Thursday, December 13, 2007

Bubbles for Christ: Mas!

Ann Pettifor at openDemocracy:
Bankers as well as political elites now doubt these debts will ever be repaid. In the US the default rate on prime adjustable-rate mortgages (ARMs) has more than tripled since 2004. If such defaults spread to society as a whole, the outcome would signal financial but also societal meltdown. This is why the US treasury secretary (Henry Paulson, a banker and until recently head of Goldman Sachs) and the US president have abandoned their free-market principles and - in a plan announced on 6 December 2007 - intervened to help people hit by the housing-market meltdown.

Since 9 August 2007 - what I called in an earlier openDemocracy article, "debtonation day" - the guardians of our finances have used bluffery to calm and reassure bankers, journalists and citizens (who are also mortgage-holders, investors, employees, and consumers). They have tried to manage the storm-surge - by adding more "liquidity" and lowering interest-rates! In other words, and to quote Franklin Delano Roosevelt in March 1933: "faced by the failure of credit they have proposed only the lending of more money."

This response has been described by one commentator as “lighting matches in the rain”. It reveals that those responsible cannot see, still do not understand the nature of the gigantic credit-bubble - including components like the huge CDS debts - and the consequences now of the bursting of this bubble.

The least informed of all appear to be orthodox economists. Most are busy engaged in arcane and irrelevant research well distanced from the real world of global financial engineering. They have befuddled consumers with convoluted arguments that explain (for example) that property prices rise because of “supply and demand” for housing, not because of “easy money”. We are about to discover that demand for houses shrinks massively when the tide of "easy money" flows out of the economy.

[...]While gains by banks and corporations are inevitably privatised, their losses are often nationalised (read socialised). The true parasites reside in the private sector. The case of Countrywide, the US mortgage-lender guilty according to many of reckless lending practices, is emblematic. The company's CEO Angelo Mozilo is being investigated by the Securities and Exchange Commission for potentially illegal activities. That has not stopped the US public authorities from stealthily bailing out this private company with loans of $51 billion, guaranteed by US taxpayers, and with little official supervision. The collateral for this generous lending is the "toxic waste" of sub-prime mortgages, so the loans are unlikely to be repaid to US taxpayers...

Surprising news to Americans who work for a living? - surely not! After all, those of us without new $90,000 kitchens, or not flipping/living in McMansion-burbia (even though we may have six new ugly houses crowding down the street and driving up rent) are surely happy, nay, delighted! to help everybody, including filthy rich to pay their crack-head bankers now, with interest. It is the Christian thing to do.

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