Re: late degenerate capitalism

In a recent interview Alan Greenspan said something to the effect that
profits have been privatized and risks have been socialized.


On Aug 1, 1:05 pm, aw...@xxxxxxxxxxxxxxxxx (arthur wouk) wrote:
CARTOON CAPITALISM
by Bill Bonner

Last week, purely in the spirit of mischief, we brought up a sore subject:
America`s largest mortgage finance companies, Fannie and Freddie. The two
have so much water in their lungs it will take at least $25 billion of the
public`s money to save them. Possibly $300 billion. Were it up to us, we`d
leave them on the beach.

But, last week, the U.S. Senate bent down and pressed its large mouth onto
those gaping traps of the mortgage twins - gurgling into them a corrupt
breath of life. Since the two hold one out of every two mortgages in the
nation, in effect, Congress is nationalizing the U.S. housing stock
itself. Henceforth, citizens will pay not only their taxes to the
government, but their mortgage payments too.

In America itself, how this came to be is the subject of little concern.
But despite the lack of interest, it is the subject of the next 500 words
or so.

At a speech in Vancouver, James Kunstler seemed positively delighted.
Finally, gasoline over $4 a gallon was going to do what generations of
artistic scorn could not - destroy Fannie and Freddie`s collateral.
Kunstler`s critique of American suburban vernacular architecture is that
its products are not real houses at all - but `cartoon houses.` They have
porches that look like real porches from a distance, but they are too
narrow to sit on. They have shutters too - nailed to the wall, making them
completely useless. They may have `picture` windows...looking out on
nothing...or no windows at all. And they wouldn`t exist at all were it not
for cheap credit and cheap gasoline.

Of course, the same may be said of America`s - and Britain`s - entire
economies during the last 20 years. The loose credit that built cartoon
houses also constructed cartoon economies; they look like real economies,
but they are essentially perverse, consuming wealth rather than creating
it.

For proof, we return to Fannie and Freddie. Here were two companies that
appeared to be helping Americans own houses. But since they were created,
homeowners` equity - that portion of the house actually owned and paid for
by the homeowner - fell from 70% to below 50%. Currently, Americans` total
equity is lower than their mortgage debt. As a whole, the nation`s
homeowners are `upside down,` in other words. Nearly 9 million Americans
have zero or negative equity already - and house prices are still
falling.

How comes this to be? The answer is simple: lenders lent more than the
houses were worth to people who couldn`t pay it back anyway. This Looney
Tune approach to finance radiated to all points of the economy. People
pretended that they earned more - spending more and more money to buy more
and more goods and services - but wages did not really increase. Then,
they bought houses - believing the roofs over their heads were
investments, rather than consumer items. With no down payment, no proof of
income, and zero interest loans - for most of the new buyers, home
ownership was merely a dangerous conceit. Now that the roofs have caved
in, it is a staggering burden.

The `consumer economy` was always a mockery. No serious economist ever
suggested that you could get richer by consuming wealth. But that didn`t
make consumerism unpopular. The more people consumed, the more GDP went
up. GDP measures output, not wealth creation; but who could tell the
difference? In a cartoon economy - no one. Besides, spending made people
feel as though they were getting richer.

Then, whenever the consumer threatened to come to his senses, the feds
rushed to `stimulate` him - by giving him more of what he least needed,
more credit. More spending kept the cartoon economy running - allowing the
consumer, the businessman and the speculator to add to his burden of debt.
In 1971, when the United States went off the gold wagon, household debt
was less than 50% of GDP. Now, it is more than 100%. And now, the poor
consumer`s knees buckle; he will be forced to work the rest of his life
just to keep up with his debt burden, let alone pay it off.

Even the rentiers were bamboozled by their own claptrap. Stocks rose from
`82 to 2000...fell heavily to 2002 and bounced back. For the last 10
years, shareholders have gotten little for their effort. In July of `98,
the FTSE hit a high of 5,458. This month, it has reached 5,625. And in
America, if stock prices were quoted in gallons of gasoline, the Dow would
take the driver no further in 2008 than it did 40 years ago.

The cartoon capitalists did it all backwards; they are supposed to exploit
the workers, not be exploited by them. But while consumers and investors
were going nowhere, corporate managers and Wall Street hustlers were
getting rich. The two Bozos running Fannie and Freddie, for example,
pocketed about $32 million between them last year - during a period in
which the companies lost almost $5.2 billion - not to mention the losses
to shareholders. And on Wall Street, managers paid out $250 billion in
bonuses in the 4 years leading up to the credit crunch. The firms declared
a profit and paid bonuses when the bets were made; they didn`t wait to see
how they turned out. Thus did the big banks and big brokers become
capitalists without capital, dependent on the gullibility of investors to
keep them in business. And when investors began to wise up, they turned to
the public for capital support.

What kind of scam is this? It may look like capitalism from a distance.
But this is not real capitalism; this is cartoon capitalism - run by
clowns, who sell freak investments to chump investors, and encourage the
lumpen householder to ruin himself.

Enjoy your weekend,

Bill Bonner
The Daily Reckoning

Editor`s Note: Bill Bonner is the founder and editor of The Daily
Reckoning. He is also the author, with Addison Wiggin, of the national
best sellers Financial Reckoning Day: Surviving the Soft Depression of the
21st Century and Empire of Debt: The Rise of an Epic Financial Crisis.

Bill`s latest book, Mobs, Messiahs and Markets: Surviving the Public
Spectacle in Finance and Politics, written with co-author Lila Rajiva, is
available now by clicking here:

Mobs, Messiahs and Marketshttp://www.agorafinancialpublications.com/Mobs.html

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--sT. Augustine
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