[Dialogue] Spong 10/15 Wall Street

KroegerD at aol.com KroegerD at aol.com
Thu Oct 16 22:01:39 EDT 2008


 
October 15, 2008 
The Drama on Wall Street  

President Ronald Reagan was fond of saying that the ten most frightening  
words in the English language are "I'm from the government and I'm here to help  
you." However, these words sound really strange in the light of Wall Street's  
panicked plea for the government to come to its rescue and to the rescue of 
the  economy that is about to sink, perhaps has already sunk, under the 
pressure of  the enormous greed and gross mismanagement that has occurred primarily 
in the  housing market. This request for government help came at the initiative 
of free  market Republican George W. Bush, working through his Secretary of 
the Treasury  Henry Paulson, the former head of Goldman Sachs, which has until 
recently been  the crown jewel in the diadem of American capitalism. The 
proposed plan,  disastrously called a "bailout," has the effect of nationalizing 
the American  financial establishment in general and the American banking 
industry in  particular. This was an almost unheard of, not yet even imagined, event 
in  American history.  
There was no time for critics to raise the question of how the economy got  
into this chaotic mess. The crisis was too immediate. Some things, however, 
were  obvious. The Republicans, as the party of business, have always resented 
and  resisted any federal regulation of business, and especially the banking  
industry, as "needless governmental intervention designed to strangle the  
entrepreneurial spirit." On the other side of the aisle, the Democrats, as the  
party of the working people, have always mistrusted big business and its  
unwillingness to be regulated as tactics designed "to make the rich richer and  to 
squeeze the common man or woman in a selfish pursuit of wealth." That is the  
unspoken but real polarity that provides the tension in our political system.  
The truth is probably somewhere in the middle.  
Human nature being what it is, business must have regulation lest self  
interest overwhelm morality. Excessive regulation, however, will strangle the  
goose that lays the golden egg. The regulatory functions are therefore generally  
loosened during Republication administrations and are generally tightened in  
Democratic regimes. That alone probably speaks to the necessity of having no  
party remain in power too long.  
The present crisis seems to have had its origin in Newt Gingrich's "Contract  
with America" in 1994. By nationalizing the off-year congressional elections 
for  the first time in American history with a platform of promises on which 
all  Republican candidates ran, the Gingrich revolution swept into power and 
began to  implement its program. Removing regulatory controls on American 
business was an  item on its agenda. Later in 1999 Senator Phil Gramm of Texas, a 
former  economics professor, achieved the deregulation of banks that allowed 
subprime  mortgages with no down payments. The Democrats pushed to make capital 
available  to the poor. The banking industry discovered that they could sell 
their high  risk loans to other even less regulated entities around the world. 
So it was  that the virus of greed entered the world's economy. This plan 
worked for years  as the housing market skyrocketed and housing inflation became 
the quickest path  for Americans to increase their own net worth. Markets do 
not, however, always  go up. "Irrational exuberance" finally runs its course, 
economies do shrink and  the moment of truth inevitably arrives. The housing 
bubble finally exploded and  its debris began to spread over all financial 
markets. Wall Street now refers to  it as "toxic waste."  
Many factors assisted in the popping of this housing bubble. First, by  
deliberate government action, the dollar was allowed to decline. This lowered  the 
price of exports and raised the price of imports, which helped America's  
trade deficit. Most people did not notice unless they traveled abroad. There  
were, however, other unanticipated results. The price of oil was pegged to the  
American dollar, so as it declined the cost of a barrel of oil skyrocketed until 
 $4 a gallon for gasoline became the norm. This increase in the cost of 
energy  for all Americans squeezed other family expenditures and began a tightening 
of  the belt syndrome. Credit also began to be reined in, and with it the 
housing  market slipped more. Suddenly people recognized that the value of their 
homes  had declined to the place that their monthly mortgage payments did 
nothing to  increase their financial stake. Their equity disappeared. They could 
no longer  sell their home for the price that they owed on their mortgage. So 
people  stopped paying on their loans, and when the mortgage went into default 
they  simply walked away.  
Then the fact that the banks had sold these mortgages to other financial  
entities around the world came into play. Someone in India or China actually  
held a piece of your mortgage and they began to demand that their debt be made  
good. A ripple effect set in. More unsold houses were placed on the market.  
Prices plummeted further. Those who had regularly drawn equity from their homes  
to support a standard of living beyond their means discovered that not only 
was  the cash cow gone, but the lending institutions wanted more capital. When 
it was  not forthcoming, foreclosure set in. In time so much repossessed 
housing got to  the market that prices sank even more and mortgages carried on the 
books of  financial institutions as assets became liabilities. Bank profits 
declined and a  crisis unfurled. First, Countrywide Finance, America's largest 
mortgage  business, went under and Bank of America picked up the pieces at fire 
sale  prices. Next Bear Stearns went into bankruptcy and was absorbed by J. 
P.  Morgan-Chase in a deal orchestrated by the federal government. Next Fannie 
Mae  and Freddie Mac, government subsidized mortgage lenders both had to be 
taken  over by the government. Then Lehman Brothers, an investment banking 
business,  was allowed to collapse, with its various pieces being cannibalized by 
others.  AIG, the world's largest insurance company was bailed out by 
government  intervention and we witnessed the Secretary of the Treasury firing the CEO 
of a  major company. In rapid succession Merrill Lynch was bought by Bank of 
America,  Washington Mutual failed and its assets were taken over by J.P. 
Morgan Chase,  the stock in Wachovia Bank dropped so low that Citibank swooped in, 
in  buzzard-like fashion, to scoop up any remaining value, only to be muscled 
out by  Wells Fargo, and finally Morgan Stanley and Goldman Sachs announced 
that they  would become full service banks and allow themselves to be governed 
by banking  regulations. That was the last straw, and so Wall Street overcame 
its opposition  to government regulations and literally begged the government 
to bail them out  with a $700 billion infusion of taxpayer capital. This was 
not the railroad  industry or the telephone company that was being 
"nationalized," this was the  very heart of American capitalism being nationalized at its 
own request! Karl  Marx could never have predicted so stunning a conclusion.  
The free market wing of the Republican Party turned down the bailout proposal 
 on the first vote. In response, the Dow sank 777 points in one day. The free 
 market mentality blinked. A few cosmetic, but insignificant, things were 
added  to the defeated bill to give the free market champions cover and it 
finally  passed. Wall Street cheered the fact that the financial future of this 
nation  had been saved by a government takeover! Other shoes then began to drop as 
new  revelations showed levels of greed and market manipulation beyond 
anyone's  imagination. Capitalism had been deeply wounded, but the culprit was not 
some  left wing conspiracy, it was the greed of the capitalists themselves. 
After a  drop in the Dow of 40% the bottom has not yet been found. Some results, 
however,  are clear, among them are the following: 
    1.  The party is over, at least for a while, for Wall Street greed. CEO  
contracts that allowed them to drive their companies into bankruptcy while  
escaping with golden parachutes and enormous year end bonuses will be a thing  
of the past. Year end bonuses and golden parachutes will in the future be  
harder to get and will be subjected to increased tax rates.  
    2.  Regulation of banking and financial institutions is now back in 
vogue,  driven by public demand, and it will be tighter than usual.  
    3.  This crisis will probably elect Barack Obama president. Senator 
McCain has  looked particularly inept during the crisis. Announcing that the 
economy was  fundamentally strong just days before the financial collapse, he looked 
like  Herbert Hoover. Trying to cover that mistake he claimed that what he 
meant was  that the "American workers are fundamentally sound." Even when this 
mantra got  repeated by surrogates like Governor Mitt Romney and Mayor Rudy 
Giuliani, this  spin stretched credibility beyond the breaking point. Then 
Senator McCain  "suspended" his campaign to fly into Washington to "rescue" the plan 
that was  then actually voted down by two thirds of the members of his own 
party. Later  attempts to spin that were about as believable as his "soundness 
of the  American workers" idea. All Senator Obama had to do was to appear 
competent  and he became a winner by comparison. He managed that quite well.
The potential collapse of Wall Street was suddenly high drama on Main Street. 
 It was also scary economics. It proved, if ever there was much doubt, that 
the  real issue in politics is not ideology, but power. People will do anything 
and  promise anything to be elected. As disillusioning as it is, Republicans 
are now  the party of big deficits, big government spending projects, no 
balanced budget  in sight for at least half a century and now business bailouts by 
the federal  government. If one lives long enough, one sees everything.  
William McKinley, where are you now that we need you?
–John Shelby Spong
Question and Answer
With John  Shelby Spong 
Roland C. Troike, , via the Internet, writes:  
I am reading The Jesus Papers, authored by Michael Baigent, and have a  
question about his suggestion that the crucifixion of Jesus was rigged, that he  
was drugged to make it appear like he was dead. Upon being speared, blood gushed 
 from his side, which, of course, would not happen with a corpse. Jesus was 
then  treated for the wound and lived. The author claims there is 
"incontrovertible  evidence" that Jesus was alive in AD 45, and that the Roman Catholic 
Church is  guilty of hiding this information along with the evidence denying the 
divinity  of Jesus. I would value your opinion as to the validity and accuracy 
of this  book.  
Dear Roland,  
Those theories have been around forever and they have little or no  
credibility. They reappear in new dramatic forms from time to time and people  
unfamiliar with their history actually treat them seriously. Your source seems  to be 
one of these.  
The story about the spear going into Jesus' side at the time of the  
crucifixion is recorded only in John's gospel, which was written between the  years 
95-100. That means that nobody seemed to notice this detail until 65-70  years 
after the crucifixion. Then we discover by the study of John that he has  
borrowed this detail to put in his narrative from Zechariah 11, which suggests  
that it never was an event in history, but a means of interpretation used by the  
author of the Fourth gospel. In the book of Zechariah the prophet writes: 
"they  looked upon him whom they pierced and mourned for him as one mourns for an 
only  child." Those words are not written about Jesus since they were 
composed in the  fifth century before the birth of Jesus. John says, however, that 
the spear in  Jesus' side was a fulfillment of the words of Zechariah.  
Your author's "incontrovertible evidence" is absurd and not worthy of further 
 comment. Baloney comes in lots of forms and conspiracy theories have 
punctuated  human history. I would pay no attention to such absolute nonsense.
–John Shelby Spong
 
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