Deregulating Chaos

Dear George,

Do you remember the Peanuts character Pig Pen? He was the little boy who left a cloud of dust and dirt in his wake. He reminds me of you, Big Guy, except that instead of dirt, you leave a cloud of chaos and disaster in your wake, and I love you for it.

You record is perfect: you have trashed our foreign policy, our social safety net, and now, in your greatest coup, you are trashing our economy. Though, I have to say you can’t take all the credit for the economy. There are others who share that honor with you, like Ronnie and Bill and your pappy and, of course, that master of economic anarchy, Alan.

You are all craftsmen of disaster, spinning your magic like it was a golden garment.

Let’s go to the video tape and look at all you have accomplished.[1]

Basically, our consumptive bubble is popping with a roar that will shatter glass and knock buildings off their foundations. Since July, financial institutions have seen twenty-five percent of their capitalization vanish into thin air.

The last time there was a shakeup like this was when the dot.com bubble popped. However, that only involved thirteen percent of our GDP. The explosion you hear now is the American consumer being vaporized. Consumption accounts for seventy-two percent of our GDP. So, this one will be even more fun.

The economy is splayed out on the rack, and the snap, crackle and pop you hear is its bones breaking. There are two problems. First, the housing bubble is collapsing. The traditional fix for that is to lower interest rates. Second, the dollar is in a free fall. You deal with that by raising interest rates which will only exacerbate the housing bust, though if the Fed lowers rates the dollar goes into a Kamikaze dive.

So the Fed decided to lower rates, and in doing so they were apparently guided by Lenin’s suggestion that, “The best way to destroy capitalism is to debase the currency.”

What we are facing today are the fruits of deregulation. Letting the Invisible Hand of the Market drive the economy is like letting a two-year-old take the family car out for a spin. There is no doubt what the ultimate outcome will be.

Freed of the onerous burden of the regulations that had kept them honest since the First Great Depression, the banks discovered that if they took their loans and hawked them to nonbanking institution in the form collateralized debt obligations (CDOs), they could move the loans off their books and escape the need to keep capital reserves adequate for the loans they were giving because these loans were no longer on their books but were busily undermining our economy. But now that nobody wants to touch the damn things as they expire, the banks all find themselves undercapitalized. Now they are acting like the teenager who cowed his parents into deregulating his social life and then comes crying to them to bail him out when he is busted for smoking a joint.

Meanwhile, that great American ATM, the house, is losing value leaving many homeowners who leveraged their homes to the hilt so they could consume, consume, consume up to their asses in debt. As housing prices fall, the negative equity in their home increases. Now we are faced with 3.5 million foreclosures and an eleven month inventory of unsold houses.

You are brilliant, George. You have set the country up for what Naomi Klein has described as Milton Friedman’s “Shock Therapy.” You’ve always wanted to junk Social Security, and now that our economic house of cards is collapsing you will have your chance. And you will do so in the name of getting the economic train back on the tracks. Granted, the freight cars are so twisted and bent they will no longer run. But, hell, when has truth ever played a role in your administration.

My hat is off to you, Big Guy. You have hit the trifecta: our foreign policy, our social safety net and our economy are all in the dumpster.

Your admirer,
Belacqua Jones

[1] All that follows is taken from an excellent and readable article by Mark Whitney, “The Collapse Of The Modern Day Banking System posted at http://www.informationclearinghouse.info/article18913.htm.