
House of Cards before meltdown
The stranglehold the right wing has had on our nation’s economics has been a boon, you would think, to updating working knowledge of what works, and most strongly, what doesn’t, for economic health. To the morbid fascination of those of us who actually studied, and have working knowledge of, economics as a science there is an incredible tenacity of the right wing that insists its disproved theories actually work.
Yesterday’s post talked about outmoded theories that still have a hold on business reporters like Maria Bartiromo, still canting on about a need for tax cuts for business – that never have and never will create jobs. The comments on that post included references (see number 28) to that ‘trickle down’ theory, as it was named in our long-ago Economics 101 courses. Inert in so many ways, the right has shown it will not stop believing in a fantasy that has led them, and the nation along with them, into this present financial catastrophe that threw our system into deep debt and wasteful policies under such fallacious concepts.
Last night on After Words, on Book TV, Sebastian Mallaby, author of More Money Than God – about hedge funds – mentioned disparagingly [at 00:46:05] the inability of academia to let go of "market efficiency". That is another concept that was held by academics but proved totally wrong when the right dominated the nation’s economic policies. It holds that the market will annihilate inefficiency, or an inability to sustain itself, so that regulation by government is extraneous. Under that theory, mortgage companies were left to control their own practice of extending credit to those unable to handle it under the firm belief that business would have a strong instinct of self-preservation.
While we’re inspired to giggle at the thought that an economy would be run under such a belief as if it were serious science, that’s what got us into this mess. Coincidentally, at the same time, millions of U.S. consumers of debt were operating on a marketplace theory that played right into the ‘market efficiency’ myth. That concept was that they could consume now, and pay later, under a personal plan of ‘controlled debt’.
Recently I had a fascinating discussion about what we learned in school, with commenter "eCAHNomics", who I found out is a classmate of mine from 1966. What we learned at Wellesley, and the way it was taught, is a subject of humor now.
Unfortunately, though, what was taught at their colleges is still firmly entrenched in the actions of many business moguls who have all too firm a grip on a struggling economy. While we don’t know with certainty, eCAHNomics and I speculated about the donations of corporations with a vested interest in debt and those endowed Chairs.
One example of academics gone terribly wrong, one that I feel badly about, is a relative who swallowed whole the teachings at Harvard’s School of Business about creative debt, a.k.a. ‘deficits don’t matter’. Now underwater in a huge mortgage, his retirement funds and borrowings against a house, invested in the market, disappeared, as did so many other retirement plans. Now, he’s struggling to keep his home from foreclosure while his wife is working in retirement to manage their living expenses. Like all too many of our generation, under assurances that economic theories he’d paid dearly to study, combined with the siren call of living high and paying later, this business school believer went over a cliff of controlled and rational planning sold widely by the purveyors of debt. Those credit card companies and financial houses are living high, even now, on those outdated theories’ effects.
The original concept for banking was sound, and envisioned interest earned by lending out personal savings, which could even manage a certain percentage of failed loans. When those savings converted to the more daring, but also more dangerous, challenge of having it all now under a planned debt payment – the economy as a whole climbed out on a limb and handed the saw to every business that might grow greedy and raise its own share.
That happened when gas price gouging occurred in 2006. An economy consisting almost entirely of hyper-extended households ‘having it now’ suddenly had to cope with twice and more the amount budgeted for that ‘controlled debt’. The paycheck-to-paycheck majority got into more debt than it could afford. The first card in our national house of cards toppled. After that, each incremental share of our overextended house of cards began an inevitable tumble that is barely above depression level nationally, while personally the tragedy in many households is at depression level.
Still soaring in its visions, the corporate class still will not see that it has been proved wrong. What was bad for individuals is bad for corporate interests as well, but those diminished profits haven’t hit home with the believers in ‘market efficiencies’ and ‘trickle down’ myth. That your debt is their profit is as far as they can see. That is the lowest and last layer in the total house of cards our economy had become. If they can’t let go, and become part of the functioning, REAL, economy that last layer is on the verge of tumbling.
Believing in myths, and putting a balance on their books that ignores investments in bundled "toxic" mortgages – which include a preponderance of debt that will go unpaid – means that REAL value has been wiped out. Holding tight to a blind faith in outmoded and wrong theories has led to a whole system based on a ground floor that is gone.
"Mark to Market" – the term for accepting actual monetary reckoning on all those bundled bad mortgages – is the sound of that last row of cards beginning to believe in gravity.
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Author: Ruth Calvo, 66 and retired, is a longtime political activist for progressive causes and writer as well as a daily editor here at The Seminal. She worked in the office of TX. Senator Ralph Yarborough after graduation from Wellesley College in the 60’s, served on the Council on the Arts after receiving their award for playwriting, managed some political campaigns in Maryland, and served several years as assistant to Maryland House of Delegates member Delegate Gene Counihan.



20 Comments




I tried to spotlight this but it would not let me.
Ruth! I am so glad you wrote this. The house of cards pic is PERFECT! If people don’t start putting two and two together soon I just don’t know what we can do for them.
The economic policies/theories/propaganda are for public consumption only. It will always amass the fortunes to the select few. Those select few always weasel their way into government policy, all the way down to your local branches of banks, etc. Is it any wonder there is a pyramid on our dollar? It’s all a pyramid scheme, only this go round there is no foundation under that house of cards.
I can’t tell you enough how important your posts are!
Thanks so much. Yeh, because it’s already on the front page, there’s no reader feedback rating scale. This has been an ongoing learning experience, to use an overused description of a pain in the a**. The ramifications of what we are taught, and retailed by the stenographers in the media, increasingly seem to be all another approach to selling us on betraying our own interests.
Good morning Ruth.
So many places I could go with your interesting post (in addition to our other interesting conversation).
I also intend to write on this subject, but always seem to find another good book to read instead.
On cspan2 this morning, E.J. Dionne, in one of his few coherent opinings, called the trickle down theory, aka supply side economics, reductionist. As a one-word summary, constrained by politeness, I couldn’t think of a better word.
Of course it doesn’t work. It is trickle (or flood) up economics. Only the very rich benefit, and the largest corps, and the rest are drowned out. And that is a large part of why “they” don’t “learn from their mistakes.” It is to their benefit not to learn.
I’m out to errands & lunch, but will check back later to add to the discussion.
You must write about it. In these times, only the knowledge will save us from being paupers.
Now I feel challenged;
Semantic robbery?
Insult to intellect?
Pickpocketing of the mind?
I better stop while I’m not too far behind.
I’d also like to add that the elites/non-working only pay about 12 to 15% on their income/capital gains. That is after the many loopholes, tax breaks, and offshore banking which brings that down to almost nothing. This is for an individual income. Don’t get me started on the new wave business tax evasion! What with the government grants, state, county, and city subsidies for a store front operation for a year. After the tax payer has been sucked into paying taxes for these expenses, that store front op packs up and moves to China or India and we are left paying for years!
I’m telling you, everytime I hear a repuke mention the word entitlement, welfare, or some other degrading term I want to stomp them!
Ruth, do you still have my email address? The last one I got from you was when you were changing everything.
Another little shocker from the Mallaby video is that hedge funds managers only pay capital gains tax, not income tax. Yes, thanks, PeasantP, I checked and have the addy. But since we talk here, I guess I haven’t used it direct so much.
I’m not a tax accountant but sure would like to know what legal rule allows this. Not for a persecution standpoint, but for my own knowledge on such matters. Maybe Echanomics can help with this one. A Hedge Fund manager is a contract employee is he not? Or working for himself under the auspices of the managing firm would be a better term of what I am asking.
Nice article, Ms Calvo, and thanks for the additional enlightening thoughts in the comments.
Shredder instead of wastebasket might signal a greater urgency. Hope everyone is well today.
Appreciated. Us low techies think in terms of wastebaskets, I guess.
Thank you Ruth for repeating what many of us have known about our free market system and it’s failings. Most people at FDL seem to understand the problems but are unable to convince the majority of Americans that we are correct.
The main weakness i see on the Left is that most people seem to think that the free market system can be reformed. I believed that if we could get strong regulation and a strong safety net the system could work for the majority not just the wealthy. We lost that battle 30yrs ago and the country is moving rapidly towards eliminating what’s left of the New Deal.
What are the goals for the Left? Do we continue to beg the Right to listen to our demands while they ignore us and continue with their agenda?
As long as the Left continues to support Capitalism and hope to make it work for all Americans we are going to fail. If i am correct then what are our options?
The only countries that are resisting neoliberal policies are the emerging economies in South America. They face many challenges but they are attempting to develope what they call 21st century Socialism.
I would like to hear from someone who has studied economics if we can learn from their example and apply some new ideas to our situation.
Great post and please keep them coming.
Well they haven’t “hit home” yet because there hasn’t been a real diminishment of profits, has there? As I understand it the balance sheets of most large corporations have been black and healthy, mostly due to to savage cost-cutting which always includes laying off the workforce. This disguises, perhaps for an extended time, the painful blowback effects of all these economic sacred myths you refer to. Am I on the right track with this?
Thanks. That is another tragic misdirected measure corporations are taking, against the interest of the real economy that their fortunes are so entangled with. Of course, as consumers are incapacitated, corporate profits drop. Until business sense triumphs over greed, this is a downward spiral.
Thanks. The economies of Latin America learned a long hard lesson because they were essentially invaded by the filibusteros (freebooters) and their natural resources and workforce were taken over by foreign interests. It’s not really funny, but we’re now in that very same position. I can only guess how we’re going to get out of that, but hopefully the electorate here will wise up, soon.
Sorry I never got back online until tonight. After I came back from errands/lunch got involved in other stuff.
The U.S. and European economies are debt-based systems controlled by Private Central Banks. In the case of the U.S., the Federal Reserve, a private central bank, was granted the exclusive privilege of creating money in 1914 — and has been lending money it has created out of thin air back to America ever since.
Listen closely to television commentators and politicians when they speak of funding the deficit. Besides the Treasury bonds sold to foreign powers, you will also hear them talk of ‘borrowing’ from the Federal Reserve.
Even in the best of times — say the economy is growing at 5% — the money supply must be expanded by 5% to supply capital for the growth. That ‘money’ too, must be borrowed from the Federal Reserve by businesses through credit expansion the Federal Reserve funnels through member banks.
But all of this begs the basic question — why does America have to borrow it’s own money? Why does a Private Central Bank control the money supply?
Layer on top of this system fractional reserve banking, and it becomes clear why the largest buildings in every city are built and owned by banks.
As for throwing the Free Trade Theory the wastebasket of history — I couldn’t agree more. While the theory looks good on paper, it has been a total disaster for the working people of this country, and the underpinnings of our economy — manufacturing.
I would suggest instead of Free Trade it would be prudent to turn the discussion to Fair Trade — a system of checks and balances that gives businesses, manufacturers and entrepreneurs in the U.S. a chance to compete on a level playing field in their own home market.
Mark to Market. It was and ever will be what cannot resist gravity. How long will the elites be able to avoid it? Like everything else, that which cannot be sustained, will not.
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Whatever happened with FASB 157? It seems like one of the big under-told stories of the financial collapse. It seems like it was implemented and than pulled off-line in the middle of the collapse.
May want to change the link you use to illustrate “gas price gouging occurred in 2006.” Followed it to a story of California gas prices of $2.75 a gallon. Since CA gas prices have averaged $3 for over a year, it undercuts your assertion. Consider the possibility of “Peak Oil” and long term high gas prices.