You Can Bank on It

In John Ford's classic western, Stagecoach, a self-righteous bank president browbeats and berates his fellow travelers while he's in the process of absconding his firm's funds. Ford was a filmmaker with a social conscience and the themes explored in his movies seem more timeless than ever.

Once again, life has been caught imitating art. Bank robbers like Jesse James, Willie Sutton, and Bonnie & Clyde, have long been part of American folklore, but the reality is that the biggest and most audacious bank robberies have invariably been inside jobs. The Savings and Loan crisis of the 1980s proved one observer right; the best way to rob a bank is to own one.

The current crisis in the financial system dwarfs the S&L debacle. Americans have recently woken up to the fact that the country's most hallowed banks and financial institutions are basically insolvent. Many observers single out subprime mortgage defaulters as the main culprits in the current calamity. However, the true causes of the present economic meltdown are far deeper and more insidious than most Americans realize.

There are vested interests, of course, intent on diverting attention away from the real reasons so much hard-earned savings poured into the financial sector, but vanished down the proverbial drain. Here, Rick Santelli's much-publicized faux-populist rant serves his masters in the predatory class well. Santelli, like many of his fellow carnival barkers at CNBC, have served as avid cheerleaders during the inflation of one of the greatest financial bubbles of all-time. Their shtick, which masquerades as objective analysis, has undoubtedly led innumerable credulous investors astray.

Santelli, of course, would have his audience, many of whom have been burned by bad advice they gleaned from CNBC, direct their fury towards the "losers" that bought subprime mortgages they can no longer afford, a group allegedly at the epicenter of the current crisis.

To be sure, the so-called NINJA loans (loans made to borrowers with no income, no credit, and no job) were a recipe for disaster, but the focus on defaulters ignores the other side of a faulty equation. Thanks to Reagan era deregulation, and Bush administration policies aimed at promoting an "ownership society," irresponsible lenders collected lucrative fees but failed to screen the creditworthiness of their clients. As a result of the way they sliced and diced mortgages, these lenders effectively privatized profits but socialized risk.

Santelli and his ilk have an inherent tendency to attack the economically powerless but fawn over the financially powerful. Thus, taxpayer bailouts for financial titans are pardoned as necessarily evils aimed at saving our financial system, but mortgage restructuring and refinancing that would keep subprime borrowers in their homes is condemned as a socialist blasphemy.

Ironically, America's capitalistic financial bubble was underwritten by the People's Republic of China. In effect, a country where the average worker makes $2,000 a years has used its savings rate to subsidize the consumption rate of the most spendthrift nation in the world. Put simply, Easy credit from lenders like China made it possible for Americans to borrow against their homes -- and against the future -- to pay for tax cuts and consumer goodies.

Those days are over. The easy credit binge fueled the housing bubble, propped up the stock market, kept the good times rolling, and made people feel wealthier than they really were. At the same time, the Bush administration and the Republican Congress spent money like drunken sailors, but "investments" like the Iraq War have proven to be money pits with no return. The IOUs have been piling up, and taxpayers are waking up to the fact that they're on the hook for Bush's imprudent fiscal and foreign policies, a myriad of corporate excesses, and the irresponsibility of greedy lenders and borrowers in the subprime sector.

Santelli's rant is typical of the drivel one finds on cable news, a medium that generates much heat but little light. In truth, America's market system, which is supposed to allocate resources rationally and efficiently, was exploited by a predatory class that rigged the system in its favor. Insiders, paying themselves humongous bonuses, while driving their businesses into the ground, are perfect example of what sociologist Thorstein Veblen termed the "predatory class," a ruling elite that feeds at the public trough while contributing nothing to the social welfare. Don't expect Santelli and his ilk to point fingers in that direction; to do so would be to bite the hand that feeds them.

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Obamanomics

Barack Obama is inheriting the most challenging circumstances of any president since FDR. The United States is engaged in two major land wars, it is confronting increasing ecological challenges as its infrastructure crumbles, and it is the midst of a global financial meltdown. Such is the legacy of George W. Bush.

The task Obama faces is monumental. His diagnosis and prescription for America's economic ills, which he outlines in a Washington Post Op-Ed, "The Action America Needs," strike me as commmonsensical and fundamentally sound. In short, he must retool the U.S. economy for the 21^st century. To grasp what Obama must do it is important to understand what America failed to do under the previous administration, which will almost certainly go down as one the worst in our country's history.

For the past thirty years, Washington has largely been enthralled by market fundamentalism. This is the superstition that economic, social, and environmental decisions are best left to a rarified entity known as the "free market." The dogma goes something like this: countless rational actors pursuing their self interest (as they buy and sell with each other) can generate a collective wisdom that no government or bureaucracy could ever hope to attain.

Unbridled faith in free markets was supposed to lead to economic equilibrium; instead it has brought the entire global economic system to the brink of collapse.

Unfettered free markets were supposed to allocate resources optimally, obviate the need for long-range planning, and inexorably expand our economic and political freedoms. Instead, a narrow segment of "financial wizards" enriched themselves, cannibalized their companies, banks, and other financial institutions, while leaving taxpayers to foot the bill for a huge government bailout necessary to keep the financial system from collapsing entirely. As a result, most Americans find themselves financially overextended and insecure.

For the past thirty years, we have had a system that privatized profits, but socialized risk. Not long ago, Wall Street was soaring. But much of the paper profits generated by the financial sector have proven to be a mirage. Wall Street was adept at making money out of money, so long as its customers didn't ask any too many questions about the complex financial instruments that were in fact cobbled together with sub-prime mortgages.

Herein lays the essence of America's current misfortune: making money out of money is not the same thing as making something real. As America's financial sector swelled its manufacturing base dwindled. The United States cannot be a prosperous country without making and selling the goods and services the world needs and wants. Enlisting America's best and brightest to repackage and sell debt was never a sustainable strategy for ensuring our nation's economic success.

The most promising new American growth industry will involve so-called "green jobs." Put simply, inventing and selling the next generation of energy sources and energy efficient technologies is America's best hope of transforming our economy and restoring the United States as the world's leading economic innovator.

Accomplishing this goal will require a new social compact, one that recognizes education, infrastructure, and healthcare as public goods that require sustained and substantial investment from taxpayers. For instance, soon after the United States embraced public education it rapidly eclipsed its European rivals economically. Likewise, the G.I Bill paid enormous dividends for decades in terms of productivity and prosperity. Similarly, both Eisenhower's interstate highway program and the government initiative that led to the Internet demonstrate how far-sighted government policies can open up entire new economic vistas.

Universal single-payer healthcare is a matter of both moral and financial necessity. The current system is grossly inefficient on many levels. By design, private insurers seek to cover those that need healthcare the least and exclude those that need it the most. Therefore, taxpayers that pay for private health insurance also cough up tax dollars to pay for public clinics and emergency room visits by the uninsured. Once again, profits are privatized but risk is socialized.

Employers and employees are increasingly burdened by the current system. After all, the high-cost of mandated health insurance discourages companies from adding and retaining employees. And fear of losing employer-sponsored health insurance discourages many workers from seeking more satisfying and rewarding work. In short, universal healthcare can deliver better care to more people, thus leading to a healthier and more productive workforce.

The Obama administration has opportunity to tie short-term stimulus measures to longer-term investments along the lines I've outlined. Most Republicans remain wedded to the discredited mindset that got us into this mess in the first place. For instance, Linda Chavez proposes giving every American a debit card, presumably so we can by a gas-guzzler or another plasma TV. However, if the last eight years have taught us anything it is that an economy predicated on perpetual consumerism is a dead end.

The sagest economists I've read say that the United States can grow its way out of the economic mess the Bush administration has bequeathed us. However, to do so it will have to invest heavily in education, infrastructure, and healthcare, the things that will ultimately help America reinvent the economy. One thing is certain, pouring money into bailouts or consumer toys is not the way create the prosperity of tomorrow.

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