It appears we have descended into the rabbit hole and forgotten which direction is up and which is down. Stock market gains have poofed away, just like the Cheshire cat in Lewis Carroll”™s insightful parody. Is it now more American to tax the poor than the rich? Or is debt now good, taxes bad? Since when did taking out a mortgage not require an adequate income? It”™s like a game of musical chairs ”“ keep passing the worthless paper around the world and at some point the music will stop and someone will be left with a pile of debt instead of valuable securities.
According to an Oct.20 New York Times article, both political parties have bought into the concept that the amount of the bailout ”“ read “debt” ”“ does not matter and covering the bad decisions of individuals who definitely did know better is the first order of the day. Forget the need to reduce spending or to raise revenue to mitigate the hit this mounting debt is going to have on the public.
Some months ago I wrote about the percentage of the total revenue required to pay for the interest on the national debt ”“ at that time 20 percent of the nation”™s total revenue. Can one imagine what that interest will be after these bailouts? Just a reminder ”“ when the cost of servicing the debt reaches the limits of your income you are in bankruptcy. Pakistan is at that point and Iceland is in a precarious position, just to give a reality check to those who believe the U.S. operates on some unique economic principle. Too big to fail? I wonder. All current and new debt being generated is based on what may be a very faulty assumption ”“ that other nations will continue to loan money to the U.S.
An editorial in Engineering News (Sept. 29/Oct. 6) took a harder line: “The bottom line is that some companies deserve to go out of business or be forced to sell assets to raise cash to cover their bets. If they fail, so what? Others will step up to take their place, hopefully with more wisdom than the departed.”
In the same editorial: “The checks and balances the framers of the Constitution embedded in the document are there for a reason: no particular branch of government should be in a position to hijack the nation in time of crisis. That is exactly what is being proposed.”
Meanwhile, the United Kingdom has been bailing its banks out of a similar hole, though with some significant differences. As Treasury Secretary Henry Paulson was pouring money into struggling U.S. banks, Prime Minister Gordon Brown was pouring money into British banks but was driving a much harder bargain. Rather than caving into the powerful bank lobby, Brown demanded a vote on the board of directors, 12 percent interest on the loaned money and a cap on CEO pay in exchange for the money. Paulson exacted almost nothing in exchange for the bailout ”“ no vote in exchange for shares, the option to continue to engage in mergers and to continue giving dividends to shareholders. It may even allow the stunning pay packages still held by those who contributed to the disaster.
More financial disasters are surfacing nearly every day and everyone seems to be in a “too big to fail” category. With no brakes on this debt train the future does look alarming. With the American consumer knee-deep in debt policymakers are giving out diametrically opposed messages. Start saving! Pay down your debt! But wait! That would be disastrous given that 70 percent of the economy is based on consumer purchases. So “go out and spend more to help prop up the economy.” Maybe Alice can sort this out.
What has caused the public and its elected officials to lose sight of reality? Have we gotten lost in the American Dream or is it based on a commercially hyped concept that drives the public to unrealistic views of what is really possible. How else to explain the subprime fiasco? The drive to create an “ownership society,” the symbol of the America Dream and the backbone of Washington policy, is based on flawed facts. On average people in U.S. move every five years. With the economy tanking that percentage may go up. This is not the profile of a homeowner.
We must stop the dreaming and wake up.
Surviving the Future explores a wide range of subjects to assist businesses in adapting to a new energy age. Maureen Morgan, a transit advocate, is on the board of Federated Conservationists of Westchester. Reach her at mmmorgan10@optonline.net.
