One of the ongoing debates over the financial crisis is whether the movers and shakers who brought about a second depression were greedy or just plain stupid. It's an important distinction because sooner or later some of these jerks are going to go on trial, and all of them will claim that they didn't know any better.
Trillions upon trillions of dollars of wealth was wiped out because of their financial shenanigans. Millions of people have lost their homes, jobs, and retirement savings, not too mention their confidence in governments, the financial system, and the underlying assumptions on which our modern economy and lives are based. Heads should roll.
Many articles have been written on the crisis, but the most complete and rational explanation is by Nobel prize winning economist Joseph Stiglitz in the January issue of Vanity Fair. Clearly no fan of the man they once called The Oracle - Ayn Rand-obsessed, free market zealot Alan Greenspan - Stiglitz traces the origins of a crisis that - no matter what some may claim - was entirely predictable, and was in fact predicted by many experts I personally trust. Like Dean Baker at the Center for Policy Alternatives and New York Times columnist Paul Krugman (also a Nobel Prize winner in economics).
I advise giving Stiglitz a read, the article is called Capitalist Fools, but in my view punishment can wait. I'm less concerned with how we got into this crisis than how we'll dig ourselves out. So far I'm disappointed.
To focus on the U.S., the incubator for this global crisis, President Barack Obama recently passed an $800 billion stimulus package he says will create up to four million temporary jobs. To make it more palatable to the Republicans, who retained the right to filibuster in the Senate by just one lousy seat, almost half of that money is in the form of tax cuts. There is also a plan in the works to extend the initial $700 billion bailout to banks with another $1.5 trillion.
Sheer lunacy. Tax cuts do not create much in the way of spending or new jobs - Bush and Reagan both tried trickle down economic theory and it failed miserably. And the new trillion dollar TARP (Troubled Assets Relief Program) plan put forward ignores the fact that the last plan was a flop. Instead of buying troubled assets from banks (e.g. defaulted mortgages) banks used the money for bonuses, shareholder payouts, purchases of other banks, and a wide variety of other things that didn't free up lending like the government and Federal Reserve Bank hoped.
At the end of the day the U.S. taxpayers will have spent more than $2.2 trillion to purchase shares in failing banks - more than their current stock market valuations - but still won't own or have control over those banks. Government also took out the provision that would have limited executive pay to $500,000 a year out of the fear that banks would take their chances and risk going under if taxpayers tried to limit compensation - the best argument I've heard yet for nationalizing the banks.
But none of the initiatives really gets to the heart of the matter. The whole root of this crisis is the explosion of a housing bubble that was encouraged to grow to monstrous proportions by low lending rates, the systematic dismantling of regulations and oversight, the creation of dubious economic products that promised impossibly high returns AND security, and the moronic assumption that house prices would continue to increase forever.
Yet only $75 billion - less than 1/30th of the bailout and stimulus money on the table - is directed towards homeowner relief programs where many experts say the bailout would do the greatest good.
Giving homeowners a greater share of the relief effort, either by reducing mortgage rates, giving them grants, or allowing them to stay at home as renters, would A) allow people to stay in their homes and keep paying their mortgages, B) slow or stop the rate of defaults that is making asset-backed securities worthless, C) keep housing prices relatively high so the value for homeowners and banks remains high, and D) direct funding to the people who had the least to do with the crisis but are being hurt the worst by its impacts. This much should be obvious to anyone, but the dumb bunnies running the financial system are trying to build a time machine back to 2007 when capitalists were kings instead of adapting to the realities of 2009 where socialism rules the day.
The quote of the year belongs to former president Bush, who infamously said, "I've abandoned free market principles to save the free market system." In other words, the idiots in charge still think they can have it both ways, accepting taxpayer money on one hand while decrying government intervention in markets on the other.
Even Greenspan, once the free market's biggest champion, admitted he was full of it when he admitted, "I have found a flaw (in my free market beliefs)" after being grilled by a panel of senators. Up to then Greenspan just couldn't believe that banks, investment banks, hedge funds and other players would act against their self-interest for short-term financial gains (e.g. being greedy) without considering the long-term consequences of their actions.
Personally, I think Wall Street was more greedy than stupid and I wouldn't allow the "we didn't know" excuse when the trials begin. They either knew and didn't care, or should have known and didn't think.
As for the people engineering the recovery, I think they're more interested in polishing the turd that is our modern economic system than finding a real solution. How stupid is that?
