Allen Greenspan once quipped that anyone who could see the Recession of 2007/2008 coming was "lucky." I guess I was just one of the lucky ones. Maybe it is not luck, maybe it was just a matter of paying attention.
Wealth, Women, and War is released in accordance with the solidarity principals of Occupy Wall Street adopted on February 9, 2012.
Thank you,
Cliff Potts
October 29, 2014
The Crash of 1929
The popular explanation for the events leading up to
the Great Depression is that far too much credit was used to invest in the
stock market. Working people who had acceptable credit ratings could, and did,
borrow money from various lending institutions to invest in the market. This
infusion of cash created over inflated values, and as often happens, the market
corrected itself and revalued stocks at lower prices. On October 24 1929, this
triggered margin calls. The investors could not cover the margins and had to
sell since the original loans were not serviceable. The sell-off further
devalued the stocks until they hit bottom. The truth of the accounting behind
all of this is a bit more complex. While this explanation may be an
oversimplification, it is sufficient for our discussion.
Following the crash of 1929 too little was done to
restore confidence in the stock market, and the capitalistic system.
Millionaires, in the course of three days, became destitute. The market lost 5
billion dollars in value in by the end of October 1929, and 16 billion dollars
by the end of 1929. To make matters worse, banks had invested in the stock market,
and those who used the banks rather than the market as a secure investment
tool, lost all they had. When the market went, it took the whole economy with
it.[1]
It cannot be denied that that some “Brokers and Bankers” attempted to bolster
the market, as reported in the New York Times headline of October 30, 1929.[2]
However, the damage was done and the people turned towards the government for
help. They did not have much of a choice.
The corporations could not protect the investments of
the owners when the owners themselves were pulling away like a herd of
stampeding bison. The investors could not be moved away from the cliff of
financial ruin and hardship. Yet, many of the professional investors did escape
ruin by watching the market closely and paying attention to the talk on the
street. Legend has it that Joe Kennedy, father of JFK, pulled out of the market
when he heard a shoeshine boy giving out investment advice.
In the current debate over “fixing” the Social
Security system, the solution is to put the tax money into personal retirement accounts (PRA) in the stock
market. The issue with that is that most people in the United States have little to no
idea how money works, and that money’s value is only based on what people think
it is worth. There is no tangible value other than the word of the institution
in which it is invested, and the perceived value of the goods and services of
the nation issuing the money. It is hard in this day and age to even value the
“good and services” as most modern nations have economies based on the movement
of money and not on the base “goods and services.”
What we see
in the crash of 1929, and the more recent one of October 19, 1987, is that the
average person’s faith is not sufficient to recover from the losses in the market.
Some people are writers, technicians, doctors, welders, sailors. Within their
field of expertise they shine. Outside that they are less than stellar; some
may even be rather dull-witted. It is not that they are stupid, or as is the
cat-call of the Bush era “not good enough.” Their talents lie in different
areas. When the market goes wild due to panic many people get clobbered just
because they were engaged in their specialty, and not the market. The “Hah,
Hah, I won, you lost” attitude or rhetoric is unsophisticated to say the least.
As it is the quintessence of “official indifference;” it can lead to well
deserved and righteous beating. In the post 1929 environment of policy,
regulation, and protection, the corporations took a legal beating to make sure
that such an event did not occur again. As seen in 1987, while catastrophic on
the individual level, Black Monday
did not take down the economy the same way that the 1929 blow out did ... at
least that is what we are being told.
A similar
situation is beginning to surface in the realm of consumer debt for consumable
goods in our current economy. Consumer debt is becoming problematic. Details on
the specifics of this issue are numerous. Yet, there are people in positions of
authority telling the population that there is nothing to worry about. At the
same time, consumer debt counseling services, workshops, and advice columns are
rampant. Home foreclosures are still a problem:
·
NEW YORK
(CNNMoney.com) -- Home foreclosures hit record
levels the first quarter, jumping sharply from a year ago level due to economic weakness in the Midwest
and the battered housing market in
the overbuilt Sunbelt .[3]
·
Wichita
Business Journal - 3:29 PM CDT Wednesday, June 13,
2007 by Kansas City Business Journal -- Kansas
·
Home
Foreclosures Hit All Time High, June 14, 2007 10:53 AM Posted By Bud Foster
KOLD News 13 Anchor --Nearly 18, months ago, News 13 reported a downtown in the
housing market could spell disaster for many homeowners who had purchased homes
at inflated prices using "boutique" loans. Those were interest only,
adjustable rate or no money down. All promised low monthly payments at the
beginning, with a balloon payment and higher payments down the road. Will the
chickens have come home to roost.[5]
·
New
foreclosures set record, delinquencies down: Mortgage Bankers data shows jump
in subprime ARM foreclosures, By Amy Hoak, MarketWatch, Last Update: 12:17 PM
ET Jun 14, 2007 -- CHICAGO (MarketWatch)
-- A record number of U.S. homeowners entered the foreclosure process during
the first quarter, the Mortgage Bankers Association said Thursday, with 0.58%
of all loans entering the process, up from 0.54% in the fourth quarter of 2006
and 0.41% a year ago.[6]
·
Florida
foreclosures spike in May, Jacksonville Business Journal - 10:46 AM EDT
Wednesday, June 13, 2007 -- Foreclosures in Florida were up 144 percent in May
from a year ago and up 52 percent from last month, according to RealtyTrac's
monthly U.S. Foreclosure Market Report.[7]
Since the private ownership of a home is the
foundation upon which all other economic growth occurs, it is safe to say that
such reports are an indication of troubled times ahead.
``While bubbles that burst are scarcely benign, the
consequences need not be catastrophic for the economy,'' said Alan Greenspan,
the former chairman of the Federal Reserve Board, in congressional testimony.[8]
It depends on whose economy one is talking about. The decline in existing-home
sales is the steepest since the late 1980s, which, of course, was preceded by
the crash of 1987.
Kevin Phillips in American
Theocracy: The Peril and Politics of
Radical Religion, Oil, and Borrowed Money in the 21st Century, and Morris
Berman in Dark Ages America: The Final
Phase of Empire address the economic realities of the current era in
detail. Both Phillips and Berman indicate that we are at the end of American
Economic Dominance, American Imperialism, and Pax Americana. Phillips sites the
deceptions of the Bush administration, the rise of religious fundamentalism,
the seeking of wealth through mystical means rather than work, and the amassing
of debt as the causes for the decline in the nation. Berman echoes many of the
same concerns, but also the lack of community, the detachment of the relationship
of goods from the economic equation, and a general entitlement mentality in the
U.S.
today. Much of this reverberates what was written in 1996 by Judge Robert H.
Bork’s Slouching Toward Gomorrah: Modern
Liberalism and American Decline, and E. D. Hirsch Jr.’s work in Cultural literacy: what every American needs
to know written in 1987.
It is not difficult to say the nation is at risk in
the near future, it is only a matter of degree.
Putting aside the massive debt the government is
incurring in the War on Terrorism, consumer debt is becoming an issue. The
consumer, however, is trying to tread water as fast as she can. It is not
dissimilar to the situation in New
Orleans following Hurricane Katrina. Those who could
get away from the situation are long gone, and those who are left are left to
be fretful for themselves in the putrid swill of toxic economic soup. The
metaphoric relationship between Hurricane Katrina and the economic situation
cannot be overlooked. Even those who did manage to escape are displaced and
bewildered by forced resettlement. This pitiful picture of what occurred all
along the Gulf of Mexico is an allegory for what will occur, and rather soon,
in the U.S.
economy.
While the current administration would like to
project an optimistic, if not rosy, picture of our current economic welfare,
that optimism may not be justified. The same administration painted a positive
picture to F.E.M.A.’s response to hurricane Katrina, and kept the spotlight on
the region only long enough to convince the unaffected population that the
situation was being addressed. Once the clamor had died down, the rest of the
residents were left on their own. This is how capitalism, as amoral as it is,
works in the United States .
One cannot expect it to respond to a region wide economic disaster any
differently. The citizens of the U.S. , at least within the
philosophical framework of the current era, should not expect anything
different.
If we accept the conservative teachings of the
current intellectuals, the intervention of the New Deal was an exception to the
rules governing the U.S.
economy, and it outlasted its usefulness far beyond mitigating the Great
Depression. If one accepts the dark side of capitalism to be normal and
acceptable, then it stands to reason that the U.S. is under no obligation to
alleviate the suffering and loss of its own people. One can go so far as to
align this with the decision made in the 1960s to leave the general public
exposed in the event of a nuclear attack. It would seem that, while being very
cold logic, it does seem to be the logic which is now being applied in the U.S.
We can lament it, but it is the current expression coming through the media
today.
Even when it comes to taking care of our fallen
heroes, we can’t seem to act as if we collectively owe anyone anything.
War Wounded Underpaid, Tom Philpott, June
14, 2007 VA Disability Pay Set too Low for Many War Wounded -- Disability
compensation for veterans severely wounded in Iraq and Afghanistan,
particularly the youngest, is set too low, creating a lifetime earnings gap
with non-disabled peers, according to a draft study on disabled veterans
incomes prepared for the Veterans Disability Benefits Commission.[9]
This of course is very different from how the vets
were treated during World War Two but does coincide with the general deprived
expression of the currently accepted unethical approach to capitalism today.
This is especially telling since according to Phillips and Berman the war in Iraq
is a war of corporate expansion for control of Iraqi oil reserves.
The middle class status is effectively being
maintained via the use, or misuse, of consumer credit. While bankruptcy laws in
the United States
have recently been changed, they only address limiting the plausibility of
going bankrupt. They do not guarantee loan serviceability.
To leave most debt unserviceable is not outside the
realm of possibility. While some states do not allow the garnishment of wages
without a court order, in an environment where employment is increasingly transient
even the tougher laws are no solution. People can pretty much walk away from
the debt and not have to be overly concerned about the legal ramifications. The
ramifications are minimal unless the current society wants to go back to a
debtor’s prison system.
When an individual is left with the decision to
service a debut or secure shelter and food, the debt may fall to the wayside.
No amount of collection action in this type of situation will secure payment.
Letters and calls left on answering machines can be ignored no matter how
obnoxious and demanding the accounts receivable agent gets. If enough people
fail to service their debts then accounts receivable becomes meaningless
numbers on a spreadsheet.
Real property, is a bit of a different animal. Even
there, however, the consumer can pick and chose who gets paid when, and who
doesn’t. Upon a few occasions, lenders have been known to be holding more real
estate than is healthy. The current trend showing that existing home sales are
slumping while new homes sales have been increasing simply indicates that the
existing homes are priced out of reach of the new buyers, or that they have
inadequate resources to enter into the real estate market.
Given the current economic leanings a consumer is
reluctant to take on more debt which will become unserviceable. Again, this has
to do with the transient nature of employment in the globalized economy where
more money is leaving the local community than is retained in the local
economy. The more one contemplates the nature of employment in the nation
today, the more one is forced to conclude that the U.S.
is an economic, if not political, empire where the capital is being siphoned
off to build the colonies (Iraq ,
Afghanistan , China , and India ).
Once again the likelihood of an economic downturn is
high. In such an environment, an individual’s inability to service their
relatively small debt becomes a rather large corporate issue when it occurs to
enough people over a time span. This has been seen a number of times in the U.S.
history and usually follows periods of exuberant speculation by people who
perceive that any segment of the economy is a sure thing for short term wealth.
The further an individual slides down the
socioeconomic ladder, and the lower they go on Maslow’s scale, the less
inclined they are to listen to rational argument. They are more inclined to
follow a course of action which seems most likely to restore their place in the
economy and Maslow’s scale of needs.
It is not that they are expecting more, or expecting
it sooner, or even expecting the recovery without effort. It is that they are
expecting it in conjunction with the understood social contract which was in place when they engaged in individual
commerce. Their perception is that they have fulfilled their obligation to
society by having earned a degree, acquired additional training, submitted
themselves to the competition of the workplace selection process, shown both
history and education to compete in the task, and have been flexible enough to
accept the terms of various employers over time. Having taken all the necessary
steps as defined within the social
contract, they feel they should be rewarded in the measure to which they
have fulfilled their part of the bargain. As George H.W. Bush was fond of
saying, this is “Quid Pro Quo,” or “Something for something.” If the current system in place does not, or
will not, support the expectations of the majority, then the majority will
demand changes.
From a purely functionalist view-point, the corporations
which engage successfully in the capitalistic free market, or free enterprise
environment needs to be aware that their function within society is to provide
employment opportunity by the wise investment of resources into the market
place. These resources are not only capital, but are also time and creativity.
The opportunities need to be rewarding ones within the range of the understood
conventional wisdom as defined by the overall socioeconomic strata, or status,
which the person has achieved. This is to say that a college graduate should be
allowed to move beyond a place in Taco Bell, Wal-Mart, Game Stop or Walden
Books. Moreover, their movement should not be dependent on who they know but on
their qualifications to do the job.
If the corporations do not fulfill their place in the
social order then they will again be perceived to be dysfunctional and brought
under the control of some form of regulation. As Einstein observed, an empty
belly makes a poor political advisor.
The current business model may fit within Heinlein’s
description of Imperial expansion, but as read within that quote, science and a
mathematical mind need to be applied to the situation. The science needs to
include sociological and psychology as well as economics, accounting and law.
The current business model does not seem to protect
the long term interest of the corporations. While shifting production to
relatively inexpensive locations may seem rational to the CPA, it fails to
appreciate the social dynamic at play within the geographical confines of a
given nation. While the resources of the corporation may make them able to
ignore colloquial concerns, those with limited resources, the local
populations, even within the United
States are not free to be so glib about it.
“All politics [are] local,” so said “Tip” O’Neil.[10]
When corporations are seen to be inflicting hardship
and suffering through callous mismanagement, then the corporation becomes the
target for reprisal. Sometimes that reprisal is through violence as seen on
9/11. Sometimes that reprisal is economic as seen in the Memphis Bus Boycott.
Sometimes the reprisal is in the form of onerous and invasive regulations.
The solution is simple. There needs to be a new breed
of businessman. One who is both technically savvy to produce goods and services
needed in the local community, but also has the moral fiber to act honestly
with his or her partners, investors, employees and customers without great
expectations of public gratitude in return. They need to have the empathy to understand
that capitalism’s amorality is not license for corporate immorality.
In Dark Ages
America, Morris Berman writes, “What is thus called for is long-term study
and thought, in an effort to come up with a serious alternative to the global
bourgeois democracy – blueprints for a better time, perhaps, and for another
place.”[11]
It is hard to say that, what seems to be a pessimistic outlook, is unwarranted.
One thing is for certain. To give up and let the
economy collapse and to allow society to descend into something that is
reflective of Mel Gibson’s Road Warrior
movies is not an acceptable option. Many people in the United States are willing and able
to work within the corporations to build a better economy and a better society
within the structure of the capitalistic system. The intellectual ability is
there. It simply needs to be tapped to begin creating economic growth and
sustained opportunity.
Maybe there needs to be a shift in the paradigm to
let the multinational conglomerate monopolizing corporations continue to play
their game as they understand it while the remaining people divorce themselves
from that mindset and find alternatives to build an economy, and a society,
which can promote long term stability for the majority, and safety and security
for the minority. Maybe that is what Berman is getting at as well. Maybe it is
time to let the big firms scuttle themselves while the rest of us work together
to make our own way without their assistance.
We have done it before, we can do it again.
[1]
Stock Market Crash!, http://www.stock-market-crash.net/1929.htm
[2]
http://www.nytimes.com/library/financial/index-1929-crash.html
[3]
Isidore, C. (2007, June 14). Home foreclosures hit record. Retrieved June 18,
2008, from
http://money.cnn.com/2007/06/14/news/economy/mortgage_foreclosures_deliquencies/index.htm
[4]
RealtyTrac: Foreclosure filings in May—Up 90% percent (2007, June 12).
Retrieved June 18, 2008, from
http://countrywide-foreclosures.blogspot.com/2007/06/realtytrac-foreclosure-filings-in-mayup.html
[5]
It is interesting to note the accusatory and sarcastic tone in the reporter’s
choice of words.
[6]
Hoak, A. (2007, June 14). New foreclosures set record, delinquencies down.
Retrieved June 18, 2008, from
http://www.marketwatch.com/News/Story/new-foreclosures-set-record-delinquencies/story.aspx?guid=%7BED24367A-0B50-4720-9730-EC716C02D0EB%7D
[7]
Florida
foreclosures spike in May. (2007, June 13). Jacksonville Business Journal. Retrieved June
18, 2008, from
http://jacksonville.bizjournals.com/jacksonville/stories/2007/06/11/daily12.html
[8]
Greenspan, A. (1999, June 17). Testimony by Alan Greenspan, Chairman, Board of
Governors of the Federal Reserve System, before the Joint Economic Committee.
Retrieved June 18, 2008, from
http://fraser.stlouisfed.org/historicaldocs/ag99/download/28949/Greenspan_19990617.pdf
[9]
http://www.military.com/features/0,15240,139156,00.html
[10]
"The phrase "All Politics Is Local" is attributed to Tip
O'Neill.Tip O'Neill. (2008, June 8). In Wikipedia, The Free Encyclopedia.
Retrieved 18:43, June 18, 2008, from
http://en.wikipedia.org/w/index.php?title=Tip_O%27Neill&oldid=217852147
[11]
Berman, M. (2006). Dark Ages America New
York : W.W. Norton & Company.
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