Friday, November 28, 2008

The Parasite Class Caused The Current Economic Dislocations And They Have Every Intention Of Pointing The Way Down The Road


Today the NY Times has provided a redundant service to its readers by voicing, in an Op-Ed, suggestions for handling the economic downturn by one of its greed-obsessed authors. I say "redundant" because that is pretty much all one hears about the economic downturn-- the masters of the universe telling us how badly we've screwed up-- by following their lead without examining their always selfish motivations-- and what to do about it. Stephen Roach will, of course survive when all those who follow his advise are underwater; he's the Chairman of Morgan Stanley Asia. He hasn't been arrested, indicted, charged with any crimes-- and in all likelihood he'll be getting a Christmas bonus this year equal to the annual wage of 10 people who, unlike himself, do actual work for a living.

Before Roach was promoted, he was Morgan Stanley's chief economist for 16 years-- and one of America's most famous bears, perennially warning about consumerism, the mainstay of the lifestyle of his parasitic class. After 9/11 Bush asked for no sacrifices from Americans, only that they go shopping. In the midst of the worst economic catastrophe since the Great Depression-- brought on, incidentally, by the exact same underlying Republican policies of unfettered greed and selfishness-- the slower-witted among us are being told that shopping is patriotic... and the way to bring back the economy. Oddly, no one ever suggests trials and firing squads for the "businessmen" and their bipartisan political enablers who raped and pillaged that economy.

When Roach says "it's game over for the American consumer," he wasn't referring to Jdimypai Damour, the 34 year old WalMart employee who was trampled to death-- doesn't that only happen in China or did that get globalized too?-- at 5am from a crowd of... super-patriots. No WalMart executive have been lynched, indicted, charged, arrested... or anything.
Witnesses said the surging throngs of shoppers knocked the man down. He fell and was stepped on. As he gasped for air, shoppers ran over and around him.

I've been to almost 100 countries. When people ask me which one I liked least I always say Hong Kong and I always paint a nightmarish fantasy like the one above as the reason why. But I grew up within walking distance of the Valley Stream (Long Island) mall where the possible WalMart publicity stunt occurred. A WalMart executive, who could easily have worked for Josef Goebbels in another time and another place, was quoted saying "The safety and security of our customers and associates is our top priority." Arbeit Macht Frei!

He also said, "Our thoughts and prayers are with them and their families at this difficult time." Well, then... let's move on; nothing out of the ordinary to see here. In fact, WalMart was encouraging customers to just keep on truckin' into the stores as rescue workers fought to save the man's life. The police finally forced the savage Republicans to shut it down. Again no WalMart executives were lynched, indicted, charged, arrested... or, as I said, anything. The top brass had no comment, being too busy working on a propaganda campaign to persuade workers how undemocratic and anti-working family labor unions are. Wall Street and WalMart are two sides of a coin that has proven ruinous and deadly for average Americans. Roach-- the multimillionaire economist-- foresees "rising unemployment, weakening incomes, falling home values, a declining stock market, record household debt and a horrific credit crunch." I guess he watches CNN too. He thinks this is unfortunate for us-- he's fine, thank-- but, basically, "a painful but necessary adjustment. Since the mid-1990s, vigorous growth in American consumption has consistently outstripped subpar gains in household income. This led to a steady decline in personal saving. As a share of disposable income, the personal saving rate fell from 5.7 percent in early 1995 to nearly zero from 2005 to 2007."
Inflation-adjusted personal consumption expenditures are on track for rare back-to-back quarterly declines in the second half of 2008 at a 3.5 percent average annual rate. There are only four other instances since 1950 when real consumer demand has fallen for two quarters in a row. This is the first occasion when declines in both quarters will have exceeded 3 percent. The current consumption plunge is without precedent in the modern era.

...In the days of frothy asset markets, American consumers had no compunction about squandering their savings and spending beyond their incomes. Appreciation of assets — equity portfolios and, especially, homes — was widely thought to be more than sufficient to make up the difference. But with most asset bubbles bursting, America’s 77 million baby boomers are suddenly facing a savings-short retirement.

Worse, millions of homeowners used their residences as collateral to take out home equity loans. According to Federal Reserve calculations, net equity extractions from United States homes rose from about 3 percent of disposable personal income in 2000 to nearly 9 percent in 2006. This newfound source of purchasing power was a key prop to the American consumption binge.

...In an era of open-ended house price appreciation and extremely cheap credit, few doubted the wisdom of borrowing against one’s home. But in today’s climate of falling home prices, frozen credit markets, mounting layoffs and weakening incomes, that approach has backfired. It should hardly be surprising that consumption has faltered so sharply.

Where, oh, where did Americans get these wildly irresponsible ideas? I'm sure Morgan Stanley-- a company I once sued for ripping me off, by the way-- never encouraged anyone to refinance and take equity out of their home for a Christmas splurge or a fancy vacation or a better car... or to put into a hedge fund. And because of all this borrowing against assets, "household debt hit a record 133 percent of disposable personal income by the end of 2007-- an enormous leap from average debt loads of 90 percent just a decade earlier." Yale and Harvard economist George W. Bush-- don't laugh; he has the degrees to prove it-- pretty much based 8 years of American government financial and economic policy on driving that number higher and higher-- even if he didn't have a clue he was doing that, a distinct possibility probability.

And needless to say, the parasite class has remedies for us... of course. "The United States needs a very different set of policies to cope with its post-bubble economy. It would be a serious mistake to enact tax cuts aimed at increasing already excessive consumption. Americans need to save. They don’t need another flat-screen TV made in China." And if you think that means just tax the rich-- or even confiscate their ill-gotten gains... well, then you're probably new to this blog. Roach sprinkles some very sensible mainstream ideas into his wealth preservation agenda.
The Obama administration needs to encourage the sort of saving that will put consumers on sounder financial footing and free up resources that could be directed at long overdue investments in transportation infrastructure, alternative energy, education, worker training and the like. This strategy would not only create jobs but would also cut America’s dependence on foreign saving and imports. That would help reduce the current account deficit and the heavy foreign borrowing such an imbalance entails.

We don’t need to reinvent the wheel to come up with effective saving policies. The money has to come out of Americans’ paychecks. This can be either incentive driven-- expanded 401(k) and I.R.A. programs-- or mandatory, like increased Social Security contributions. As long as the economy stays in recession, any tax increases associated with mandatory saving initiatives should be off the table. (When times improve, however, that may be worth reconsidering.)

Fiscal policy must also be aimed at providing income support for newly unemployed middle-class workers-- particularly expanded unemployment insurance and retraining programs. A critical distinction must be made between providing assistance for the innocent victims of recession and misplaced policies aimed at perpetuating an unsustainable consumption binge.

Crises are the ultimate in painful learning experiences. The United States cannot afford to squander this opportunity. Runaway consumption must now give way to a renewal of saving and investment. That’s the best hope for economic recovery and for America’s longer-term economic prosperity.

Especially for Morgan Stanley... and the entire parasite class. Speaking of which...
Under fire for his role in the near-collapse of Citigroup Inc., Robert Rubin said its problems were due to the buckling financial system, not its own mistakes, and that his role was peripheral to the bank's main operations even though he was one of its highest-paid officials.

"Nobody was prepared for this," Mr. Rubin said in an interview. He cited former Federal Reserve Chairman Alan Greenspan as another example of someone whose reputation has been unfairly damaged by the crisis.

Not counting stock options, Rubin earned $115 million from Citi since 1999. Why do you think they gave him all that money?

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At 6:28 PM, Blogger VG said...

Howie, I don't have much to say, except that this is a fuckin' brilliant post.

At 7:08 PM, Blogger tech98 said...

As economists go, I would blame Repig hacks like Larry "The Bush Boom continues!" Kudlow more than Roach.
Roach has been recommending increased saving and reduced consumption for years. Kud-blow has been a lickspittle for house-prices-go-up-forever, deficits-don't-matter, cut-taxes-for-the-rich-or-you-hate-America Repig kleptocracy since the Reagan era.

At 8:35 PM, Anonymous Anonymous said...

When you have more energy coming in than you can ever spend you don't need to save anything. You just need to recycle it and make it better each time. Science has unlocked the cosmic reservoir. Real wealth is without practical limit. You can now have your cake and eat it to. The money economy is dead and since it's dead it can't tell us. The first order of business is to stop going to all these non wealth producing jobs like tax preparers, insurance companies, stock and money manipulators, talking heads, politicians, and others who produce nothing of real value. Stay home. Think of all the energy we can save. Have fun, raise and help educate your kids. Get the stress out of your life and become healthy this in itself will take a huge load off the so called health care system. Life time fellowships for all. Energy (something real) will be the new accounting unit. Not paper money issued by the federal reserve (what a scam). figure out how to make the world work for everyone in the shortest amount of time possible through spontaneous cooperation without disadvantaging anyone. High unemployment is a sign of success which means we don't all have to earn the right to live, it is prepaid by the Sun. World around service industry producing the things we really want and need (transportation, education, clean water and air, wholesome food. Naturally people will want to work for these things, as we all need them. It is not a case of bringing anyone down but to bring everyone up. Our design science revolution can make all our dreams come true. 50% of humanity now lives better than the richest king did prior to 1900. Nature is intent on making us a one world humanity and a success. Utopia or Oblivion. Humankind is in it's final exam. We cannot waste time blaming. We can only move forward in time. It's at our finger tips. Let's make it happen.

At 1:01 AM, Anonymous Anonymous said...

Much of the "parasite class" as you aptly label them would likely blame the steerage passengers for the wreck of the Titanic. This is nothing new, and it reflects the underlying parasite philosophy that "God is in league with wealth," and if you lack wealth or suffer disastrous financial reverses it is because you simply did not deserve, in the deity's eyes, to prosper. God rammed that iceberg up your kazoo as payback for your poor moral choices.

At 9:09 AM, Anonymous Anonymous said...

The problem is that Obama has no intention of changing any of this. Look at who is on his economic team. More of the same

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