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It’s the Mortgages, Stupid

Posted on Sep 7, 2010
AP / J Pat Carter

By Robert Scheer

This week’s proposals by the Obama administration to deal with the persistent economic crisis will be, as with previous plans that involved trillions of taxpayer dollars, little more than salt in the wounds. Once again the strategy is to stimulate the economy by funding projects and tax cuts while ignoring the root cause of the problem: a housing foreclosure meltdown that has chilled the spending of a majority of American consumers.

With 11 million homeowners underwater on their mortgages and 3 million more already foreclosed, we have to assume, given the average household size, that some 40 million Americans are feeling mighty strapped. The numbers grow to an overwhelming majority when you take into account the distress of all homeowners, who have watched the value of the family nest egg dwindle even if they substantially paid down or paid off their mortgage debt. And this very widespread feeling of being suddenly much poorer is a nationwide scourge that has dramatically cut the appetite for consumption that drives the economy. 

That fact is recognized even by the very business people who are supposed to be inspired to new investment and hiring by Barack Obama’s proposal on Wednesday of an accelerated tax break on business investments. As William Dunkelberg, chief economist for the National Federation of Independent Business, told The Wall Street Journal, “If you give a small business guy $20,000 he’ll say, ‘I could buy a delivery truck but I have nobody to deliver to.’ ” Although Dunkelberg’s members would be happy with a tax cut, he said the most important help would be to “finally address the most important person in the economy—the consumer.”

The anger of wannabe consumers who no longer feel they have the wherewithal to feed that most important of American passions is what is fueling the widespread rage against elected officials. The Democrats, being the party in power, are the most popular target, but they are in deep denial when they blame their pending electoral plight on the demagoguery of their Republican opponents. 

Of course the Republicans and their deep-pocket sponsors are being outrageous hypocrites when they blame others for the horrid consequences of their decades of lobbying for radical financial deregulation. Ever since the “Reagan Revolution,” their mantra has been “get government off the back of big business,” and once that was accomplished and Wall Street crumbled under the weight of its own greed, they supported George W. Bush in bailing out the knaves.

But the fault is clearly bipartisan. It was Bill Clinton who signed off on the radical deregulation legislation, and it is Obama who continued Bush’s practice of bailing out the bankers while ignoring the anguish their toxic mortgage packages caused the rest of us. That is why the Fed has gifted the banks with interest-free money to finance their new acquisitions while making them whole again by purchasing more than $2 trillion in toxic mortgage-backed securities and other dubious assets. Not surprisingly, the bankers pocketed that enormous gift from the taxpayers but did precious little in return by way of lending and investment that would bring down unemployment.

Which brings us to the current disastrous moment. The president who inherited a deep recession that began 13 months before he took office is now viewed as a big “socialist” spender because he followed in Bush’s footsteps, blackmailed by the notion that the entire system would go kaput if the bankers were not accommodated. The amount of money now available for him to spend without freaking everyone out about an increase in the debt is paltry. The commitment of $50 billion to a national infrastructure program to be phased in over the next decade would prove to be too little too late. It is chump change compared with the $350 billion in loans and guarantees to one bank alone, Citigroup, which still cannot stand steadily on its own feet.

There is only one course left for Obama, and it is to do now what he should have done at the start of his term: abandon the hope that banks will voluntarily aid desperate homeowners and instead push for new government regulations and changes in the bankruptcy law to force the banks to make deals to keep people in their homes. There is precious little else to talk about, for if the housing market—the bedrock of not only the American dream but, more important, the financial security of a nation of consumers—is not restored, we are in for one long, dreary period of economic stagnation at best, or a severe downturn and a society in dangerous turmoil.

Click here to check out Robert Scheer’s new book,
“The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street.”


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Lafayette's avatar

By Lafayette, September 20, 2010 at 7:42 am Link to this comment


What are the essential components of a democracy if not the evocation and protection of Human Rights? Let’s not forget that as soon as 1948, due to a willful Eleanor Roosevelt, the US signed the UN Declaration of Human Rights ... and then Congress blithely refused to ratify the treaty ever since.

For all the well-resounding talk about “democracy” in our country, it has not been factually all that democratic. No country in which its legislative body has sold out so willingly to BigBusiness can claim to epitomize Universal Democracy. Business cannot vote, so to protect its vested-interests it must buy votes.

And we were warned more than once. Did Ike’s remonstrations against the M-I-C stop bloated DoD budgets from the pork-feed? Did our proud statements of Free Enterprise prevent Health Care from becoming so non-competitive as to become a rent-seeking quasi-oligopoly excluding the poor and homeless?

The facts fool no one, so who are we trying to fool? Ourselves, probably ...


We were a large group of French-resident Democrats Abroad wailing painfully recently about the state of the union. At one point, someone acknowledged that the situation was so bad it seemed that all the Americans complaining were “exiles” from their homeland.

He was roundly applauded.

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By Anarcissie, September 11, 2010 at 8:44 pm Link to this comment

Paolo—I pretty much agree with your view, with one exception—I don’t think the system ran out of suckers.  What happened was that the Chinese became uncomfortable with the free flow of money (including credit) and made noises to Bernanke, who duly raised the Fed rate.  The subprime mortgage scene then collapsed; that collapse brought down everything else with it, because of the house-of-cards nature of the financial system.  (Having glimpsed the abyss, the Chinese are now leaving Bernanke alone, I guess.)

However, some questions remain which I haven’t been able to figure out.  A major one is why the American economy can’t function without being constantly juiced by funny money.  If I could discern the structure of the problem I might be able to figure out what’s going to happen next.

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By Marriea, September 10, 2010 at 6:27 pm Link to this comment
(Unregistered commenter)

OK, I realize that what I have to say is not going to be welcomed.  But the reality is this.  Yes Wall Street pulled a fast one, actually criminal act on people who brought homes.  But until we get past this thing of making homeowners total victims, we will never get past this.
Many were told that the homes being brought turned out to be less than they were worth. Why in the hell didn’t the buyers know this. Why didn’t the homeowners ask questions.  If you are guilty of taking the money and running, then you are as bad as the person offering the money in the first place. There are no such thing as freebies. Why would a person buy into such B/S. And to trust the stock market.  Do not people remember the junk bond scandal of the late 80’s. I know that we are supposed to trust our government sponsored program, but a program is only as good as the person or organization running it.  When it comes to money, one should be leary of everyone, especially our government.
And then I remember a warning by a NYT columnist who warned that the bubble might burst. I didn’t know waht he meant, but I knew that anyone who promises you things based off a prayer, don’t trust it. I remember a scene from the movie ‘Primary Colors’ in which people were trying to get the potential presidential candidate to promise to get them they jobs back by compelling a company to stop the proposed closing to send jobs overeas. He told them quite honestly there was nothing he could do, and for them to get themselves re-educated or get training updates for future employment. During the 90s and in the early 2000s American jobs were being lost left and right via being shipped oversea. Addionally jobs were being lost to automation, other jobs were being lost to our love affair with the lastest gadgets.
I’m not a big religious person, but I find myself thinking about many of the stories of the Bible. Many think of the the story of the great flood as a cleansing story.  But could it also be a story of preparation, anticipation of the unthinkable. Just like the Aesop’s tales, if only were’d take the time study the message within the story and ask what if, we might be a better people and society in the long run. Instead of blaming others for not covering our backs, perhaps it is time we start covering our own backs and that doesn’t mean blaming immigrants for our own undoings. And expecting our government to solve our problems is like the characters of another movie. Remember the wizard in the ‘Wizard of OZ’ At the end of the day, it was really about believing in yourselves, self-respect and respect for others. AND LOVE FOR OUR FELLOW MAN.  Money, prosperity… is good, but it really ain’t everything.

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By Paolo, September 10, 2010 at 11:28 am Link to this comment

A libertarian view—

The real estate bubble and its subsequent collapse was predicted accurately by Austrian School (that is, free market) economists well before it happened. There are many guilty parties who deserve jail time over this fiasco, but let us confine our remarks to the very worst of the worst: the Federal Reserve System and its closely-allied branch, the banksters.

Under the Constitution, the power to “coin money” (observe that the Founders did NOT say “PRINT money”) belongs to Congress. They do not have the power to cede that crucial authority to unelected banksters—but they did it, anyway.

The ONLY TOOL available to the FED and its subsidiary banksters is INFLATION OF MONEY AND CREDIT. As your father once said: if your only tool is a hammer, everything starts to look like a nail.

In the current crisis, the FED’s inflation of money and credit was directed into real estate. Prices reached ridiculous highs. The home I bought in 1992 for $120,000, for example, was valued as high as $360,000—a three-fold inflation—by 2007.

The trouble with bubble economies is that they eventually reach a point where you run out of suckers. Eventually, people say, “I’m NOT paying half a million bucks for a 1,500 square foot home on a tenth of an acre in a very average neighborhood.” That’s when the whole game collapses.

Prior to the collapse, people continue ratcheting up home prices, not because they themselves want to pay the inflated amount, but because they believe OTHERS will do so. This is often called the ‘GREATER FOOL’ theory: you might be a fool to overpay for that house, but there’s always a greater fool willing to overpay even more.

Do you remember the years when hucksters were promising that everyone could get rich by “flipping” houses? Often, they didn’t even bother with the customary effort of buying a home, IMPROVING IT, and then selling it. No—the strategy was just to buy the home, wait a week or two, and then sell it to the next, bigger sucker.

This was a sure sign of a bubble economy. But people did not want to believe it. They really did think that everyone could get rich selling each other overpriced real estate.

Is the free market to blame? Not in the least; the crisis was planned and executed by the usual government and quasi-government (the FED not being technically an arm of the government) criminals.

In a free market with sound and stable money, bankers don’t need special “regulations” to discourage them from making loans to people who will be unable to repay them. But in the funny-money economy of the FED, bankers know that credit inflation will lead to “greater fools” buying up their bad investments. They also know that their political connections will allow them to be bailed out, no matter how stupidly and irresponsibly they invest the public’s money.

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By GnomeDigest, September 9, 2010 at 10:28 pm Link to this comment
(Unregistered commenter)

“And can’t whoever sat on that
congressional committee, heard the testimony and did
nothing be charged with SOMETHING?” - Felicty

Sure, the whistleblower. That seems to be the approach of the Obama DOJ.

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By Shenonymous, September 9, 2010 at 1:01 pm Link to this comment

So, jimch, are there any reasonable alternatives other than the
brown robes with hoods and jumping into the black holes of
economic despair?  Why bother with the robes?  I don’t know.
LOL Maybe for one last meaningless ritual?

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By jimch, September 9, 2010 at 11:34 am Link to this comment


“There is bad in both theories but good in both as well.  It just needs fine tuning.  Are there any good economic musicians around?”

Even if a genious were found, our law-making bodies are in so much conflict that it’s next to impossible to get any agreement on any programs.

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By REDHORSE, September 9, 2010 at 11:07 am Link to this comment

In my limited understanding: Wasn’t the pooch screwed when “I’m so hot I can’t think straight” Billy Clinton knowingly colluded with “Gold Sacks” Rubin to rip the guts out of the GS ACT that FDR (who directly experienced the Great Depression) had put in place to protect Americans from Wall Street greed and National economic collapse? (The Clinton Dynasty has to go!!)

    Posters knowledge of finance, and you’ve all hit the pulse, is great. Boiled, political leadership seems to be the obvious problem. It is either (1)) totally inept, visionless and asleep at the wheel (2) knows exactly what it’s doing and for personal gain and power is willing to sell “We the people—” and the American Future down the river with no regard to consequence or (3) there are factors in play “We the people—” have no knowledge of.

    It is most likely (4) that the merger of revolving door corporate political corruption, black market crime and International Finance has so infected American economic reality it has become impossible for even our best intentioned leaders to act in “We the peoples—” best interest.

    In any of these possibilities, the future and welfare of “We the people—”, beyond our labor and tax revenue for their personal enrichment, is irrelevant to whoever those people in Washington are. Present American economic and social collapse pales in comparison to the effects of GCC, exploding World population and failing access to natural resources just around the corner. Most here agree that the Washington establishment considers itself above the law, lies with impunity, perpetrates criminal acts without consequence and openly refuses prosecution of private sector lawbreakers. Psychopathic megalomaniacal narcissistic paranoids can rationalize anything. Hitler rationalized the ovens and the German People went right along with it. Armed Koch financed “Tea Bag” types are already shouting down our Town Hall meetings.

    Argument and viewpoint here contains so much good humanist knowledge and suggestion. So much real concern for the manufactured “for profit” social and financial disintegration destroying America. Why can’t we have Campaign Finance Reform? Sane Drug and Immigration laws? A living wage? Freedom from a usery driven debt economy? Education? Name one, pick one!!

    “We the people—” know why.

    Our choices become more narrow every day.

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By Anarcissie, September 9, 2010 at 9:39 am Link to this comment

Actually, the necessity of growth, or seeming growth, is political.  If the famous pie does not seem to grow, then the people at the pie party will begin to quarrel over the size of the slices.  The few who have big slices will be threatened by the many who have small slices.  As long as the pie is growing, though, those with big slices can tell those with little slices that soon their little slices will be as big as the big slices; so shut up and sit back.  Miraculously, the people with small slices seem to believe them.

In any case, the necessity of growth creates scarcity.  Scarcity is necessary to keep a capitalist system moving ‘forward’, or more accurately, to keep its ruling class in power, because it justifies authoritarian corporate power.

Growth (or ‘growth’ in big quotation marks) will therefore not soon be abandoned; it is inherent in the system.

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By Shenonymous, September 9, 2010 at 8:55 am Link to this comment

Well socialism has shot itself in the head as well.  Latest evidence, an
article in the NYT this a.m. tells how Castro’s Cuba is not doing so well. 
Seems like the combination of socialism and capitalism has reached its
time.  There is bad in both theories but good in both as well.  It just
needs fine tuning.  Are there any good economic musicians around?

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By Arraya, September 9, 2010 at 8:50 am Link to this comment

<blockquote>The entire paradigm of expanding growth forever is what is
coming to a close. Nothing can fix this.<blockquote>

This need to be repeated over and over.

Problem: Our whole financial system and money itself is based on growth i.e. their
is vested interest in people not realizing this

Now we have reached the terminal stage of capitalism where it cannibalizes itself
to stay alive.

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By DAWGHAUS10, September 9, 2010 at 7:10 am Link to this comment

For now, just this, after all that we have seen in the last 3-5 years I think it is just atrocious that the American flag is so continuously and prominently displayed on the front of the Wall Street bldg. I know it’s a free country but there seems to be a glaring disconnect here. Isn’t there something written somewhere that one of the hallmarks philosophically, if not legally about freedom from oppression ? Seems to me there is a lot of oppressiveness coming from that address as well as BOTH sides of the aisle in OUR Federal Congress.

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By Shenonymous, September 8, 2010 at 6:01 pm Link to this comment

All of the intricacies you mentioned, jimch, are indeed incriminating
factors that will prevent a positive deliverance from the economic
quandary not only this country finds itself in, but most of the world
who had followed the same economic philosophy.  Germany, however,
is doing well because as a nation, the people tightened their belts
and continued on their frugal German way.  They are noted for being
thrifty and not the biggest spenders even with their Mercedes-Benzes.

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By John K, September 8, 2010 at 5:18 pm Link to this comment

The entire paradigm of expanding growth forever is what is coming to a close. Nothing can fix this. The Wall St. monopoly game has been kept going by extended the board to South America, India, China… The banks have also kept printing money to make sure people have their $200 to stay in the game even though it’s only credit.

Self-interest worked as a driver for a long time, but not anymore. Too many people are looking to score and the easy pickings have pretty much dried up. As a result the trust between people has dried resulting in all social structures breaking down.

I want to live in a world where I trust people’s intentions. We can’t get there with laws or force.

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By Hammond Eggs, September 8, 2010 at 5:01 pm Link to this comment

“The commitment of $50 billion to a national infrastructure program to be phased in over the next decade would prove to be too little too late. It is chump change compared with the $350 billion in loans and guarantees to one bank alone, Citigroup, which still cannot stand steadily on its own feet.”

Obama doesn’t even know enough to save himself.  His stupidity is terminal and the Democrats, cringing and frightened, will never change.  They will continue their sleepwalking.

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By truedigger3, September 8, 2010 at 3:39 pm Link to this comment

The real problem facing the common people is not “It’s the Mortgages, Stupid” but “It’s the Good Jobs, Stupid”.
The availability of good paying jobs, that support a middle class standard of living is disappearing fast due to:
1) Nafta, Cafta and the offshoring of good paying jobs to China, India, Vietnam ...etc ..etc.
2) Illegal immigration that flooded the labor market with cheap labor that put downward pressure on wages and benefits.
Both the two above mentioned factors, weakened considerably Labor Unions and consequently their ability to bargain from position of strength for their members and their wages and benefits.
The Mortgage problem is the result of the Jobs problem. Many people income didn’t match the housing prices, and this situation was masked for a while because of the artificially low interest rates coupled with the banksters committing fraud and deceit to push mortgages on the trusting and naive.
Most people were told by the banksters fraudsters, that everything will be alright and they can sell the house withing few years at a hefty profit if the mortgage payment became difficult to handle.
So, Fat Freddy &company; in this thread who are blaming the people who “bought houses they couldn’t afford” are blaming the victims instead of the banksters criminals.

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By NABNYC, September 8, 2010 at 3:35 pm Link to this comment

jimch:  a $200,000 loan for 30 years at 6% would have a monthly payment of $1199 (approximately $1200), or $600 per $100,000, which is what I said. I’m not sure what your point is.

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By Atilla, September 8, 2010 at 3:04 pm Link to this comment

Could part of the mortgage crisis be due to the manner in which the GenXers were raised? Their every whim was catered to. They were given a pass due to their “self esteem” issues. Now that they are all grown up they want everything their parents had, and they want it NOW. No waiting until they could afford a 500K home, I want it NOW. Sadly predatory lenders took advantage of the situation, and the young people’s ignorance. Now the GenXers are raising their kids in the same fashion. After all, it is a helluva lot easier to say “yes” than to argue with them or try to reason with them. They are taking the same easy way out their parents did.

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By jimch, September 8, 2010 at 3:03 pm Link to this comment

‘Tis good to see someone besides me has an understanding of some of the root causes for the morass we now experience, and is forthcoming about the austerity and financial pain that is necessary in its remediation. There some other intricacies not mentioned though, among which are credit buying creating a false, baseless economic boom, and the relocation of the manufacturing base to foreign countries. There is also automation which diminishes the need for labor while increasing productivity, and simultaneously the government is allowing a flood of immigrants to enter the country at a time when they’re not needed. Just thought I’d throw these in for good measure.

And, NABNYC, I think you need to recalculate your interest rates. Looks to me like you’re off by a factor of 10 in simple interest.

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By Fabrizio, September 8, 2010 at 2:21 pm Link to this comment
(Unregistered commenter)

If the solution to a problem is to retrace the steps that took us there and see where we went wrong, then why putting money back into peoples homes to create another bubble and deal with the same item few years down the line. My understanding is that the consumer went to his home equity AFTER he has been robbed of a decent salary, after his/hers increases in productivity had been used to pay his/her managers, and only to allow the workers to keep up with the unsatiable demands of a consumeristic society.
Doesn’t it make more sense to put the emphasis on re-creating the conditions that made possible the growth after the New Deal, namely adequate real salaries for most of the would be consumers. By doing so one could address not only the economic growth but also reverse the alienation process that the american worker is going trough. It is hard to create a happy family when both parents work and the household income doesn’t reach the $40,000; and it is a lot to overcome for the younger generation the sense of alienation and the general malaise that dominates many american family.

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By Shenonymous, September 8, 2010 at 12:56 pm Link to this comment

As I’ve said before, Americans like and want to own property and to
own businesses and that is not going to change regardless of how
loud are the decibels of protest howling happens.

Seems clear that a synthesis of capitalism and socialism is sorely and
desperately needed. 

Marxism failed and so has capitalism as we know it.  It does not
serve large populations but only the few who hold the wealth and by
extension the power, which is what gathering wealth is all about. 
Marxism failed the people as well, as every experiment so far has not
attained much respect.  Even Sweden’s.  Check out Sweden’s economic
history including today’s.

There is a synthesis that could be the remedy if capable minds and
agents of change existed.  I’ve asked around this web site and not got
anyone’s name at all.  So I’m convinced there is no solution, not any
from socialist quarters and none from capitalists.  It will be a sink or
swim with lots of drowning and long-term treading water.  I think my
descendents might come up with some ideas because they will have to,
but whatever is the case, I think by that time the world’s population will
have grandly diminished.  So maybe by then the earth will be able to
support a more responsible population. 

In the meantime, socialized capitalism could be the synthetic ticket, but
there are no intellectuals nor creative minds about that can bring it as
palatable to the counter.

There are plenty of those who want to recycle both socialism and
capitalism from the old models.  Both economic programs are tired and
have exhausted their efficacy.

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By NABNYC, September 8, 2010 at 12:50 pm Link to this comment

I’ve heard this suggestion before, but I do not think the federal government can compel the banks to cut the principal on a loan or alter them in any way.  The constitution has a provision that prohibits the government from acting to “impair” contracts, and I think that would bar this action.

Greenspan held down the interest to obscenely low levels deliberately to create the asset bubble in real estate, to cover up his failures in the tech crash.  If interest is at 6%, for example, $600 per $100,000, then a homeowner can buy a home for $200,000 and pay $1200/month before taxes and insurance.  If interest is 3% (variable), that same home buyer can pay $400,000 for a home but still only pay $1200/month.  Home buyers only ask how much it will cost each month.  The housing costs doubled or tripled in many areas because of Greenspan, and the Rubin/Clinton policies allowed people to borrow the larger amounts to pay for the inflated real estate.

In 1960 the average American made around $5,000, and a new tract home cost $15,000 - $18,000, or, in other words, 3 to 4 times the gross earnings of one full-time working person.  Today the average family, with two full-time workers, makes $55,000, but the price of housing skyrocketed to $500,000 in many areas, or almost 10 times the gross earnings of two full time workers.  that means the families pay an unsustainable amount of their gross income just for housing.  Since it takes two full-time workers today, it’s really more like 4 times gross in 1960, and 20 times gross today, is the cost of a modest tract home.

The solution is to let property fall back to affordable levels.  That would mean around $200,000 for your average new home. 

The banks won’t deal because they expect the government to take over more bad loans.  The government should, instead, stop loaning money to banks and start loaning it to new S&Ls; to be set up only for the purpose of financing home purchases.  Let the bank foreclose.  The house that sold for $500,000 will re-sell at most for $300,000.  So when they re-list it, loan the home buyers the money directly and forgive their prior foreclosure (forgive it from their credit record, and also the tax consequences).  Once the banks see that they are going to have to eat these bad loans, they will start making deals directly. 

Finally, I disagree that the problem is real estate.  It is a problem, and will not be solved for probably a decade, for a variety of reasons, many beyond the ability of the government to affect.  The government should finance rent-controlled new rental units because that’s where the need is, but we need to move away from the idea that all people are entitled to a 4 bedroom tract home.  It doesn’t make any sense.  But the bigger problem is jobs.  If it started as a foreclosure problem, it has now become a jobs problem.  Without jobs, people won’t be able to afford the home loan even if it is written down to the current fair market value.  I would allow real estate to complete its collapse, then start over.  It was at a level which was unaffordable for most working people.

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By Lafayette, September 8, 2010 at 12:42 pm Link to this comment


{WOTS:  2. “It’s the bums’ fault for taking on more than they could afford”.}

Bums or not, unfortunately the above is the core truth.

Swept up by the Qucik-Kill realty frenzy, the “bums” did take on more than they could afford and at predatory prices. Because they figured that they’d be in and out of the house in no time at all – thus riding the wave of cheap credit to riches.

This was nothing more than a standard Ponzi Scheme, as are all bubbles where there is a floor and a ceiling price. If they are in on the ground floor they make a bundle. If they are in at the ceiling price, they get shafted. Many made a bundle and many, many more got shafted.

Dunces are as dunces do. But beyond that pithy truth, there ought to be safeguards to protect people from themselves. Very evidently, our people need one for as long as they think life is a casino and all one needs is a bit of luck. The more our existence is chancy, the more we have road-kill on the highway of life.

What is the purpose of government if not to minimize, to an extent humanly possible, life’s ambiguities? Chance being one of the most important …

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By Anarcissie, September 8, 2010 at 12:42 pm Link to this comment

WriterOnTheStorm, September 8 at 1:10 pm:

Just to correct a couple of common misconceptions;

1 “Housing prices are still too high”.

According to whom? Everything, from a house to an opinion, is worth exactly what you can get for it. No more, no less. ...

At one time it was widely thought that the cost of housing (rent or sales) would have to maintain a certain relation to things like median income; that is, people would have to be able to pay for it.  And in, fact unless people can borrow infinite amounts of money, something like this is likely to be the case.

During the great Greenspan bubbles of recent years, the cost of real estate seemed to have become completely decoupled from ability to pay.  Very risky loans and very low interest rates enabled people to pay highly inflated prices, so they did.  If that period is now over—it’s hard to say, because the Federal government seems to be trying to restart the bubbles—then presumably the amount of money available to pay for real estate will return to its previous relation to median income and net worth.  In that case, housing prices may still be said to be too high.  If a house sold for $100,000 in 2000, and median income matters, it cannot be worth $200,000 or $400,000 now, because no one has the money to buy it.  Real estate cannot realistically gain 20% per year while incomes are generally gaining 0% per year.

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By felicity, September 8, 2010 at 12:28 pm Link to this comment

REDHORSE - The criminal behavior around the sub-prime
mortgage debacle was actually laid out before a House
or Senate (can’t remember) committee by a former low-
level loan officer (turned whistle-blower) when working
for Wells Fargo.  (Her testimony even made it into
Harper’s magazine, which is where I read it.)

Not only was Wells allowed to walk, it even received
bail-out money.  And can’t whoever sat on that
congressional committee, heard the testimony and did
nothing be charged with SOMETHING?

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By LillithMc, September 8, 2010 at 12:20 pm Link to this comment

Wall Street was given a “get out of jail card” with deregulation including an exemption from following state regulations regarding mortgages.  Using arrogance and ignorance, they marketed bad mortgages by arranging false credit ratings and chopping them up so it was almost impossible to know what the investor was funding.  The giant bubble they created gave them massive profits that went directly into their personal bank accounts.  It will take a generation to undo their looting, but their exemption from prosecution worked.  If I had done a similar action, I would have gone to jail long ago.

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By Jason Pacifico, September 8, 2010 at 12:16 pm Link to this comment
(Unregistered commenter)

Mortgages should be cut by 1/3 of their principle to 14 million homeowners where their family income isn’t greater than $150,000, and mortgage not greater than $760,000. On the 2 trillion dollars the FED bought in “toxic assets” mortgages, the FED should do the same similarly do make those assets completely again.

On infrastructure there was an op-ed article in the New York Time August 29, 2010 by Laura Tyson (who is a member of Obama’s Economic Recovery Advisory Board) “Why We Need A Second Stimulus,” I wrote to the Times and said we could easily finance, as she recommend to finance 1 trillion dollars for infrastructure over 5 years, the Second Stimulus and some of the 1 trillion could be done so without adding it on to the National Debt but the new money create f/ the FED could be created “out of an interrelationship” no new debt.

I also argued in the wake of future deficits, the National debt of already 13 trillion dollars, the monies and Guarantees to Wall Street of 23.7 trillion dollars: TARP, TALF, PPIP, Fannie Mae, Freddy Mac, AIG, Guarantees,  4.6 trillion in direct Cash, the Financial Derivatives Market of 600 Trillion Dollars, that we should look at this new Global Financial World in terms of “digits” to be managed, dismissed, eradicated, etc., and the future Presidents, the Obama Administration should plan in formulating his policies on Infrastructure spending of a trillion dollars, will cancelled 5 trillion dollars of the Debt in which the FED is holding (not foreign govt., as in China, Japan or India)on their administration(s) in the future. Obama should see “forward” future philosophies, realizations, approches, etc. in his policies. (see book “Out of Danger, Out of Debt” by Jerry Voorhis)

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By REDHORSE, September 8, 2010 at 11:34 am Link to this comment

I enjoy you guys!! You’ve saved me from grrrrrrr kneejerk on this topic today. Thanks.

    FAT FRED points to the hard core. Personal responsibility and the knowledge to understand finance and make responsible financial decisions. Why isn’t that in place? The hard medicine difference between Mr.Scheers opinion of the crisis and the actual “standing on the street no place to go just lost my home” experience is vast. And,(FELICITY) where are those forged document prosecutons?—- Everybody walked!!

      Good intelligent comments and insights here today regarding the coming storm. This problem like every other we discuss here, (good suggestions PRGP), springs form the moral vacuum that infects our profligate political leadership, and we are all infected. LAFAYETTE is correct about our National Psychic Depression. And gee, our MSM is paid to beat us emotionally numb. Hell, many here no longer believe in the vote or hold hope at all. To make no decision and take no action is a decision and an action.

    I’m still convinced that the POWER is ours.

    “Take this Brother-May it serve you well!!”

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By prole, September 8, 2010 at 11:29 am Link to this comment

”Although Dunkelberg’s members would be happy with a tax cut, he said the most important help would be to ‘finally address the most important person in the economy”..the environment. It just can’t take all this untrammeled consumption and waste production any more. “The anger of wannabe consumers who no longer feel they have the wherewithal to feed that most important of American passions is what is fueling the widespread rage against elected officials”…which only serves to illuminate in the strongest light possible the underlying depravity of this whole rotten-to-the-core System sustained by Amerika’s one-party state. Why do they “wannabe” decadent consumers instead of responsible world citizens? Why is the “most important American passion” buying things? Why is there no such “widespread rage” against the gas-guzzling automobiles that help cause global warming, or the obscene ‘defense’ budget that has devastated much of the world, or lethal foreign aid that kills the non-consumers of Gaza? Can selfish Amerikans feel no more important passions on which to vent their misdirected rage on culpable elected officials?

  “There is only one course left for Obama, and it is to do now what he should have done at the start of his term: abandon the”…Amerikan nightmare of “a nation of consumers”. If the environment and international fairness “is not restored, we are in for one long, dreary period of economic stagnation at best, or a severe downturn and a society in dangerous turmoil.”

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By felicity, September 8, 2010 at 10:08 am Link to this comment

Fat Freddy (or anybody else) - Perhaps you can answer
this question.  In 2006, 60-65% of all sub-prime
mortgage holders actually qualified for prime
mortgages.  Lending agencies ‘pushed’ sub-primes -
even to the point of falsifying potential borrowers’
credit-ratings and W2’s so their application for a
prime would be turned down by the last-in-line loan

It can only be that sub-primes were more profitable
to the lender, and my question is why.

Of course, in the ‘real’ world, but evidently not in
the financial service’s world, falsifying documents
etc. is criminal.  Since the crimes committed are
common knowledge, why isn’t the Justice Dept.
investigating.  It’s a good guess that an
investigation would go a long way in lifting the
‘malaise’ the American people are experiencing.

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By Peacedragon, September 8, 2010 at 10:05 am Link to this comment

Perhaps not the main cause, but surely part of the problem, is the money we
throw into our empire of military bases and our endless wars.

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By John Steinsvold, September 8, 2010 at 9:23 am Link to this comment

An Alternative to Capitalism (which will end the need for mortgages altogether)

The following link takes you to an essay titled: “Home of the Brave?” which was published by the Athenaeum Library of Philosophy:

John Steinsvold

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By Atilla, September 8, 2010 at 9:11 am Link to this comment

Fat Freddie’s comment makes, by far, the most sense of any that has been posted here so far. It is far past time to bring back personal responsibility. The “government”, read that as “we the people” should not be bailing out anyone period. No banks, mortgage companies, insurance companies, and most of all individuals who made poor choices by purchasing homes that they knew they could not afford. There should be some mechanism to give aid to the homeowner who was paying his mortgage, and lost his job through no fault of his own. As far as the others they made their bed, and now they should lay in it.

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By WriterOnTheStorm, September 8, 2010 at 9:10 am Link to this comment

Just to correct a couple of common misconceptions;

1 “Housing prices are still too high”. 

According to whom? Everything, from a house to an opinion, is worth exactly
what you can get for it. No more, no less.

2. “It’s the bums’ fault for taking on more than they could afford”.

What, the arcane financial “instruments” that created a massive incentive for the
banks to pad the bottom line by handing out mortgages had nothing to do with
it? By the same “logic”, one supposes that the loss of 10 - 20 % of jobs is equally
irrelevant? And if you’re a truly committed blamer-of-the-victim, you’d have to
believe that the collapse of housing prices, making refinancing impossible even
for “responsible” buyers, is a mere bagatelle that no doubt any fool could have
seen coming.

3. “Home ownership is overrated”. 

In fact, home ownership, in America especially, is the basic building block to
financial security. It’s provided the middle class with something crucial: a sense
of control over their lives, a feeling that they are working toward something
other than creating wealth for the corporation, or the landlord. For many
families, their house is what stands between them, and the hand-to-mouth
existence that the labor classes endured at the start of the industrial age.

Robert Scheer is right to call the housing crisis the root of the problem. It poses
a potentially existential threat to the middle class.

Karl Marx criticized capitalism because it disconnected a person’s labor from the
rewards of that labor, creating an entire class of people alienated from mankind’s
natural inclination to control their own lives and to experience a sense of
accomplishment. This assessment was so resonant with the working class that
his work, in just a few years after its publishing, inspired revolutions around the

Home ownership was encouraged and facilitated by the American elite in order
to forestall similar sentiment in the US.. Call it a handout, call it social
engineering, but guess what, it worked. Home ownership turned out to be a
potent antidote to labor alienation under capitalism, and might be the single
greatest reason that Marxism failed to gain a foothold in America.

But those who haughtily pronounce on the death of Marxism might want to
adopt a wait and see stance. Wait for enough folks to lose their homes, then see
how quickly they turn away from their capitalist masters.

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By Lafayette, September 8, 2010 at 8:44 am Link to this comment


{Sheer: ... a housing foreclosure meltdown that has chilled the spending of a majority of American consumers.}

Very dramatic, but untrue.

Eleven million households underwater does not mean that they will be foreclosed. It means that the Net Value of their property is lower than the net value of their mortgage. Which does not necessarily force them onto the breadlines to meet mortgage payments. Lack of work, otoh, can do that.

Three million households foreclosed, given a total 117 million nationwide, is 2.5%. Hardly dramatic, that number, and about the double of “normalcy”. Is it so bad?

What is happening, however, is a general shift of wealth from the elderly to the young—meaning that realty purchased today by the young at lower prices than a few years ago (much lower in some instances) will show in time a value-appreciation that profits that class. Is that so bad?

Nobody wants to diminish the misery of those without a job or having endured the hardship of house foreclosure. But it is difficult to agree with the premise of this article.

Every pundit (worth his/her weight in words) is coming up with their version of The Solution. Sheer mis-characterizes the plight of the small and medium sized company owner. They need the loan not to buy a new truck as much as to prevent themselves from any further downsizing. So, any tax benefit goes to current employees who might otherwise be shown the door.

It’s not about mortgages as much as it is about America’s Blue Funk. After binging on cheap credit and then watching (daily) the scandal of Investment Bankers who walked away from The Mess whistling merrily all the way back to their banks, Americans - now seeing their jobs threatened - have been overcome by a powerful sense of malaise.

This was not supposed to happen in our Blessed Country. And yet, it did.


The American ethos has two principle branches, if I may suggest, the first of which is Hard Work and the second is “We all share in the wealth generated”. Americans continue to work hard but have seen that their work profits Top Management in Finance and elsewhere who are getting the lion’s share of the wealth generated.

This just ain’t fair, particularly since what transpired seems criminal. Moreover, does top management anywhere deserve That Much?

The prime motor of any economy is the consumer. Business investment depends upon bulging order-books. Government spending depends upon income taxes generated by either salaries generated by bulging order-books or sales taxes generated by consumption.

At the heart of the propensity to spend is a mindset conducive to spending. This psychological factor, at present, is too negative to provoke additional spending of the kind to create jobs.

Yes, most recoveries are led by housing construction. This one too will be lead by the same mechanism. The Blue Funk will go away in due time. All that is required is something of which Americans have very little.


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By Shenonymous, September 8, 2010 at 8:37 am Link to this comment

Maybe someone could start a new business of making dark brown
robes with hoods so no one can see anything of another except a
small part of the face, like the nose and mouth so that wailing can
continue, sell them, make a lot of money, put it all in a sock, burn
the sock, then all become economic monks and retire to the bleak
black hole of pessimism and just all fade away robes and all.  That
sounds like a lot of fun.

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By Gladwyn d'Souza, September 8, 2010 at 8:35 am Link to this comment
(Unregistered commenter)

Is it clear that the democrats are no different than the republicans in finding shady
WMDs for bankrupting wars and banks? Egg recalls, gulf disasters, etc show that the
MMS mindset is widespread in the two parties and the government they provide for
regulation. So why are the alternatives like the green party etc not viable? People must
still be happy with disappearing 401ks.

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By G.Anderson, September 8, 2010 at 8:27 am Link to this comment

Unfortunately, stupidity is no excuse in this case.

This is a well planned move. Because in order to sell debt, you have to have debtors. You have to have debt serfs, who have no hope of ever escaping, the iron collar of debt forged by the banks.

Because, without debt, this country has nothing to sell, except our resources, and our grain, and who will fund our wars without someone to buy our debt?

President Obama knows this, thats why nothing will be done to help the consumer, they can’t be helped, if they were, then the economic serfdom would collapse.

Real estate is heading to 1970 levels, while food shortages, and wide spread starvation for this country, is on the horizon, as our resources are next on the auction block.

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By Anarcissie, September 8, 2010 at 7:30 am Link to this comment

Actually there is no zippy quick-fix solution to the problem.  The housing market, like many others, has been severely distorted by many years of bad monetary and financial policy, most specifically artificially low interest rates and ever-expanding debt.  ‘Things that can’t go on forever—don’t,’ as the man said.  However, politicians are not allowed to tell the people the truth; the people will not permit it.

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By ray keith, September 8, 2010 at 7:30 am Link to this comment
(Unregistered commenter)

Obama embraced Wall Street just prior to the election due to his insecurity of not obtaining the presidency w/o Wall Street money & hence must adhere to their directives within the parameters they dictated.
If Obama attempts to force banks to assist homeowners with their toxic mortgages- O signs his “Death Warrant”- it’s that simple.
Regardless of those putting him above others with his intelligence- his limitations in surmising what his promise’s to Wall Street would really incur, clearly shows his limitations in completely assessing what his choice really cost him in decision making.
Don’t expect anything of ‘real change’ in his last ‘2’ remaining years- O is a 1 term president that will go down in history as further facilitating the demise of a ‘once great nation’
Amen O- good to see you made the bucks & enjoyed the false glory of your ‘so-called’ stature.
Does anyone believe O would have been elected had he truthfully stated- “We are leaving Iraq & re-entering Afghanistan? & P.S. Good luck homeowners, I answer to Wall Street Now!

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By Fat Freddy, September 8, 2010 at 7:29 am Link to this comment

Housing is still over-valued in most of the country. Allowing people to cram down their mortgages will not help. Throw the bums out of homes they can not afford, and let the banks fail. Housing prices will fall, and more people will be able to afford a home without the need for the FHA, Fannie and Freddie or alt-As and sub primes. This whole “American Dream” of home ownership is nothing but bullshit social engineering.

It’s very simple. If you want to own a home, you save enough money to cover at least 10%, preferably 20%, and finance it with a fixed 30-year mortgage. If your credit is too bad to get a fixed rate loan, pay off your credit cards and wait 7 years. Otherwise, rent.

The biggest problem is an “uneducated consumer”. Only about 7% of high school seniors are taught personal finance in this country. Stop trying to protect people from their own ignorance, and teach them.

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By Allan Krueger, September 8, 2010 at 7:28 am Link to this comment


Bail out the banks and insurance companies!
Fuck the taxpayers / mortgage holders!

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By ofersince72, September 8, 2010 at 7:26 am Link to this comment

Unfortunatly, none of what PRGP proposed is going to be done

by way of the political process we now have. In fact,

we only have a stage game of a political process.

But even if we were to start this, how do we answer

the employment.  Right now , 100% of our economy and

employment is in someway dependent on the military

economic employment complex.  This makes it impossible

for any legislator to introduce any legislation like that

mentioned by PRGP.  Americans would have to feed and house

each other until a different type economy was formed.

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By ofersince72, September 8, 2010 at 7:10 am Link to this comment


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By REND, September 8, 2010 at 7:03 am Link to this comment
(Unregistered commenter)

Love how truthdig readers are in general more attune to the core issues than the

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By PRGP, September 8, 2010 at 6:35 am Link to this comment

75% income tax on all income more than $1M/yr. Small surcharges on all stock deals. Universal health care with single payer option. Severe penalties for companies hiring illegals and a path to citizenship for those illegals paid for by the miscreant companies hiring them. Stop the wars. Close military bases not on US or US territory soil. Fire all of the war profiteer companies and use the money to bolster our armed forces or cut the budget and save the bulk of the money.  Create jobs by a massive program to fix the US’s crumbling infrastructure. Fire the Federal Reserve robbers and print our own money (as per the founding fathers). Let the “tbtf” institutions fail and their shareholders take the hit, not the taxpayers.

Okay, the above is a start.  Then we need to force the members of congress, particularly on the right side of the aisle, to read the friggin’ Constitution.  Then fix the Supreme Court and can the corporatist jackasses put in by Bush.

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By tedmurphy41, September 8, 2010 at 6:01 am Link to this comment

Take control of, or at least heavily regulate, these financial markets, from Wall Street to the Banks in general; then, and only then, will you have control of the Country.

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By anntares, September 8, 2010 at 5:09 am Link to this comment
(Unregistered commenter)

Yes. From the very start, why didn’t the govt tie the bail-out to banks’ willingness
to use it to help restructure mortgages?? There may have been reasons to bail out
firms that have gambled unethically and pushed people into mortgages they
couldn’t afford… why didn’t they link the solution for the banks to the needed
solution for their victims? The govt “deciders” aren’t stupid. Were Democrats afraid
of what financial firms could do if the govt insisted on fairness? Or do elected
Democrats as well as Republicans have a stupid kneejerk ideologs?

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By TomPaine, September 8, 2010 at 4:51 am Link to this comment
(Unregistered commenter)

Oh, it’s so much more than the “...the Mortgages, Stupid.” It’s the Banks; no, it’s more than the banks… It’s the Vampire Bankers! The only writers who seem to really get this are Matt Taibbi and Morgan Ibarra. Google the latter’s article “Vampire Bankers, The Nuts and Bolts of the Scam.” Its analyses of not only the simple banking mechanism by which the subprimes became the drivewheel of financialization, but also the criminal personality behind the rapine are mind-blowing. Ibarra is a writer who really focuses on how-things-work. In the same vein, his novel, Scamming God, about a young woman who gets knocked up by a con man but then gets even, deconstructs the reactionary, Christian, revanchist ghost dance this nation has endured since the Reagan “revolution.”

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By Shenonymous, September 8, 2010 at 4:37 am Link to this comment

It seems the remedy is not simply to “push” for new government
regulations and changes in the bankruptcy law to force the banks to
make deals to keep people in their homes, but rather to give it the
obviously needed sledgehammer-like force.  So then how are the
blindfolded American people, sightless through ignorance, to effect
remedial change in the short term, since immediate action is
obviously required, to get their “benevolent” government to
do it?  Long term solutions are needed but the acute problem needs
addressed in the right now time period. 

It is going to take some faction that has the power to move mountains. 
Since there are none, weez iz skrewed.

Idle details of such problems are useless unless description real timely
action is also provided.  So thank the likes of Mr. Sheer and company
for showing us once again just how hopeless it all is.

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By Samson, September 8, 2010 at 4:21 am Link to this comment

Obama is running Herbert Hoover’s and Ronald Reagan’s playbook.  He’s giving all the government aid out to corporations, and the idea is that the money will ‘trickle down’ to eventually, maybe, someday help average Americans.  That is if the company’s actually hire any Americans to do these projects.

Oh well. Obama talked way back in the primaries about how he admired Ronald Reagan.  That should have been a clue. That, and the tens of millions of wall street money that flowed into his campaign accounts.  And the fact that very few unions wanted to have anything to do with him before he got the nomination.

There were lots of signs that Obama was going to be a lot more friendly to wall street than to workers or people struggling to hold on to their mortgage.

What still has me totally befuddled is why all these people who say they don’t want Herbert Hoover’s and Ronald Reagan’s economic policies continue to support these Democrats who are trickling on us just like Reagan did?

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By Jack E Lohman, September 8, 2010 at 4:20 am Link to this comment
(Unregistered commenter)

Our economy crashed because the elites bought off our politicians and they passed NAFTA, CAFTA, GATT, and repealed the Glass-Steagall banking regulations and passed the Bush tax cuts and subsidies for companies who outsourced jobs to India and China… all because they were paid to do these stupid things with campaign contributions.

Our corrupt political system is going to destroy our democracy, and the only way to fix it is to pass public funding of campaigns. If politicians are going to be beholden to their funders, those funders must be the taxpayers who pay their salaries.

Jack Lohman ...

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By ofersince72, September 8, 2010 at 4:19 am Link to this comment

The “liberal” community and pundits are starting
to understand that Obama is not going to be a two
term president.  They are positioning.  Let Obama take
the heat of the blame, draft their new Savior.
It seems like that might be Feingold, another protector
of the status quo. Oh my, my how the Oligarchs are
smiling to themselves.  We got um fooled again.

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By MaxShields, September 8, 2010 at 4:14 am Link to this comment

Yes, the “melt down” happened. The story is fairly clear and repeatedly stated. Yes, it was bipartisan deregulation. Yes Obama is following in the path set by his predecessors…. Got it.

But there is something much more deeply wrong with this economy Mr. Scheer. It’s called “limits to growth”. You are scratching the surface of the problem. You are still a believer in a past prosperity built on consumerism and industrialization. The deindustrialization that is happening is happening because capital is seeking low costs and is moving to wherever that suits the industrialist/multinational corporations’ needs.

But the system is deeply flawed. The flaws are polity, economic, and cultural. How much of this can be corrected before this species exhausts itself remains to be seen. But this idea of “prosperity” built on conumerism and endless growth is simply unsustainable. The extent to which it is pursued is pathologically fast and unremorseful. The problems depth and breadth exceed anything that the bailouts contibuted to, but those were an indication of the depravity of the system.

We need to rethink what an economy as if humans and life itself mattered should be; rather than see a few enemies of “prosperity”,false idol that it is.

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By ofersince72, September 8, 2010 at 4:10 am Link to this comment

Do anything,

but please, please, don’t mention that it has anything

to do with the military employment econonmic complex! ! !

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By PatrickHenry, September 8, 2010 at 3:20 am Link to this comment

Create 50 and 100 year mortgages like the Japanese do.

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