The Unprecedented Crises Our Nation Now Faces
Lehman Brothers, one of the largest investment banks in the world, is now gone, having declared bankruptcy. Merrill Lynch agreed to sell itself at a fire-sale price to Bank of America. Mortgage giants Fannie Mae and Freddie Mac were taken over by the Treasury Department, and the insurance giant American International Group needed more than $123 billion in federal loans to avoid collapse. Banks across the nation, holding billions in toxic loans, are in trouble.
This debacle unfolded when, to increase profits, finance companies sold subprime and nontraditional mortgages to millions of Americans who—the companies knew—could not afford to make the payments. The brokers didn’t care; before the mortgages could become a problem, they sold the loans to investment houses that repackaged them into exotic securities and marketed them around the world. Now the entire financial system is reeling since no one knows what the toxic loans are worth.
These follies were made possible when:
- Banking deregulation allowed the growth of a totally unregulated shadow banking system that borrowed heavily while inventing exotic securities to hide the value of underlying assets.
- The Office of the Comptroller of the Currency, which could have halted the sale of the worst of these loans by designating them “unfair and deceptive practices,” refused to do so. [Center for Responsible Lending]
- The Federal Reserve Board failed to regulate subprime and exotic mortgage loans, although it had the power to do so. [New York Times]
- The U.S. Department of Housing and Urban Development allowed Fannie Mae and Freddie Mac to purchase large numbers of subprime loans. [Washington Post]
The banks went on a binge; the cops on the street turned a blind eye. The bankers pocketed billions until the housing bubble burst.
Americans are now paying dearly for the folly. Across the nation, home values have dropped 16 percent over 12 months, the largest one-year decline on record. [New York Times] Almost one-third of U.S. homeowners who bought in the last five years now owe more on their mortgages than their properties are worth. [Bloomberg] Homeowners without mortgage problems find themselves surrounded by boarded-up foreclosed houses. And taxpayers will ultimately have to pay hundreds of billions for all the recent government banking bailouts. [U.S. News]
The huge sums of federal money taxpayers are being asked to spent to cover bad bets could have been used to make America better:
• Fix a broken health care system. In 2007, 45.7 million Americans were without health insurance; 8.1 million of these Americans are children.
(United States Census Bureau. Current Population Survey 2007. Table C-1: Health Insurance Coverage: 1987 to 2007. Pg 61. Table C-3: Health Insurance Coverage by Age: 1999 to 2007. Pg. 66. August 2008. (Adjusted 2008 Dollars)).
• End our addiction to oil. Since September 2001, U.S. oil imports have increased 12 percent.
(Oil Price Information Service and AAA. Daily Fuel Gauge Report. 2008. (Adjusted 2008 Dollars).
(Energy Information Administration. U.S. Crude Oil and Petroleum Products Imports from All Countries (Thousand Barrels). 26 August 2008)..
• Rebuild a country that’s falling apart:
♦ One out of four bridges in the United States is structurally deficient or functionally obsolete. Every $1 billion of federal funding invested in transportation infrastructure creates 47,500 jobs.
(United States Department of Transportation. “Deficient Bridges by State and Highway System.” Federal Highway Administration. 14 August 2008)
♦ One third of United States’ schools need extensive repair. Investing $20 billion in deferred school maintenance would generate 250,000 skilled maintenance jobs.
(United States General Accounting Office. School Facilities: Condition of America’s Schools. February 1995)
(Mary Filardo. Good Buildings, Better Schools: An Economic Stimulus Opportunity with Long-Term Benefits. Economic Policy Institute. Briefing Paper #216. 29 April 2008)
♦ Investing $500 billion in a comprehensive economic strategy to build America’s 21st century clean energy economy over the next 10 years would generate 5 million high-quality, green-collar jobs.
(Apollo Alliance. The New Apollo Program: Clean Energy, Good Jobs. September 2008)
Wall Street Is A Monster Donor to Both Political Parties
From 1990 through July 2008, the banking, real estate and insurance industries poured more than $2 billion into federal election campaigns, including $311 million just in the first seven months of 2008. The money follows the party in power: Republicans got more money when they controlled Congress; now that Democrats do, they’re getting more. Plus, these industries spent $415,259,323 on lobbying in 2007.
(Center for Responsive Politics)