Humming Loudly, Fingers in Ears: The Mortgage & Credit Crisis

It’s my pleasure to introduce you to Fe Bongolan, my writing colleague and longtime Planet Waves reader. Fe is one of the most politically aware people I know, and I’ve asked her to join us among the Planet Waves bloggers to help cover the delicate election of 2008. Today she is offering her thoughts on the failure of two of the most powerful investment banks in United States history, Merrill Lynch and Lehman Brothers. She lives and works in San Francisco. You can reach her at editorial -at- planetwaves.net. — Eric Francis

IF YOU’RE one of those folks who pulls up to the gas station trying to decide whether to fill up or to buy the milk and eggs you need for the week, then the message of today’s news about the Merrill Lynch/Lehman Brothers crisis should prick up your ears.

This week, we’re walking in on the heels of the meltdown of the country’s largest brokerage firm, Merrill Lynch, which had to sell itself to Bank of America for $50 billion in order to avoid bankruptcy, while the fourth-largest investment bank, Lehman Brothers, is filing for Chapter 11.

Now, I am normally not an alarmist, but when the President holds a press conference asking for all to remain calm and continue with confidence that the markets will sort this all out, you’ve got the hint that the sense is as of now, the proverbial merde is hitting the fan.

The chill, from Main St. to Wall St. as well as Pennsylvania Ave., is bigger than what they let on. This crisis has been coming. We’ve seen hints of it this year.

JeromeВ a Paris, (blogname) energy banker and international blogger (who blogs regularly on Daily Kos on geopolitics and economics), calls it The Anglo Disease and defines it as the following:

The Anglo Disease is the label I have been using to describe the current situation, whereby too much debt has made the financial sector dominant, and starved the rest of the economy of oxygen — and not-so-coincidentally transferring massive wealth from the working classes to the very rich.

This is what we’re living through today: an unsustainable model of monetary-only growth bumping against physical reality, and guess what: physics wins. Every single time. Thus $150 oil, $4 gas, stagnant wages and Will-E-Coyote real estate markets.

It’s a philosophy that says even common-sense regulations are unnecessary and unwise, and one that says we should just stick our heads in the sand and ignore economic problems until they spiral into crises.

There is no easy solution to today’s crisis. It is not a crisis of regulation, or of subprime, or of security or of inflation. It’s simply a crisis of greed.

The looming debt crisis that’s staring our country in the face comes during an election year where the corporations and the Republican ruling party are desperately trying to keep power by keeping up appearances, that the water spilling into the hull of the nation’s ship is nothing more than a figment of your imagination. As Donald Luskin, financial adviser to the McCain campaign says so reassuringly in his Washington Post op-ed, we should “quit doling out that bad-economy line.”

In other words: everything is fine. Nothing to see here. Move along.

They want you to trust that the financial sector, which has been managing the billions in profit income in a monetary-based economy, STILL have your best interests at heart. And remember, these are the same people who President Bush was proposing to manage our Social Security fund, just a few years ago.

I’m not so sure the current circumstances of monetary-only economy will hold up any more. Too many people whose lives are grounded in reality-based economics are hurting still and now in growing numbers. Surprisingly, we are yet to see the storming of the castle. We’ve been kept busy and dumb by a collection of interests who are vested in making sure you aren’t aware that they’re fucking up with our money and the nation’s economy. But that day of reckoning may be soon.

Remember, this is the party of the President who, after 9-11, said we should go shopping. Today, choosing the analogy of “chickens coming home to roost,” the drumbeats signaling a collapsing economy are growing louder, while our friends on Wall Street, Pennsylvania Avenue and in the offices of the RNC, are still humming loudly, with fingers in ears

— Fe Bongolan

19 thoughts on “Humming Loudly, Fingers in Ears: The Mortgage & Credit Crisis”

  1. >>Socialism for the rich is about right – but it goes much deeper than that. it is really socialism for a very tight few (4 or 5 people?) who control it all and who want us all to keep shopping. << Agreed about that. Also I think communism is a failed system as well. But there does seem to be a need to contravene in the markets, and that needs to happen NOW. The government has been stop-gapping by bailout these last few years. On our dime. If it were me, I'd rather be spending the money on regulating and watchdogging for abusive practices Wall Street, including more oversight to make sure companies adhere to anti-trust laws, and to provide a decent body of folks to manage that sector of the government. Much better than having to throw billions of tax dollars on AIG's , Merrill-Lynch's and Lehman's screw-ups, not knowing how far and how deep down the sinkhole could go. The conservative have become what they despised - on the dole for the government handout. But these aren't nickel and dime loans, an individual rent payment, or food stamps. We're talking about bailouts the size of a small country's GDP.

  2. Hi Fe,

    Oh yes – I enjoyed your article thoroughly and think all the comments are very educational for those of us who are less than economically inclined.

    Socialism for the rich is about right – but it goes much deeper than that. it is really socialism for a very tight few (4 or 5 people?) who control it all and who want us all to keep shopping. Communism is so much more efficient, but who wants to be a communist? Well, not me. I’ve known too many people (personally) who escaped communism for just about all the same reasons our ancestors escaped Europe and Great Britain. I think perhaps the Ron Paul followers have it right – less government, more states rights, no globalism. We are probably seeing the beginning of the new revolution. In my immediate family are several people who’ve been laid off in the last 6 months. When the unemployment runs out, then what? In the early 80s, we took in a relative and her 3 kids. It all worked out, but only because the tight few wanted it to. Once they get our wages back down to where they want them, they can start bringing jobs back to the USA. I am one of the lucky few who enjoys a good retirement, but is it safe?

    I started to respond about managing from below and had to laugh. I used to interview job applicants for my large company and would talk to them about that very thing – the applicants were the electronics techs and techies who actually repair things and make them work, but their managers don’t always know what the heck it is they do. The techie not only has to do the repairs under duress, but manage the manager and make sure he doesn’t screw everything up in the meantime. Managers have a way of hitting the panic button when production stops and deadlines can’t be reached. That’s sort of what has happened with the financial world. I have a cousin who is paid commission for making home loans!! Oh my that is very bad business! I bet the bank tellers have been whispering for years.

  3. Hey Gardener:

    Glad you could drop in.

    I wouldn’t call what I wrote fear-mongering. But I would caution that there are plenty of people whose lives are far more shaken up by loss of jobs, industries, and prices of common every day commodities than there ever was before. Not to say that folks can’t recover, but that likelihood becomes more distant if the economy doesn’t re-prioritize.

    We’ve hit upon something here which I am, for now, terming as socialism for the rich. Its been ongoing for quite some time. And we’ve been building up to this point where we’ve come to expect it without getting plussed. As long as we are comfortable enough.
    But many people aren’t. One snap and their lives are in disarray, if not shambles. I would rue having a serious illness in this country these days. IN the long run, there is a price to pay. You may not have to pay it now, but then again, given certain circumstances, you might. And if not you, then your children and your grandchildren certainly will.

    I’m appreciative of the alarm clock aspect these events are having. Let’s hope we don’t hit the “snooze” button and fall back asleep.

  4. why all the fear mongering? The bubble had to burst sooner or later and at least our babies are not drinking milk from China. This is an overdue alarm clock going off, is all. Even my house is appraised at 3 times the purchase price – ridiculous, although I love my house, my garden, my children, my violin, my church, my travels. These things are my status quo, that I don’t want to change.

    But also, I discussed the Hadron Collider with my brother, an extremely disabled and lovely spiritual man who has had a life-long obsession with magnetics and space ships. he says that this time, the experiments will work and that we have nothing to fear. We cannot imagine the wonders that await us – travel at the speed of thought to any planet, and the God particle – ending the world as we know it. I said, what about the death ray of Atlantis? He said, it will work this time and there is no need to worry.

    Got it? Hello 2013!

  5. Here we go again, socialism for the rich:

    AIG to Get $85 Billion Loan, Give Up 80% Stake
    Topics:Federal Reserve | Banking

    American International Group will get an $85 billion bridge loan from the federal government in exchange for an 80 percent stake in itself, sources have told CNBC.

    Sources said the loan, which will allow AIG to avoid bankruptcy, will be secured and include incentives for quick asset-sales by AIG.

    Government warrants for most of AIG’s equity will severely dilute existing shareholders.

    AIG has been racing the clock to avoid a bankruptcy filing on Wednesday, making efforts to work out a deal with the Federal Reserve to shore up its finances.

    Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke met with Senate and House leadership Tuesday night to discuss how to assist AIG, sources said.

    The Fed’s financial aid to the troubled insurer marks a reversal of its decision on Monday to refuse a bridge loan to AIG.

    The Fed met with the company’s advisers throughout the day and came to a better understanding of what is needed to help the company through its current crisis, people familiar with the negotiations told CNBC.

    Bloomberg reported late Tuesday that the Fed was considering some kind of conservatorship for AIG—which would mean bringing in an outsider to run the company. But sources told CNBC that no legal authority exists for such an arrangement.

    [snip]

    The shares, which are a component of the Dow Jones Industrial Average, at one point were down more than 50 percent in the wake of a cut in the insurer’s credit rating, which only served to heighten the concerns that it would file for bankrupcy and further upset the troubled global financial system.

    The plunge in AIG shares has been the biggest drag on the Dow this week.

    AIG, one of the world’s largest insurers, is the latest company to be convulsed by a mortgage and credit crisis that this week led to a bankruptcy filing by Lehman Brothers Holdings [LEH 0.30 0.09 (+42.86%) ] and the sale of Merrill Lynch [MER 22.18 5.12 (+30.01%) ] to Bank of America [BAC 29.55 3.00 (+11.3%) ].

    AIG late Sunday asked the Federal Reserve for help, including a possible “bridge” loan to tide it over while it pursues asset sales and capital raising. The Fed refused, but pushed JPMorgan Chase [JPM 40.74 3.74 (+10.11%) ] and Morgan Stanley [MS 28.70 -3.49 (-10.84%) ] to try to put together a credit facility of $70 billion to $75 billion for New York-based AIG, a person familiar with the matter said on Monday.

  6. Ha. I for one caught on early; filed bankruptcy in the nick-o-time aka pre-no consumer debt, have no bank accounts whatsoever and vowed all future savings would be in the form of gold brick sealed within the walls of my paid-for-with-cash home.

    Alas, even these precautions there’s been not enough in-flow to install an ounce of gold brick – or even to purchase something such as a hybrid vehicle to slow the intense out-flow of what-should-be-food-dollars (let alone the home with walls).

    On the other hand, poverty does have it’s advantages along the lines of nothing-to-lose.

  7. Fe writes:

    >>It’s a manifestation of the contempt for knowledge, celebration of ignorance, and deification of greed that has come to define the modern conservative movement.

    Yes, it is certainly all of the above. But we’re also seeing a perversion of certain creative principles when they are in cynical hands.

    It is the contention of that plutocracy (ahem) that they can make it up as they go. And indeed, they/we can. So we might want to consider a few key differences between the 1940s and now before we appeal to previous standards in regulating The Market, given that our markets are swimming in real, new and fake monies.

    One idea that caught my attention a few years ago is re-calibrating the GDP to include all of our intellectual assets, including creative products, the ‘value’ of stable social structures and actions that enhance ecological integrity. Inasmuch as GDP sets our solvency on the world market, some of the hard outputs are strangely out-of-sync with our actual productive capacity.

    And after we get that ‘livestock’ recognized in the economy, we might turn to the USA’s emotional productivity (she said, tearing up at the thought).

    ***
    **
    *

  8. NEXT IN LINE: AIG

    From today’s Daily Kos:

    A Petri Dish of Conservatism
    by DarkSyde
    Tue Sep 16, 2008 at 10:24:59 AM PDT

    The financial tidal waves keep coming. Next up may be one of the largest companies in the world:

    As the markets closed, its stock slid to $4.76 a share, down from a 52-week high of $70 a share, representing the evaporation of $176 billion in market value in less than one year. While regulators were racing to find some kind of capital infusion that could keep the company standing, ratings agencies slashed AIG’s credit rating, making it much more expensive for the insurer to do business. AIG—a company with $110 billion in revenues last year and $1 trillion in assets—has suddenly gone from being the gold standard in its industry to fighting for survival. The sheer speed of its descent has stunned employees, customers, and many in the industry.

    This isn’t a case of simply blaming the people in charge when something bad happens. It’s a manifestation of the contempt for knowledge, celebration of ignorance, and deification of greed that has come to define the modern conservative movement. It is reflected in failed policies stretching from Baghdad to Bourbon Street and now Wall Street.

    The financial crises is in part a result of appointing unqualified political cronies who don’t enforce oversight regulations that exist, and allowing industry lobbyists to write new laws overturning procedures specifically enacted to prevent economic catastrophe in the wake of the Great Depression. This crisis was brought to you by conservative ideology. Give ’em another four years and they might just do more damage than the rest of us can repair in a generation.

  9. Crap! It did it again…

    okay, the quote was

    ” There is an underlying message here that the tune needs to be played from the bottom up, and not the top down. “

  10. Hmmm… I’m not sure how this part of Fe’s comment got away:

    <>

    But I responded with the Gramsci ‘ruling from below’ idea;

    I was trying to head over to the notion that perhaps struggling to wrest the means-of-production (or the very /meaning/ of production) out of the hands of the venal and bloated might not be necessary given our current resource-bases, which have scarcely been explored.

  11. Yes, Fe… the ‘active advocacy’ on the part of our plurality is essential. Which is one of the reasons I keep returning to this ratio: 1 minute of media:3 minutes of meditating/fucking/walking/cooking/singing/striving *bodily* in the world. Information becomes wisdom-to-act to the extent that it is integrated corporeally.

    And this: <> brings Gramsci back to mind: the ‘ruling from below’ clause. It works pretty well in Cuba – except for Guantanamo and hurricanes, but we might want to consider simply letting the death merchants keep their toys (and maybe throw Idaho in after we evacuate all of the wildlife) and build around them. What is the basic medium of human exchange? Time (and attention). What has the technology of the last 20 years revolutionized?

    Time.

    And how has it been done? Quantum physics, which posits a surfeit at levels we haven’t yet tapped directly. But we will. A certain amount of unraveling has to take place first.

    ***

    Eric, are you sure you want economic theory on this site? It’s not for naught they call it the dismal science. But the French Physiocrats (18th C.) are not a bad place to start.

  12. >>Agreed. But there is a very high possibility that the adjustment/reassertion of actual production over instrumentalization can be a) exciting instead of infuriating, b) empowering rather than disorienting, and c) redefine �wealth’ as a capacity to support invention rather than death. << Yes, but... There needs to be active advocacy on the part of government first to 1) re-establish regulation; 2) re-orient the market towards production versus instrumentalization. In order to do so, the government in power must act on the political will. They need to be the right people who are listening to the people most in need. There is an underlying message here that the tune needs to be played from the bottom up, and not the top down. There's a reason why Obama's message about changing DC resonates, and that McCain copies it line-per-line. The very industries vested in maintaining their "Anglo Disease" are quite present in the halls of power. Political campaigns on both sides are paid for by these very interests. >>If we see the unraveling of this so-called �market’ as pending, and clearly we do, then a few internal adjustments will go a long way toward perceiving productive shifts within our underlying resources.<< Put crudely, we're wresting power away from one source to the other, moving the focus away from the profit-makers to actual producers, or at least giving actual producers a chance to produce and to succeed. The ones who have profited the most over these last few decades WILL NOT GO DOWN EASILY. They have purchased the media markets and communication tools to make alot of us believe that the status quo needs to be kept. But as Eric suggests, there is a reckoning coming, and with what we all see as the unravelling, helped along by these movements of Pluto in Capricorn as well as Neptune and Chiron in Aquarius, I only hope its enough to turn this train around.

  13. Mystes, great idea – and I also think we have to consider the behind the scenes forces that influence production and and life over bureaucracy and death, as they function both in the culture and in the psyche. Nothing is ‘just happening’. The apparent greed agenda is pushed on us and its purveyors have an agenda besides greed itself. Greed looks like a result, but it’s really a tool for something much larger.

  14. Fe wrote:
    >>This will not be an easy adjustment.

    Agreed. But there is a very high possibility that the adjustment/reassertion of actual production over instrumentalization can be a) exciting instead of infuriating, b) empowering rather than disorienting, and c) redefine ‘wealth’ as a capacity to support invention rather than death.

    If we see the unraveling of this so-called ‘market’ as pending, and clearly we do, then a few internal adjustments will go a long way toward perceiving productive shifts within our underlying resources.

    Thanks for your hard work on this!

    M

  15. I think you’re right about the adjustment period, but, as Jerome in Paris said in his full series on The Anglo Disease, the way out to adjustment will require some cold turkey methodology. This will not be easy for those who have sucked at this particular financial tit for the last few decades.

    In the interim, if a true justice and balancing prevails, the adjustment will need to include the bottom on up. Lots of people, towns, counties and states have lost whole industries. While we’re grappling with the effects of “socialism for the rich”, which is what the Anglo Disease has brought, the country will seethe. This will not be an easy adjustment.

  16. Hi… There is something to be negotiated here, I think.

    You have no idea how much it galls me to hear McCain feigning optimism with his “the fundamentals of the economy are basically sound…” At the same time, I do advocate looking askance at the entire sociopolitical roll-out of very-bad-day news.

    Unlike the situation with Ike, I do not have a front-row seat on the financial markets (to put it mildly), but I was alive and awake in 1987 when the DJIA dropped more than 20% in a single day. That’s compared to the less-than-5% yesterday.

    And somehow, we survived.

    We were –as we are now– indebted up to our eyelashes by a reckless Republican administration (Reagan/BushPere years). And there are other similarities too long to list. Of course, we were about 2 billion human carbon units down in that moment, so that may be our tipping point at a global scale. But, and this is a huge ‘but,’ 1987 was also pre-Web, which provides both more volatility and more opportunity for concerted sanity.

    Still. I packed up my TV about 8 months ago, and I have noticed when TVs pop up in front of me (at the gym, airports, grocery store, bank… goodgoddess, the damn things are everywhere!) there is a new, distinctive, truly unprecedented tone of barely-contained-panic flowing through that medium. It is as if the one-way surge of the televisory system has been amped to offset the interactivity of the Web, which has been weirdly infected by the bruit.

    I am known in my local realm as the Cassandra who can be heard – but ironically, in these last few weeks I’ve urged a kind of meta-view of the Catastrophic Noise Machine (tv, web, print media). Breathe! and refocus on your own primary productivity. This isn’t “IT,” but when it *does* come, it will free up resources we cannot even imagine from here.

    Back to the sugarmines…

    M

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