A letter to and response from Joe Bageant
Practicing law can sometimes give you a clear perspective of national events. Over the past few years, the car dealers, con artists and blue suede shoe boys that had previously been hawking multi-level marketing, penny stocks or ostrich farms seemed to all wind up in real estate finance. Mortgage brokers went from being a ridiculous waste of money to an every day occurrence. And since it was real estate, there was suddenly an air of respectability to the con games. And they became appraisers, developers, real estate brokers, title insurance agents and on and on.
Flips were the buzzword of the day. Just about anyone, from the sidewalk wino on up, could qualify for a mortgage. And the price of real estate always went up. So it was a no-brainer to simply bid in for whatever real estate you could get and sell it to the next greater fool. Like all ponzi schemes, the last guy in the chain suffered all the losses.
Now if this happened to your brother-in-law, everyone would express their deep sympathy and then snicker that you knew he was a moron all along. Sooner or later he comes around asking for a handout. He tries to tell you how it's really in your best interest, how it would avoid painful situations for his family, the children and so on.
The difference this time, is the last guy in the chain happened to be the so called financial pros -- giant investment banks, hedge funds and derivatives holders. Of course your brother-in-law doesn't have connections to the Fed, the U. S. Treasury and the White House. These guys do. So the net effect is they simply don't want to pay up -- plain and simple. They concoct all sorts of nonsense about why it's really in your best interest, how it will avoid painful situations and so on.
So the so called bail-out is just another in a long line of brazen attempts to move your money to the pockets of the very, very rich. This is trickle up economics. It was formerly just called a swindle. It's the same as your brother-in-law, except this time they signed your name to the debt. The idea is to dump the losses on people who had the good sense or sufficient control of their greed to avoid overextending themselves to begin with.
Let me explain it in simple terms. About six years ago I bought a 900 foot one bedroom condominium on the North Carolina coast, paying a little under $100,000. I sold it because the expense was more than I could handle with the condo dues, insurance and so on.
This past year a realtor I know had five of his clients purchase a 900 foot condominium on the North Carolina coast paying $1.5 million. Not one put a single nickel into it. The first and second mortgage covered everything including the mortgage brokers, mortgage bankers, real estate agents, real estate attorneys, and the developer. All made out handsomely.
Now my condo was probably better situated than theirs, at a closer beach with more amenities. I actually make a little more money than they do. The difference, and this is absolutely key, is that I expected to have to pay for mine. None of the other guys expected to pay anything. They expected to flip for an amount roughly twice my annual salary. When it came time to actually make some payments, no one was home.
The reason for this, obviously, is that their condos were never worth anywhere near that price to begin with. The price quickly melted to about $800,000, then $600,000 and there are no takers. I would probably be willing to pay about $250,000 if I was in the market.
Now here's where the bailout swindle comes to play. The bailout is intended to prop up the mortgages that were made on the funny money. They want us to pay up on the $1.5 million in mortgages that we all had the good sense to avoid. They are not asking for any return of money from the mortgage brokers, mortgage bankers, real estate attorneys, real estate brokers or developers. And none from the purchasers. Every single wrong-doer in the scam walks. And we should pay for them so that an insanely inflated price won't have its day of reckoning.
There is another serious unintended consequence. Since the condo was never worth its asking price, it could not attract anyone who actually intended to pay for it. The price was artificially pumped far, far past a reasonable market value that would be paid by a willing buyer. My $250,000 estimate is 10% of the actual price and I would guess it's not too far off the figure of most reasonable buyers.
By propping up these fantastical values, they have effectively closed the market to those who can actually pay. Those of us who play by the rules are priced out of the market so the hustlers are the only game in town. The point here is that the bailout is asking the taxpayers to underwrite the ridiculous valuations that only hustlers would pay.
So we work and exchange value with other people for their goods or services. We skim the top for taxes or licenses or fees or whatever. Then we pay for our license tags, property taxes, fishing licenses, and so on. Then they tack on the price tag for capitalist criminality.
They told us we should fear the consequences if they did not swindle us. That the financial system would fall apart. So we are on the hook for more than we are going to earn. More than we can generate after making a living. At some point, it just won't be worth it to go to work anymore. Or pay taxes. And then we start to barter, to move to grey economies and off the books transactions.
And if there is anything the uber rich should fear, it's for the rest of us to learn how little they actually contribute.
Charlotte, North Carolina
Ya know, I read an outstanding summery of the bail-out in the Financial Times last week when I was in London on a book tour. People there are so outraged that it will certainly cost the Labor Party dearly. They are in the same position as the Democrats here -- they had everything on their side, but still insisted on fucking things up by accepting the current economic folly. The only difference with their situation is that our tax dollars will bail-out the scammers holding bad American paper.
And of course we will all pay through inflation, value decline of our currency (I never thought I'd see the day when I exchanged $300 USD for 144 pounds sterling. But I just did that in the UK -- where a Big Mac, fries and a coke cost me US$14!) and ultimately, as one minister of Parliament told me, with the loss of our Social Security system most likely through privatization -- though it migtht not be called that. In all likelihood it will be called "saving the Social Security system." Beyond that, there is the up-front acknowledgement in the UK that the fiasco will cost 600,000 jobs in England, a nation of 60 million. Can you imagine what that translates to in our nation of 300 million? Yet nobody is speaking of that aspect at all.
In fact, since I've been back in the States I have yet to meet anyone who really grasps the full implications of the bail-out. I've talked about it to several regular working folks in Virginia, and all of them seem to feel it does not reach into their individual worlds. If they are not in foreclosure, then it's not real to them, and bedamned any kind of sympathy for those who are in foreclosure.
Most people here tend to believe it is mainly Mexicans, white trash, and other what they feel to be weaker, lesser specimens of Americans being foreclosed upon. After outlining the whole swindle to one fellow, he said: "Joe, why do you hate America so much?" I'm not kidding. People are still using that old line.
Even intelligent, educated Democrats seem to believe Obama can fix it all, despite the fact he will inherit a plundered and flat busted national treasury, and doubtlessly some obstinate Republican elements, plus bought and paid for Democrats in Congress. If he gets in. We don't have to guess what McCain will do. He's said it aloud. More of the same.
I never make predictions, but now I'm willing to guess that it's going to take a genuinely brutal collapse, one in which our citizens cannot get even the most basic necessities of life before the spell of American exceptionalism is broken. And even when that happens I have no doubt the citizenry will be provided with some appropriate scapegoat abroad, most likely a Muslim or Russian one. Hell, they are already ginning up the case against several suspects.
I find it amazing that after the highest rolling scam artists are given a walk for their theft. Our government is now letting the collapsing industries consolidate and actually own thousands of banks at the local level. I suspect that having raped the public for fees and having exhausted all the other mortgage racket scams, they now want to get closer to the pockets of the people and "get first count of the dough," as the carnies used to say. He who gets first count always makes money in the carnie world.
Another local citizen I talked to said: "Well, it's all more complicated than we can understand. You have to leave it to the experts." As if "the experts" somehow are not human beings prone to greed or other human folly. That people can watch such a disaster happen before their very eyes and somehow not relate it to their own lives as Americans boggles the imagination. It goes beyond apathy and into the realm of learned helplessness. Complete helplessness in the face of the corporate state. Complete reliance upon unseen "people in high places" who somehow know what is best for the rest of us, and belief these people will act first in our interests instead of their own.
I fear for this country's fate. I really do.
In art and labor,