U.S. to be Trashed by "Greediest Financial Class in History"

[flashl]

A deluded Wall Street threatens the world economy

The United States is about to be trashed by perhaps the greediest, most arrogant, self-deluding financial class in the country's history.

It is an epic tragedy whose ramifications are bound to impact on Britain and the rest of the world, beginning with the sanguine economic assumptions - of only the mildest of economic slowdowns - that underpinned Alistair Darling's Budget forecasts last week. But whether in Britain or America, politicians and policy-makers seem frozen into inactivity (with the honourable exception of the US Federal Reserve, America's central bank). Messrs Brown and Darling echo President Bush and US Treasury Secretary Hank Paulson; as little as possible must be done to regulate or impede the operation of the titans of Wall Street and the City, whatever their recklessness. Even Hillary Clinton and Barack Obama, slugging it out for the Democratic presidential nomination, are happier to talk about the threat to American jobs from foreign trade than the mortal threat constituted by an out-of-control and broken financial system.

...

The Americans have invented a system with no commitment, trust or long-term human relationships and the result is mayhem. For the banks, there was a glorious byproduct. They could borrow to a stunning degree because they had, allegedly, spread their risk. Bear Stearns had $11.8bn of capital and $395bn of debt. When things are going well, it is 'leverage' like this that creates the volume of business that generates incredible bonuses for their executives. When things go badly, the bank simply goes bust.

The unresolved question is a humdinger. How big is the void between all the debt and the actual, slipping, value of the property that is supposed to be sustaining it? And here's another: how many banks may go bust before the situation steadies? Goldman Sachs estimate the gap at $2trn; Professor Nouriel Roubini, of the Stern School of Business at New York University and a contemporary Nostradamus, says the number is $3trn. Any which way, it is large and the only way to save the US economy from a credit-crunch-induced recession is to try to narrow the gap by steadying property prices, while the banks are thrown a lifeline.

The Observer

[emanymton]

1. Profound Sense Of The Obvious ... No Kidding

.

So many have been saying this for so long, it means nothing.

Go after the scum and take it all back.

-----
Bush lied, people died.
No Amnesty, no pardons no immunity!!
Hold them accountable!

-----

.

[Lasher]

2. Saint Ronnie's savings and loan crisis cost taxpayers $160 billion

That one seemed like a big deal but it's starting to look like a bump in the raod compared to this one. Didn't learn from Vietnam, didn't learn from the S&L crisis.

[truedelphi]

11. Oh I know what you are meaning to say from

Your sttement that they didn't learn.

But they did learn. This huge bump will (even as it escalates into a wall) be yet another monetry crisis that Ma And Pa taxpayer will be asked to take care of.

And the people who initiated the derivative markets, and who have been bringing hom millions of dollars worth of bonuses will be protected. In fact my theory on why the banks didn't start offering the $ 200 billion the Fed just offered them is that they are stowing it away as their golden parachutes.

[snagglepuss]

3. k& r

[Prick]

4. World Economy

Dear Folks - The old saying that 'what's good for the US is good for the world' still holds, dispite the rancor of anti-US sentiment, the EU, etc. Everything still revolves around the US economy and the economic policy decision makers in other countries pay homage to that. It will be that way as long as the US has the strongest military. It has been that way down through history (Greeks, Romans, Great Britan, and now the US) and will continue to be that way in the future (China ?) This is an axiom.

[Angela Shelley]

5. Hey Prick, did you hear the recent news?

The US economy is now the second largest economy, Europe is now stronger. The world doesn´t only revolve around the US anymore.

As long as the US has the strongest military, America will continue to weaken in every other sense.

Mass overspending (which the USA has practiced for decades) is not good for the world.

Welcome to DU! :-)

[Prick]

6. Overspending

If you took Econ 101 is college (and stayed awake) you would have learned that every US war has been good (not bad) for the US economy. That is another axiom. Regarding the current social issue of materialism, self-indulgence, hedonism, and general desire for instant gratification: after several successive 'me generations' (born in the USA) there has been significant damage to the WORLD (not just US) moral fiber resulting in excessive borrowing (at all costs) to feed these desires. Mix in a judicious amount of business greed and corruption and you have a recipe for where we are now.

[raccoon]

7. Every US war has not been good for the US economy. WWII was, but not ALL wars.

Are Wars Good for the Economy? - The Myth

One of the more enduring myths in Western society is that wars are somehow good for the economy. Many people see a great deal of evidence to support this myth, after all World War II came directly after the Great Depression. This faulty belief stems from a misunderstanding of the economic way of thinking.

The standard "a war gives the economy a boost" argument goes as follows: Let's suppose that the economy is in the low end of the business cycle, so we're in a recession or just a period of low economic growth. The unemployment rate is high, people may be making less purchases than they were a year or two ago, and overall output is flat. But then the country decides to prepare for war! The government needs to equip its soldiers with the extra gear and munitions needed in order to win the war. Corporations win contracts to supply boots, and bombs and vehicles to the army. Many of these companies will have to hire extra workers in order to meet this increased production. If the preparations for war are large enough, large numbers of workers will be hired reducing the unemployment rate. Other workers may need to be hired to cover reservists in private sector jobs who get sent overseas. With the unemployment rate down we have more people spending again and people who had jobs before will be less worried about losing their job in the future so they'll spend more than they did. This extra spending will help the retail sector, who will need to hire extra employees causing unemployment to drop even further. A spiral of positive economic activity is created by the government preparing for war, if you believe the story. The flawed logic of the story is an example of something economists call The Broken Window Fallacy.

The Broken Window Fallacy is brilliantly illustrated in Henry Hazlitt's Economics in one Lesson. The book is still as useful today as it was when it was first published in 1946; I give it my highest recommendation. In it, Hazlitt gives the example of a vandal throwing a brick through a shopkeeper's window. The shopkeeper will have to purchase a new window from a glass shop for a sum of money, say $250. A crowd of people who see the broken window decide that the broken window may have positive benefits:

After all, if windows were never broken, what would happen to the glass business? Then, of course, the thing is endless. The glazier will have $250 more to spend with other merchants, and these in turn will have $250 to spend with still other merchants, and so ad infinitum. The smashed window will go on providing money and employment in ever-widening circles.

The logical conclusion from all this would be ... that the little hoodlum who threw the brick, far from being a public menace, was a public benefactor. (p. 23 - Hazlitt)

The crowd is correct in realizing that the local glass shop will benefit from this act of vandalism. They have not considered, however, what the shopkeeper would have spent the $250 on something else if he did not have to replace the window. He might have been saving that money for a new set of golf clubs, but since he has now spent the money, he cannot and the golf shop has lost a sale. He might have used the money to purchase new equipment for his business, or to take a vacation, or to purchase new clothing. So the glass store's gain is another store's loss, so there hasn't been a net gain in economic activity. In fact, there has been a decline in the economy:

Instead of having a window and $250, he now has merely a window. Or, as he was planning to buy the suit that very afternoon, instead of having both a window and a suit he must be content with the window or the suit. If we think of him as a part of the community, the community has lost a new suit that might otherwise have come into being, and is just that much poorer.

(p. 24 - Hazlitt) The Broken Window Fallacy is enduring because of the difficulty of seeing what the shopkeeper would have done. We can see the gain that goes to the glass shop. We can see the new pane of glass in the front of the store. However, we cannot see what the shopkeeper would have done with the money if he had been allowed to keep it, precisely because he wasn't allowed to keep it. We cannot see the set of golf clubs not purchased or the new suit foregone. Since the winners are easily identifiable and the losers not, it's easy to conclude that there are only winners and the economy as a whole is better off.


http://economics.about.com/od/warandtheeconomy/a/warsandeconomy.htm

[Tansy_Gold]

9. You can't have it both ways, Prick

Greed and over-spending are what drive a capitalist consumer-based economy. It's like a Ponzi scheme on steroids -- there must always be new products, new buyers, new desires, new profits. That's what fuels "innovation" and "creativity" and justifies things like intellectual property laws (copyrights, patents, etc.). Profits are the blessing mark of capitalist goodness and right.

What we are seeing now is the natural evolution of "unfettered" capitalism, a system in which excess cash (i.e. capital) is given more power and more respect than any other element in the economy, certainly far more respect than labor, which is really just human beings. "Unfettered," of course, really means "protected and promoted" by government.


Tansy Gold

[The Doctor.]

8. Well, the Fed is about to lower rates... That's like pouring more water into the toilet...

it all just flushes faster.

[truedelphi]

10. But here's the thing -- if the only means that the

Federal Reserve and the Administration offer is that of printing up more money, and that money is thus devalued when compared to the Euro/oil per barrel prices, things will only get worse. Inflation will go far beyond any fair stopping point.

When the Last Great Depression occurred, we had plenty of everything. Farmers had never seen such wonderful crops as in '29 and '30.

Oil fields in Texas and Oklahoma and other places were churning out enough oil and thus gasoline that the government had a surplus. We also were manufacturing almost everything that the outer world needed, from steel to rubber to textiles, to all the products that those industries helped support.

This coming Depression will be much worse because the things we need in essence do not exist here inside our borders- and having only an inflated worthless paper to use as currency will no longer be able to get us those necessities.