Posted on 09/21/2013 8:52:59 PM PDT by 2ndDivisionVet
It’s become common over the past year or two to note how well Wall Street is doing while Main Street is still struggling.
Sadly, that tale of two economies has resulted from a conscious choice by those at the very top levels of our nation’s financial and political elites.
The choice was inadvertently highlighted in a recent USA Today column by former House Speaker Nancy Pelosi. In that column, Pelosi describes some of the political dynamics surrounding the beginning of the bailout era five years ago.
In Pelosi’s telling of the story, public opinion was never mentioned once. That’s significant because public opinion was primarily focused on Main Street while the elites were focused on Wall Street. Those in power didn’t want to hear about anything but the financiers.
From the beginning, public opinion was hostile. The outrage was so strong that it eventually led to creation of both the tea party and the occupy movements. While those in Congress rarely listens to those they are supposed to represent, in this case, they couldn’t help but hear the shouting.
Stunningly, with both the Republican president and Democratic Congressional leadership pleading for $700 billion, Congress initially listened to Main Street and rejected the bailout legislation. That created panic among the elites, and the stock market fell almost 800 points the next day.
After the market reacted, Congress reversed course.
The legislators made a conscious decision to back Wall Street rather than Main Street. They voted to reassure the bankers and ignore the rest of us.
Neil Barofsky, the Special Inspector General for the TARP bailouts, recounts the maddening tale in a great book, "Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street.’’
In the aftermath, an argument erupted about who was to blame. Conservatives tended to point to government failures. Florida Sen. Marco Rubio said, "In fact, a major cause of our recent downturn was a housing crisis created by reckless government policies."
Liberals pointed in the opposite direction. Mark Zandi, an economist whose analysis is frequently cited in support of Obama administration policies, said, "The biggest culprits in the housing fiasco came from the private sector, and more specifically from a mortgage industry that was out of control."
A better understanding comes when you realize that the financial wizards and the government officials were on the same team. One day Henry Paulson was chairman of Goldman Sachs; the next he was Treasury secretary. One day Robert Rubin was Treasury secretary; the next he was running Citibank.
In the years since the bailouts, nothing has really changed. The biggest banks weren’t broken up; they’ve gotten bigger. They still require ongoing government subsidies to remain profitable. That reality is bad enough. But what makes it even tougher is that the political class is proud of the two-tier economy.
Which only makes sense, since they are clearly our betters.
What right have the hoi polloi to complain about the scraps they receive? They ought to be damn grateful.
Bankers, brokers and real estate agencies may have been greedy and out of control, but the moral hazard that allowed them to drive the financial system was ultimately created by government and there is simply no getting around that fact.
Let's say you're a banker and you can sell a $750,000 mortgage to a teacher and his wife whose combined income is $85,000/year. [This is an actual case I know of first hand.] You're fully aware that there is no chance in the world that this couple can meet their obligations on this loan. Their best outcome is to get slightly underwater and in a few months come to their senses, and sell the house. At the rate that real estate was appreciating in some markets, it was even possible they'd be able to sell and not actually lose anything.
You don't even care about that, because you know that a secondary mortgage buyer is going to come along and take this note off your hands. Meanwhile, you will make several points off the closing, as will the title company. The appraiser is going to make money. The realtor is getting her 6%. They may even have a lawyer come to the closing. He golfs with you and makes an easy $200-300.
None of the beneficiaries would be getting any of this free money if you were the one being stuck with the loan, because you wouldn't finance this note if it was staying in your bank.
The fact that there was no connection between those selling the money and those who owned it is the reason for the crash, and it is exactly why QE ultimately is going to crash as well; the Fed has a bigger checkbook than Fannie and Freddie, so it's going to take longer.
And it's going to be worse. Much. Much. Worse.
The bad thing is that Wall St would be benefiting the same under a Pres. McCain or Pres. Romney.
Interesting point that the Tea Party and Occupy Wall Street, superficially such opposites, both grow out of the same underlying distrust of and hostility toward the political and financial elites.
That never occurred to me, but once I read it here, it’s obviously true.
OWS loves leftists and socialists
Alas!
Rasmussen has re-surfaced...
In the meantime his former polling company has become decidedly more pro-ubama in its polling results.
You so nailed it. The government is very good at distorting, and destroying, the free market by decoupling reward and risk. Of course they do it on the basis of campaign donations; "protecting" those who donate the most. As you rightly conclude, however, the Feds attempt to bandaid over one problem simply creates an even larger problem, and eventually the house of cards collapses. That is the point at which the political class usually tries to weasel out of any responsibility by blaming the very people they have been supporting thru special laws.
I get it...you're ashamed of yourself for voting for bammey ......you've destroyed America because we had ONE CHANCE.....and you blew it...
You’re a knucklehead.
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