Bernake says prime mortgages inverted
how we got here, how we crawl out of here
I'm glad someone has finally accurately described (see bernake's statements, above) the nature of economic crisis we face. Unfortunately, benake does not describe how we got here, or what it will really take to get us out of this mess, and not fall into this trap again, this trap constructed our of our own greed and corruption.
how we got here
During the last 15 years US economic policy has been to drive every aspect of massive growth forward, with no regard for paying the social expenses, no regard for the damages to our natural resources and environment, and no regard for the consequences of using foreigners to move all of America's wealth and political power to the top of society.
The basic assumption behind this policy of massive expansion is that endless growth in population, consumption, profits and values is possible. It is not.
The core element, the main engine of America's growth and concentration of corporate profits, besides the greed of our corporations and their politicians, has been the massive expansion of the population.
An expanding population has been the perfect tool for our buisness class to use to steal the wealth and political power of our country. Our massive irresponsible expansion in population has shortened the supply of everything, while simultanously increasing the demand for everything. Thus prices, and profits, have been moving steadily upward. But it gets even better.
The massive expansion of population also unbalanced the domestic labor market. The massive expanison of laborers quickly undercut the ability of American labor to maintain American wage and benefit standards, which were quickly replaced by mexican standards. The press and politicians quickly covered up this rip-off by crowing about how mexicans were doing jobs americans will not do, when in fact Americans will not work for the slave wages that mexicans accept.
This difference between American and mexican wages and benefits standards were quickly converted into profits, and put into the pockets of our corporations and their politicians. See, illegal mexican labor increase profits, and, according to the corporate press and politicians, that makes them good for the economy.
Did you notice that the unions have been destroyed over the last 30 years? At the same time that our population growth has driven food, energy, and housing prices through the roof, the wages and the relative share of wealth that the middle and laboring classes hold in the US has plunged to third world levels. That too, has increased profits, and is good for the economy.
The result is that the American middle and laboring classes have been experiencing a severe economic recession since 1970, when the massive influx of cheap labor into the western US began to seriously alter the distribution of wealth and political power in the US.
The American working class has seen their wages race towards poverty, as their social lifelines, our public schools, our free colleges, and our medical and social programs have been intentionally collapsed to subsidize the very illegal cheap laborers that destroyed their wages.
In the meantime, it was not just the wealth of America that moved to the top of society. The stolen wealth of the newly impoverished American middle-class is, right now, being liberally distributed by our corporate aristocracy to both of the political parties, and virtually all of the politicians, where it has been effectively deployed to completely purchase both the parties, lock, stock, and barrel.
The wealth of our working classes is being showered upon the presidential candidates right now to assure no matter which tool is elected, the winner will do nothing to alter the control of our economic, political, social, and media institutions by corporate wealth.
Once the corporate rich used illegals and irresponsible growth to move the money to the top, they still needed to maintain consumption in the middle and laboring classes. So they loaned it back to the struggling middle and laboring classes through 20% credit cards, variable mortgages, and liberal credit terms on everything from big screen TVs to SUVs.
What this means is that our corporate profiteers on wall street made their vast financial profits by draining and seriously damaging our whole economy. Our nation has funded these outragous corporate profits by going into deeper and deeper in debt to the whole world to maintain wall street's outragous profits.
The radical increase in corporate profits and the incredible expansion in the share of our national wealth held at the top of society has transformed our country during the last 35 years from a tattered democratic republic to a corporate fascist state.
This transformation, and the irresponsible growth it is based on, would not have been possible without a massive expansion in the population willing to do no more than obey and consume. The bulk of the "profits" our corporation have made during the last 15 years have been generated by nothing more productive than stripping our infrastructure, ripping off our middle class, and not paying the social costs of their massive increase in population required. All of the bills for our irresponsibility are now coming due.
Now bernake has publically recognized that mortgages have inverted. Bernake recognized that the housing market has inverted, only nine months after I identified the fact that the housing market had inverted, in august of '07.
During the time between and now, the sub primes were getting foreclosed, and the inversion of the primes was deepening, bernake and the fed were busy bailing out the big wall street idiots who piloted us into this mess, and they saved the bacon of one of the real villians and architects of the sub prime crisis, bear sterns.
Rather than addressing and fixing the credit crisis at the only place it can be fixed, where it began in the housing market, bernake has spent his time giving away billions of dollars to the biggest players on wall street to assure that their bad speculations and unethical profits would be covered by the fed.
With the knowledge that their previous sins have been forgiven, wall street has been standing around waiting for the endless growth of profits and values to start up again. That's not going to happen.
As I said in aug of '07,
The only thing that will save the morgage securities is for housing prices to continue rising in value. That's not going to happen. The Fed's infusions of cash and lowering of the discount rate will do nothing to restore the speculative bubble in housing, nor will it give clarity as to the actual values of the morgage securities.
Only the real estate market can determine the value of the morgage securities. This is causing a rather dramatic market effect from the different speeds at which the two markets operate.
The real estate bubble has the same chances of restarting now as it had last august: none. The housing bubble will not restart no matter how much money bernake pours into the private and public banks. The housing bubble will not restart even if bernake performs the miracle of stopping variable-rate loans from resetting. The housing bubble will continue to implode, even if bernake parts the red sea.
Here's what's going to happen: the housing market is going to drop to the level that the damaged purchasing power of the masses of middle and working class people of our country can support.
Unfortunately, as I pointed out above, our economic policy of stripping the middle class of their wealth, and plunging them into very deep debt, has put the price level where the public can restart and maintain the housing market based on their real earnings at a very low point.
The maldistribution of wealth in our country means that the housing market will find sustainable prices and the market volumne necessary to stabalize the credit markets beyond the lowest prices the extreme levereging of the banks can withstand.
Understand that bernake's statements make it perfectly clear that he is looking to avoid making the credit or the housing markets actually reconcile their assets and liabilities. He is not trying to prop up the housing market, bernake is protecting the assets of wall street's biggest players,
The reason bernake is trying to hold off this day of financial reckoning is that he knows that the unpayable debts in the housing and credit markets are so much larger than their assets and collateral that both these markets will totally collapse when the markets get a true picture of their assets minus their liabilities.
Thus bernake is treading water, looking backward, working to limit the losses that the bad mortgates they wrote can do to the big players, rather than concentrating on resolving the problem in the present context, which would require that bernake force the big wall street player to take their lumps, pay their bills. and resolve their outstanding liabilities. That would clarify the credit markets.
The second stage would require rebuilding the housing market by rebuilding the actual earning power of the middle and laboring classes. That's not going to happen as long as the bribes of wall street fund the candidates and campaings of both political parties. Bernake will continue to feed the big wall street players billions of tax dollars while rome burns.
Independent of bernake's stalling, we are going to take our lumps, and it appears that the housing market is going go back to last century's prices. The real question is how far back? I put the likely level of housing, when all the smoke clears, somewhere around 1992.
On august 17, '07 I said,
The fed's hands are effectively tied. If the fed raises rates, the dollar will proportionally stabilize, but the housing speculators will scream in pain. If the fed drops rates, the dollar will plunge, and our domestic party will continue for a bit longer, as the world burns dollars around us.
The fed is damned if they do, and damned if they don't, raise rates.
At this time two things are clear: Housing will continue to fall for 18 months to 2 years, and the credit crisis will deepen in response to the fall in value of both housing and the dollar.
At this point no amount of Fed intervention will prevent the various markets from falling precipitously. The failures of the housing, auto, credit markets and the collaspe of the dollar will eventually pull the dow down to between 6800 and 7200. I see this as the market level that our actual economic activity will support. I see us hitting this low by June of 2008.
American economic weakness presents a significant risk of bringing down unstable foreign economies, such as China, and likewise, economic disruptions in China could cause even greater disruptions in our housing, credit, and currency markets that would make our present imbalances seem insignificant.
This day of reckoning is fast approaching. But before the day of reckoning arrives, bernake is determined to give wall street billions and billions of our tax dollars to protect them from the consequences of their greed, irresponsibility, and dishonesty. And we will pay to limit the bank's and wall street's losses, just as we were ripped off to provide their profits.
Background:
essays
Markets ready to Kill Economy, committee, August 4, 2007
Feds Bailing Out Greedy Speculators, committee, August 17, 2007
The impending meltdown, 1-14-08
death of the new economy, get ready for the big selloff, 3-14-08
economic or ethical crisis? 3-29-08
death of bubble psychology , 4-7-08
economic/market update: Last week's historic run-up: Perception Vs. Reality, 4-7-08
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