Bail Out:

Now comes the reckoning. America has sown the wind and reaped a whirl wind. And the truly astounding part is every one is surprised. Or everyone acts surprised in any event. Let us recount what America has done over the past say 30 years.

We saw in 1973 oil prices jump from $3 a barrel to $8 a barrel and the oil producing nations stitched together a cartel to market their product. America should have had the sense to realize that oil cartels were exactly why Teddy Roosevelt directed the department of justice to break up Standard Oil of New Jersey. And that was quite a few years ago. Oil is what America’s economy is based upon.

One of the reasons why Teddy did as he did was so that no one oil company could dominate and set the price for crude oil. The world is not however governed by American law. So guess what; it is not illegal to operate a cartel anywhere but in America. Does that put us at a competitive disadvantage? Some would say it does. Domestic cartels are still not permitted, though more and more American businesses are merging to the peril of the American consumer.

That is not the real failing of America in my judgment. The real failing is we have based our economy on the concept that when it breaks throw it away. Often times some years ago things that broke could be fixed. There were even places where you could take things to be repaired. Cobblers repaired shoes and tailors resized clothes. There were even people who could fix your TV.

Shoes wear out over about the same time period but now they are discarded rather than resoled. That is if they have not gone out of style and were discarded when almost new so that the owner of the shoes could continue to look stylish. This thought process extended to everything. New was always better than old. New car, new TV, new computer and new cell phone. No thought given to where all the old devices went. And so we began to pollute the environment and a whole group of folks sprang up that opposed that. Largely these people were ignored and labeled tree huggers and other terms of derision.

Where the trouble got unmanageable was with very large assets. To most Americans their house/home is their largest asset. But more and more a home became a disposable asset. As your earnings increased you did not fix up your house. You sold it and moved into a bigger and better house. There would always be a market for your old house. And it seemed that there was an endless supply of money to make the purchase with.

Suddenly America found out that loaning money to purchase over priced houses did not make a lot of sense when you were spending $800 a month on gas to drive from your job to your home. No problem because the house is worth less than the mortgage on it so the homeowner can just walk away from his loan right. The homeowner can discard the house like he would a cell phone that was not the right color. Right?

These loans on over priced houses form the core of the current banking problems. That the loans should never have been made in the first place is being ignored. These worthless loans were made in the form of adjustable rate mortgages. Lovingly referred to by those in the know as “sucker loans”. You hook a sucker and then suck them dry. When the person who made the loan tries to declare bankruptcy you block that too. When a lot of these people just flat out tell you they are not going to pay the bank goes under. The difference is the bank can afford lobbyists who go to the government and say if you don’t help us the economy will go in the crapper.

Now the government seems to be listening to these same fine folks who got us in this mess in the first place. By loaning these folks money the government is saying that they can separate the horseshit from the cornmeal after the cornbread is baked. I rather think not. Its done its done. Just take $500 from every American citizen and give it to the bankers so their banks can continue to make loans to bad credit risks.

Or you might just remind the bankers that they were the ones that loaned the money in the first place and if the loan goes bad tough titty kitty. Nagh .. far to simple a solution.

Housing and the Galveston Hurricane of 2008:

I have, over the past 9 days, watched first hand the response of the Texans in this part of Texas. It has been interesting to say the very least. As of this morning there were a number of points of distribution (PODs) still handing out needed supplies to the public. Initially these handed out ice and water … a day or two later meals ready to eat (MREs) became available.

Ike Photos

Power outage was something approaching 2.3 million customer accounts or 4,000,000 people without power. This from a category 2 hurricane that hit the Houston / Galveston beginning about 2 am September 13th. 2008. This storm had hurricane force winds that extended 120 miles out from the center. The sheer size of the storm meant the wind blew for a number of hours. Several areas were a total loss and there was much damage done.

Now as Houston / Galveston begin to enter the rebuilding phase of the recovery effort, a very different type of storm has appeared on the financial radar. This is a storm of confidence. The folks who lost their homes to Ike are going to be hard pressed to borrow the dollars to rebuild because their line of credit is maxed out to credit card companies. Many banks are holding customer IOUs (in the form of adjustable rate mortgages) that frankly are not worth the paper they are printed on.

All of this has come to a boil in the past 7 days. Yet we lack the political will to acknowledge that America is poised at the edge of a very ugly fall. Once again there is finger pointing and a lot of “I told you” going on. The facts are simple. America has been running on borrowed money for at least 16 years. Yet taxes continue to be cut and regulation of the critical financial markets continues to be lacking.

Loan clients who lacked both the desire and the ability to repay the loans were extended credit. This largely done because the bonus of loan officers was based on the dollar volume of the loans they made. And not just the loan officer was rewarded this way. Bank managers were compensated in many cases based upon their loan volume not the soundness of the loans made.

What happened was that Lehman Brothers founded in 1850 filed for bankruptcy on September 15, 2008. The following day Merrill Lynch was sold to the Bank of America. This comes within days of the government announcing that it had taken over Freddie Mac and Fannie Mae the major buyers of junk status loans. I have no idea what the American government’s exposure is but we are all ready fighting two very expensive wars in Middle East. Add to those costs the cost of this bail out; and the total costs become truly astronomical. Can we weather these storms or will the nation become as crippled as Galveston Texas or New Orleans Louisiana? The next four years are indeed going to be a challenge for those seeking elected office this fall.

Slavery by Another Name:

This is the title of perhaps the most important book published in 2008. To those of us that lived through the civil rights movement and never quite got it this book is essential reading. Until you read this book you might still hold to the belief that the antebellum South was benign. Nothing could be further from the truth. This well researched work reveals the ugliness that was the industrial south of the 1880 to 1943. In fact the abuse did not begin to end until Rosa Parks refused to yield her seat to a white man on a Monterrey Alabama bus in December of 1955.

Without the perspective provided by this book understanding the continuing racial and political divisions in America simply can not be grasped. Things as simple as distrust of the criminal justice system I now understand. But more subtle points such as State’s Rights are brought into clear focus. The pivotal decisions are Plessy v. Ferguson (1896) and Brown v. Board of Education (1954). Under the guise of “separate but equal” (Plessy v. Ferguson) southern abuse of freed slaves continued despite the fact that debtor involuntary servitude had been outlawed by federal peonage statue of 1867 as well as the 13th Amendment to the Constitution.

The 13th Amendment was the first amendment to the US Constitution in 60 years and was rapidly followed by the 14th and 15th Amendment. These amendments finally stated the federal government’s position on slavery and corrected the oversights made in the original Constitution. The 13th was ratified by the legislatures of twenty-seven of the then thirty-six states within a year of its proposal. While the 13th Amendment had been passed in December 1865 it was largely ignored by many in the south.

In 1903 the reformist administration of Teddy Roosevelt attacked the new form of slavery using an 1867 law that forbid peonage rather than the hated 13th Amendment. In a split decision the peonage statute had been upheld by the Supreme Court. Federal prosecutors were directed to frame their charges against neo-slavers in terms of this statute. However active prosecutions of southern landowners and factory owners were not actively pursued. The practice of debtor servitude was continued in the American South until the outbreak of World War Two.

The “separate but equal” doctrine established by Plessy v. Ferguson in 1896 did not fall until Brown v. Board in 1954. Brown v. Board in fact became the pivotal decision that compelled abandonment of the Montgomery Alabama City public transit system’s segregation in 1956. The winds of change were beginning to blow even in Montgomery Alabama the last bastion of segregation. These efforts culminated with the civil rights act of 1964.

America is not a land of fools and bigots. We are slow to change as are many human beings. Change is always unsettling. All people seek the comfort of things known and things familiar. Where change must occur is when one group deprives a second group of their rights of citizenship. In such cases the duty of the government is to restore those rights.

I think the best summary of this work was proposed by the author himself:

“Let us define this period (1865 until 1945) of American life plainly and comprehensively. It was the Age of Neoslavery. Only by acknowledging the full extent of slavery’s grip on U.S. society – its intimate connections to present-day wealth and power, and the depth of it injury to millions of Black Americans, the shocking nearness in time of its true end – can we reconcile the paradoxes of current day American life.

I personally have thought that slavery was a black mark on American history. I too thought much of this was in the distant past of my country. What a personal shock to realize that I was alive while Neoslavery continued. I will not sleep well for many, many nights.