A Word from Wall Streets Bartender

Terrance Heath

It was a jaw-droppingly, mystifyingly obtuse, callous moment in an administration that’s given us enough of them to fill what would have to be the world’s most depressing bloopers reel. It also brilliantly captured a president and an administration who don’t feel American’s pain, but smirk at it instead.

I didn’t think he could top his farewell shout-out to the G8 — “Goodbye from the world’s biggest polluter” — but he did it.

You can’t blame the president for wanting the cameras turned off for this.

My first thought was, “Well, who supplied the open bar?” But Jeff Danziger said it best with a political cartoon depicting a passed-out drunk to represent Wall Street, and Bush, dressed as a bartender, leaning against the bar and — with that trademark smirk — claiming ignorance about how the drunk got, well, drunk.

I can’t help wondering what late, great, former-Bush-classmate Molly Ivins would have made of Bush’s most recent stunner. In a 2003 Mother Jones article titled “The Uncompassionate Conservative,” wrote this about her fellow Texan.

In order to understand why George W. Bush doesn’t get it, you have to take several strands of common Texas attitude, then add an impressive degree of class-based obliviousness. What you end up with is a guy who sees himself as a perfectly nice fellow — and who is genuinely disconnected from the impact of his decisions on people.

I might differ with Ivins’ “perfectly nice fellow” assessment, given all that’s passed since she wrote it. Later on in the piece, she includes a description of a telling moment between Bush and Rev. Jim Wallis — progressive evangelical author of God’s Politics, and editor-in-chief/ CEO of Sojourners.

The Reverend Jim Wallis, leader of Call to Renewal, a network of churches that fight poverty, told the New York Times that shortly after his election, Bush had said to him, “I don’t understand how poor people think,” and had described himself as a “white Republican guy who doesn’t get it, but I’d like to.” What’s annoying about Bush is when this obtuseness, the blinkeredness of his life, weighs so heavily on others, as it has increasingly as he has acquired more power.

Four years hence, it’s got to be clear enough by now that Bush’s obtuseness — his ignorance of simple every-day-life matters affected by his policies, like the price of gas — is willful. If he “doesn’t get it,” when it come to the economic pain more and more American’s are dealing with, it’s because he doesn’t care to.

And that pain is more and more real each day. Just the headlines from the past week would make that clear to anyone who picked up a newspaper. (Something I suspect the President is still disinclined to do.)Foreclosures are up 120%. Some 220,000 homes were lost to repossession in the last quarter, and another 739,714 entered foreclosure in the first quarter. That’s one in every 171 American homes involved in what Treasury Secretary Henry Paulson euphemistically calls the “housing correction”, which he says must go on, even in the midst of a handing some very wealthy people a blank welfare check that I’ll get to in a bit.

Meanwhile, jobless claims pushed past 400,000 for the second time this year. That’s probably related in no small way to the spike in business bankruptcies, which is hitting small business particularly hard as they, struggle with the same things that consumers are struggling with. Like fuel costs driving up electricity bills, and causing an increase in cut-off notices as consumers have trouble keeping up with their bills. In fact, as the price of just about everything is going up, consumers are behind on or have walked away from $800 million in household debt; including mortgages, credit cards, and car loans. (That last one means that when some of them lose their homes they won’t even have cars to live in, because repo is about the only business that’s booming now.) And they can’t borrow against the equity in their homes in order to get caught up, because home values are still falling so hard that people count themselves lucky if they don’t owe more than their house is worth.

Meanwhile, the Fed has not only bailed out Bear Stearns by putting the same taxpayers mentioned above one on the line for $30 billion of Bear’s debts (y’know, the company that had $30 in debt for every $1 it had in assets?), it’s gone one better. The housing bill that passed this weekend included at bailout for Fannie Mae and Freddie Mac that could cost taxpayers anywhere from $25 billion to $100 billion. Despite business decisions that ran both companies into the ground, the housing bill passed this weekend with none of the conditions that both critics and common sense recommended. It amounts to that blank corporate welfare check I mentioned earlier.

The House dealt Fannie Mae (FNM) and Freddie Mac (FRE) a “Get Out of Jail Free” card on July 23, passing a bill that authorizes the Treasury Dept. to extend the mortgage-finance giants a lifeline without any of the conditions that the companies’ critics had demanded. The bill now heads to the Senate, where passage is expected within days. President Bush earlier dropped his threat to veto the legislation, so it should be signed into law soon.

…The bill would let the Federal Housing Administration back up to $300 billion in new loans so homeowners who cannot afford their house payments could try to escape foreclosure by refinancing into more affordable mortgages. Lenders would have to agree to take a substantial loss on the existing loans, and in return, they would walk away with at least some payoff and avoid the often-costly foreclosure process.

The plan also includes about $15 billion in housing tax breaks, including a credit of up to $7,500 for first-time buyers, and increases the statutory limit on the national debt by $800 billion, to $10.6 trillion.

Granted, the president finally dropped his threat to veto the bill, but his sticking point was a $4 billion dollar aid package for communities hardest hit by the wave of foreclosures to buy up foreclosed properties that are now part of an epidemic of blight facing urban neighborhoods. (Read, minority communities.)

House Democrats say a new $3.9 billion federal program to help state and local governments buy up foreclosed properties would be part of the solution. The Bush administration has opposed such block grants on the grounds that “the principal beneficiaries of this type of plan would be private lenders – who are now the owners of the vacant or foreclosed properties – instead of struggling homeowners who are working hard to stay in their homes.”

Still, House Speaker Nancy Pelosi said last week she doubts Mr. Bush will veto the housing-rescue package, which contains a separate provision he wants to strengthen the financial positions of faltering mortgage companies Fannie Mae and Freddie Mac. The disputed funds enable communities to buy up properties once on the revenue rolls that are now “taking the value of their neighbors’ homes,” she said.

Never mind that some of those “homeowners who are working hard to stay in their homes” would also like to protect what remains of the value of their homes and the quality of life in their communities from the consequences of blight caused by boarded up properties.

From Atlanta’s urban core to leafy neighborhoods filled with chirping crickets in Charlotte, N.C., some 2.2 million homes are expected to go through foreclosure – and stand empty – by the time the mortgage meltdown ends, according to Global Insight, an economic research firm. As the housing dominoes fall far from Wall Street, growing urban “ghost towns” of vacant houses are resulting in a costly crush of weeds, trash, and dereliction on a scale unseen in American cities since the Great Depression, economists say.

As a $4 billion package to help municipalities deal with foreclosure-related blight hangs fire in the US Senate, US mayors met last weekend in Miami to vent about the scourge of abandoned homes. Cash-strapped cities are now scrambling – often using on-the-fly ingenuity – to rescue neighborhoods suddenly vulnerable to crime and stunned by millions of dollars in lost equity wrought by loose credit, opportunistic speculators, and predatory lending.

…Some 44.5 million homes in the US now stand next to an empty house, resulting in a drop of at least $5,000 in property value per house. By that calculation, a total loss of home value of $220 billion across the US can be attributed to the vacancy problem.

“This is a man-made disaster that’s had more dramatic impacts on real estate markets than natural disasters [have],” says Bruce Katz, a housing analyst at the Brookings Institution, a think tank in Washington. “In a way, we have a lot of mini-Katrinas across the country.”

The cost of helping those communities turns out to be an unconditional bailout for the institutions that helped create the crisis, financed by the very people struggling to stay afloat in its wake, and several times larger than the amount proposed to help those communities.

The unconditional, accountability-free bailout is, according Treasury Secretary Henry Paulson, necessary to protect Fannie and Freddie against attacks from short selling speculators. It’s like, he says, a bazooka that scares off would-be attackers even if it’s never used. This from a guy who just a few weeks ago inveighed against helping homeowners in foreclosure because:

Faced with record-high foreclosure rates, the Bush administration has been scrambling to keep people from losing their homes, but many are beyond help, Treasury Secretary Henry Paulson said Tuesday.

Lax lending standards that accompanied the once high-flying housing market allowed people to buy homes they could not afford, Paulson said.

“Many of today’s unusually high number of foreclosures are not preventable,” he said in prepared remarks to a mortgage-lending forum meeting in Arlington, Va. “There is little public policymakers can, or should, do to compensate for untenable financial decisions.”

However, when Lawrence Summers puts the Fannie/Freddie bailout in the context of the Bear Stearns bailout, it seems clear that’s exactly what policymakers are doing: compensating for untenable financial decisions. It’s just that these untenable financial decisions were made by people much higher up on the economic food chain.

This, to put it mildly, is a highly problematic posture for policy. While I strongly supported the Federal Reserve’s policy response to the crisis at Bear Stearns because it was necessary to avoid systemic risk, it is easy to sympathize with those who fear that bailouts inhibit market discipline. Consider how much more problematic the Bear Stearns response would have been had policy-makers signaled their commitment to back the company’s liabilities without limit; left management in place with no change in the business model; and allowed dividends to be paid and shareholders to keep going with hope for a better tomorrow. Yet all of these elements are present in the cases of Fannie and Freddie.

To see the temptation and danger inherent in a situation of this kind, one need only look back to the mismanagement of the savings and loans crisis during the 1980s. Policy-makers protected depositors, allowed institutions to operate even when their fundraising depended on government support, and suspended regular standards in order to attract private capital. With gains privatized and losses socialized, taxpayers ultimately ended up with a $300bn-plus bill measured in today’s dollars.

That’s right. The management stays in place, despite financial decisions that ran the companies aground — helped along by the HUD requiring Fannie and Freddie to purchase subprime mortgage loans and allowing them to count billions invested in subprime loans as a “public good” that would foster affordable housing, while ignoring regulators’ warnings that subprime loans would be detrimental to those receiving them. And, as I mentioned before, the CEOs will probably keep their salaries. They will probably remain among the best paid executives in D.C.. Come next year, they will probably still have ten of the top 100 best paid executives in the country.

And why shouldn’t they? It’s par for the course. Many of us may have ended up about $1.7 trillion poorer in the Bush economy.

Americans saw their net worth decline by $1.7 trillion in the first quarter – the biggest drop since 2002 – as declines in home values and the stock market ravaged their holdings.

Meanwhile, the amount of equity people have in their homes fell to 46.2%, the lowest level on record.

The net worth of U.S. households fell 3% to $56 trillion at the end of March, according to the Federal Reserve’s flow of funds report, which was released Thursday.

The value of real estate assets owned by households and non-profits declined by $305 billion, while financial assets fell by $1.3 trillion, led mainly by a $556 billion drop in stocks and a $400 billion decline in mutual funds.

But the top 1 percent got richer.

In a new sign of increasing inequality in the U.S., the richest 1% of Americans in 2006 garnered the highest share of the nation’s adjusted gross income for two decades, and possibly the highest since 1929, according to Internal Revenue Service data.

Meanwhile, the average tax rate of the wealthiest 1% fell to its lowest level in at least 18 years. The group’s share of the tax burden has risen, though not as quickly as its share of income.

The figures are from the IRS’s income-statistics division and were posted on the agency’s Web site last week. The 2006 data are the most recent available.

The figures about the relative income and tax rates of the wealthiest Americans come as the presumptive presidential candidates are in a debate about taxes. Congress and the next president will have to decide whether to extend several Bush-era tax cuts, including the 2003 reduction in tax rates on capital gains and dividends. Experts said those tax cuts in particular are playing a major role in falling tax rates for the very wealthy.

They almost certainly played a major role in creating the record deficit we’ll be facing when Bush finally ends his shift behind the bar. No wonder 85% of us are unhappy with the economy, and 75% of us blame Bush’s policies for its sorry state.

In some places, after all, the bartender who kept pouring drinks for the obvious drunk is liable when that drunk staggers out of the bar, wreaks havoc, and wrecks lives. But in the barroom that is the Bush economy, Wall Street does indeed get drunk, but it’s the rest of us get the hangover and get stuck with the tab.

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