the US will fall.
Ratings agencies, such as Standard & Poor's and Moody's, will take
some heat for their role in the scandal, but the Bush administration
will focus on bailing out predatory lenders rather than helping
Americans keep their homes. Congress and most presidential candidates
will protect financial services campaign donors by not pursuing true
reform.
Meanwhile, Asia and Europe will continue “decoupling” from increasingly
volatile US markets, threatening the dollar’s reserve currency status
even more.
Fresh off its recent war games with China and four Central Asian republics, Russia will more actively confront the US on the world stage. The Bush administration will move closer to a war with Iran.
Of course, these dire predictions don’t have to materialize - we can
regroup and fight back. One avenue is by urging Congress members to
take action, such as changing foreclosure rules to protect homeowners
and supporting Rep. Barney Frank’s (D-MA) National Affordable Housing
Trust Fund Act (H.R. 2895). Rep. Ron Paul’s (R-TX) push to have the Fed
start releasing M3 data again (H.R. 4892) is also urgent.
At the very least, we must frame the Bush administration’s war-making
as a direct threat to the US economy, not to mention national security,
and just like maxed out home buyers, confront our nation’s culture of
debt.
Action Tips:
1. For online videos about the subprime issue and “Money as Debt,” visit Brasscheck TV.
2. Check out two groups working on affordable US housing: the Community Land Trust (“to encourage affordable resident ownership of housing and local control of land and other resources”) and the National Housing Trust Fund
(“a dedicated source of funding for the production, preservation and
rehabilitation of 1.5 million affordable homes in 10 years”).
3. Learn more about “America’s growing economic divide” at Inequality.org.
4. Concerned about predatory lending? So is The Center for Responsible Lending
(“a nonprofit, nonpartisan research and policy organization dedicated
to protecting homeownership and family wealth by working to eliminate
abusive financial practices”).
Writings 
Much in the same way that US investors were “steered” into rip-off mortgage loans, the entire country has been “steered” into an economic crisis. The question is how to get out of it.
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