[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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