Wealth? What Wealth?

"In 2011, the six heirs to the Walmart empire commanded wealth of almost $70 billion, which is equivalent to the wealth of the entire bottom 30 percent of US society. There has been no improvement in well-being for the typical American family for 20 years. On the other side, the top one percent of the population gets 40 percent more in one week than the bottom fifth receive in a full year. In short, we have become a divided society. America has created a marvelous economic machine, but most of the benefits have gone to the top." 

"...many of those in the financial sector got rich by economic manipulation, by deceptive and anti-competitive practices, by predatory lending. They took advantage of the poor and uninformed, as they made enormous amounts of money by preying upon these groups with predatory lending. They sold them costly mortgages and were hiding details of the fees in fine print."

Joseph Stiglitz, Nobel-prize winning economics professor at Columbia University. (Source: Der Spiegel)

Mexico Reeling after Combination Punch

Cross posted from World Impulse.

Mexico is the populous, next-door neighbor to the United States. “El Norte,” the Mexicans say when referring to the US. The United States of Mexico (Estados Unidos Mexicanos), as the country is properly labeled, is the fifth largest state in the Americas and the 14th largest independent nation in the world, according to Wikipedia.

With a population of over 109 million, Mexico is now reeling from three hard blows in succession. First, Mexico is losing the drug war against well-armed, internal narco-gangs. They seem to have co-opted all levels of authority and operate with considerable impunity around the country. Not surprising. Even when The Author was originally learning El Espanol, living and traveling in Mexico, the central government was largely seen as the authority on the borders and the Plateau – and not much else. The Mexican plateau, with a majority of the country’s population and three of its most important cities: the Federal District (DF, Mexico City); Guadalajara; and, Pueblo, (with the addition of Monterrey in the north) has long been the focus of the central government’s attention and funding. The same appears to be true for the administration of president Calderon. Rural areas, especially those in the south, have gone without similar attention or funding and are abjectly poor and feudal. Crime remains a serious and growing problem throughout the country, especially kidnapping and murder.

Second: The economic crisis in the US, coupled with punitive and restrictive immigration laws, has resulted in a significant decrease in remittances by Mexican workers to their home villages. Adding to this blow, Mexican laborers are being forced by rising unemployment in the US to return to Mexico at an inopportune moment for both the families of the workers and the government of the state.

Third: The new Swine flu, A: H1N1, appears to have originated in Mexico and is now on its way to being the first major global pandemic in years. So tourism, Mexico’s trustworthy source of foreign currency, has dried up and commerce is slowing dramatically as the country shutters to avoid spreading contagion. Evidence is mounting that the contagion is not only viral, it is economic as well. And Mexico's economy will continue to suffer.

Technorati Tags: Mexico, Economy, Flu

Bush Makes Taxpayers Bail Out Banks

Okay, this is despicable. On a hot, Sunday Summer evening (today!!) the Bush administration announces that the American Taxpayer will be held responsible for the failures of the banks and speculators. Our government is making us liable to the tune of $50 billion dollars. That's about $25,000 for every taxpayer in the country. Read Bush's Secretary of the Treasury, Henry Paulson's full statement here. And an analysis in the Financial Times here.

Uh huh. Give us a few hundred bucks at tax time, then undertake the most massive redistribution of wealth in recent memory. That's what it is folks, a redistribution of wealth from those who earned and deserve it to banks and financial speculators. I know I'm overjoyed to just sign over my retirement, my savings and a big hunk of future earnings to these guys. Right? They *so* deserve it. Read why (not) here. Read about how the banks have undermined our schools, here.

In case you haven't noticed, capitalism has finally run amok. Investors and speculators have "securitized" everything and are trading away our birthright. To review, speculation is blamed in part for the increasing price of food, fuel, and energy in general. It was the source of the sub-prime mortgage crisis that has cost countless millions of working Americans their homes and threatens our cities.

George Bush and his cronies couldn't have done a better job of bankrupting the country if they had tried to. The ruinous reign of the nasty shrub has thrust us into two, costly and apparently unwinable wars. On Bush's watch our economy tanked; the housing market evaporated; and the incomes, health and general welfare of citizens has declined. And John McCain thinks we want four, or even eight more years of this? Please. Even the Financial Times says things are going to get worse before they get better. Spare us all. It's time for a change we can believe in.
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Financial Crisis May Bankrupt Cities

The US financial crisis, driven by the sub-prime loan feeding frenzy, is now threatening to bankrupt US cities as mounting losses pressure the three largest bond insurers. Here’s how it works. Greedy banks and investment houses, for the first time in history, bundled vast numbers of sub-prime residential mortgages into investment instruments called mortgage-backed securities or collatoralized debt obglitions (CDOs). These instruments were then marketed to banks and funds worldwide. Thus, the traditional roles and responsibilities of lenders and borrowers changed - as the rush to cash-in on the profit side trumped good judgement. This formula for disaster produced massive mortgage defaults and major insurers got way nervous.

Trouble is, these same insurers also back municipal bonds across the country. Those are the financial instruments used by cities to fund basic infrastructure repair and buildout. So the crisis threatens a long list of projects including schools, bridges, municipal water services, sewer services, ariports and museums. New York governor, Elliot Spitzer, outlined the scope of the potential problem before congress last week. Check out this report on his testimony.

Insuring debt, especially “safe” municipal debt, has always been a major piece of the insurance industry’s profits. Now, with the worst-case scenario actually playing out, trillions of US dollars in debt losses are threatening the very survival of the insurance industry. After all, they are bound to make good on their policies and cover the losses. So according to reports, they’re considering breaking themselves up. Read what an analysis in the London Times had to say about that here. The implication of this action is clear: without some kind of radical solution, the entire bond market including munis is facing risky times. And that does not bode well for our cities.

Last Friday, one of the big three insurers announced (under some pressure) that they were considering breaking up their operations into two business units; one for municipal bonds, the other for mortgage-backed securities. Uh-huh. I’m hearing some desperation in these announcements. Like we needed this.

Pop Impulse called this recession, and identified its causes and culprits, weeks before the story hit the mainstream media. The Author has been reluctant to use the "D-word," it's just so negative and sensational. But not all have shown this kind of reluctance. Take financial giant AIG's senior analyst, Bernard Connelly, for example. He's already talking about a worldwide depression. Read about his comments here. If you want even more detailed background, check-out Doug Noland's lengthy commentary on the issue in the Asia Times. As they say, read it and weep.

Bernanke Bet the Farm

Markets are still volatile, but a post rate-reduction rally buoyed investor's spirits and some recovery has resulted. Rather pressing questions remain. The sub-prime loan meltdown became a bigger problem when it began to involve a little-known segment of the insurance industry that provides protection for institutions against major loss. As mortgage losses mounted, so did claims and soon a couple of well-known insurance companies had significant loss problems. Suddenly, the problem had broken out from a single sector to involve the very core of the finance segment.

This resulted in a sort of institutional paranoia that threatened liquidity, as banks became wary of even lending to each other. Quite unheard of, that. Since economies in the developed world rely on the flow of currency; the constant, uninterrupted flow of money, the looming liquidity crisis was not tolerable. The down-side was just too great. So the Fed, in an extraordinary emergency intervention, lowered the rate by three-quarters of a percent, 75 basis points. First time that's happened in over 20 years. And it had an immediate effect. Whether it will be adequate to the task and thus promote lasting stability remains to be seen. And there's the rub.

Ben Bernanke has literally bet the farm. If this historic intervention fails, hyperinflation may follow and the Fed's basic tools to implement monetary policy will be viewed as broken and ineffective. And that, believe me, will be an entirely new world. Economists are already arguing about the decision. But for now, liquidity has been restored and the predicted rally ensued. All is well in Dodge. Ah, but how long will it last?

Point is: the fundamentals will determine the success or failure of this intervention, and forever color the tenure of this Fed Chair. I'm still parsing the entirety of it all, but several issues are clear. First, the depth of the crisis has yet to be accurately plumbed. We're just not sure how far these losses will extend, and just which companies and economies will be involved.

Now, we learn of a French, "rogue trader" at Societe Generale who, single-handed, amassed over $7 billion in losses. Read that story here. So we're also not sure where the crash will end. Will the credit card space collapse along with the mortgage loan sector? Will the losses suffered by cities, counties, pension funds, unions and non-profits with investment portfolios supercharge the collapse? Will our foreign bankers and underwriters cooperate with our efforts and collaborate on solutions, or will the rest of the world view this as an opportunity to eclipse our achievements and teach us a lesson? There are a lot of variables involved. How the chips fall will affect the outcome. Maybe it's time to consult the "long-wave" theorists and get out that old copy of Kondratieff from the bookshelf. Something tells me that John Maynard Keynes isn’t' going to cut it. If you've got an IRA or 401k plan, perhaps this is the time to increase your cash position and ratchet-back on all but recession-safe securities. If you're young, look into a good floor safe.

Second, the bi-partisan stimulus package is an exercise in feel-good politics that will have very little impact. What little impact it may have will also have to wait until May - arguably far too late to matter. In fact, the package will have the ironic effect of transferring more of our debt and our national assets off-shore. Sure, the pennies they throw my way will get spent, but the effort looks a lot like crumbs of cake for the peasants, and we all know what happened to Marie Antoinette.

Finally, it is striking that when faced with crisis, this administration hurries to bail-out the bankers, insurance companies and retailers in a big way - while throwing citizens a bone.

I've posted about the run-up to this crisis before: the looming recession in this post; blaming consumers for the sub-prime mortgage mess in this post; and, the prospect of our beloved country becomming a third-world nation in this article. I promise I'll get back to new music and the latest in technology very soon.

Predatory Business - When Capitalism Fails Consumers

I've posted about predatory business practices before, here. With the sub-prime loan scandal - and it is a scandal - in full swing, my concern seems to be justified - echoed by media and financial pundits across the globe. That's because in previous financial scandals and crises, there has been a single or very few institutions involved. Central bankers and regulators could deal with that kind of scenario. Even the fabled Savings & Loan meltdown decades ago involved a single category of institutions and was more easily addressed than the current economic imbroglio - which is reaching out and touching many. No, we're in for some serious grief behind this busted bubble. And it's all because business got way greedy, and herd mentality took over.

What's it really going to cost us all? We're just getting a sense of that now, and it is a staggering toll. Everybody needs to pay attention. There are, of course, the homeowners and speculators that will loose their properties and a hefty chunk of their worth. But there are many cities, counties and states that rely on property- and development-based tax revenues that will suffer. And when our governments suffer, ultimately we suffer even more as vital services are pared to the bone or eliminated completely. I should know. The county library system where I live in Jackson County, Oregon shut down entirely for six months before we were bailed out by a pittance from the federal government. Now the libraries are open half-time. Law enforcement and health and human services are also suffering. So the safety and health of our communities and families are at risk. Just when a host of superbugs is coming out of the closet.

The thing is: this kind of behavior is not limited to home loans. Credit card providers are spending billions on ads luring new customers with the promise of plastic wealth. Our regional university, in close-by Ashland, even uses credit cards to dispense student grants and loans. What are we going to do when that bubble bursts? Europe is grappling with the problem of the credit culture right now, read about it here. Then there are the "payday loan" or "quick loan against your vehicle title" outfits that can have clients paying up to 375% interest. That's right. We've understood that this is a bad practice for individuals, businesses and for societies since biblical times. Think about it.

In fact, most states have Usury laws, governing legal rates of interest. A quick search of interest rates legal in the 50 states reveals that the average American state has laws on the books making interest above 10 - 12 percent illegal. But of course, many consumers are paying much higher rates than that on a variety of credit cards and loans. That's because the federal government exempted the banks, commercial loan vendors and savings institutions. Uh huh.

Adding insult to injury, large drug companies have suspended research into many needed drugs - to focus on high-margin lines of pharmaceuticals that must be taken daily for life. With Methecillin-resistant Staph Aureus (MRSA) poised to move from hospitals and institutional settings to our communities at large, we can't get Big Pharma to develop any new antibiotics. There's just no real money in it. And then there are the drug recalls...new patent remedies that are released long before they are proven definitively to be safe. Can you say Celebrex? We've even put private physicians, our family doctors, on the market-model; and as a result they are becoming focused on higher profit procedures, treatments and specialties. The same is true for our community hospitals, even the non-profits. They can't afford not to compete. Competition focuses on the bottom line, not on comprehensive prevention, quality care and patient needs. Does anybody have the brains, vision and guts to say: The for-profit, market model doesn't work well for every situation. It is not a universal solution or panacea.

In the transportation sector, a little more competition might be in order. Predatory American airlines force customers to put up with delays, cancellations, gate changes and surly and uninformed staff when they travel. I can't think of another industry that I spend almost ten grand a year with that treats me that way. Well, maybe my health insurance provider. I'd sure like to see Singapore Airlines, Emirates, Quantas, Lufthansa or KLM serving more U.S. airports. Anything but United, please.

And lately, there have been a spate of companies charged with endangering consumer health and well-being due to lack of quality control and product assurance. Take large Agri-Business and the frightening recalls of tainted food - both fresh and processed - from grocery shelves in your neighborhood. Or toy companies apologizing and recalling millions of potentially harmful dolls, masks and other children’s' items. How about the recent pet-food contamination scandal? From my point of view, these all constitute predatory business practices.

The shrill advocates of unbridled, unregulated capitalism and corporate globalization have a lot to answer for. As a small businessperson, I count on the market and fair competition for my own income. How radical could I be? I'm a Rotarian. But hey, the purists are wrong (again). We need a hybrid system that promotes the low-end of free enterprise and entrepreneurial development, and controls and regulates the means of production; our vital infrastructure system including transportation and communications; education, and the provision of health care. That's pretty close to the European model of "social democracy," and it works a hell of a lot better than the cut-and-run, exploitative capitalism of Reagan neo-liberalism, the current neo-cons and the Bush Administration. That approach, as recent history clearly demonstrates, is turning us into a third-world country in all but appearance. I'll be fleshing-out that assertion in a future post. So stay tuned for the occasional angry rant. Apologies to my readers who prefer posts on music, travel and pop culture.