As Housing Implodes, U.S. Is at an Economic Tipping Point

By Danny Schechter, AlterNet. Posted July 17, 2008.

BOSTON -- Sorry Dr. Phil 2, it's time for us to do some whining, not about how bad things are but about what some bad guys are doing to destroy our country and our lives.

Whining of course is only a first step. After that, we need to recognize that we have a right, if not a duty, to talk about more than what the political candidates are talking about. We have to confront the real power brokers who have now broken our economy and are plunging us deeper and deeper into decline.

Are they, perhaps, "tipping" us, beyond that point of no return?

On Friday, July 11, as the world financial markets were quaking because of the threats to two government-linked companies with $5 trillion in mortgages, as the Senate rushed to complete a bailout bill for homeowners that may not bail anyone out, and as the Federal Reserve Bank announced tough new and perhaps irrelevant regulations on a subprime real estate market that has all but disappeared, news outlets were reporting the death of the owner of the Benihana restaurant chain and Larry King was doing another show about UFOs.

With a distraction machine working overtime, we seem to be living in a permanent three-ring circus, with a constantly titillating sideshow often sucking up most of the airtime and attention. Britney Spears has replaced the bearded lady from days gone by as the iconic draw.

In the central ring of this circus is the political campaign, with its focus only on the evolving Obama/McCain slugfest. Every sound bite, grimace, phrase and gasp is grist for endless punditizing with little in-depth analysis of the issues.

In the second ring, there's the news of the world that usually means superficial reporting about America in the world. Then comes the daily partial war body count and visuals about where the president is this week. Now we are also getting some news from China about the Olympics and back-and-forth about whether there will be an attack on Iran.

That's about it!

In the third ring, the economic crisis is slowly coming into focus only because it can't really be ignored even though both major candidates try to focus on minor reforms rather than a structural transformation.

A year ago, the Dow was about to hit 14,000; this past week it dropped below 11,000. Panic, volatility and fear can no longer be contained. On talk radio, conservative callers still mostly lambaste irresponsible borrowers, but more and more they recognize that this crisis is systemic and nonpartisan in origins.

Even John McCain's ex-CEO economic adviser, Carly Fiorina, who of course doesn't want to blame anyone or name anyone, says, "There was a situation where there was greed on Wall Street, there was a lack of transparency around a new set of financial instruments. ... There were a whole new set of financial players who were less regulated than banks, and all that together created a situation, which now is rippling through the economy."

"A situation" -- that's a rather vague way of putting it.

As it turns out, one of McCain' closest advisers, Phil "Mr. Mental Depression" Gramm, played a direct role in planting the seeds of the subprime "situation" that started the ball free-falling downhill and gathering more than mere moss.

Appearing on Democracy Now with Amy Goodman, journalist David Corn explained that it involved "a sly backroom legislative maneuver mounted by Phil Gramm, who was Republican chairman of the Senate Banking Committee in the '90s."

It was the week that the Supreme Court was giving the election to George W. Bush. As often happens in Washington, Congress had yet to pass most of the appropriation measures that are needed to before that Congress coming to a close, and so they were lumping together, you know, six, seven different appropriation bills into one mega-bill, working all hours of the day. ...

And in the midst of all that chaos, Senator Phil Gramm slipped into this must-pass spending bill a 268-page bill, the Commodity Futures Modernization Act. ... A portion of the bill deregulated these financial instruments called "swaps." ... The problem is that these swaps, thanks to Phil Gramm's bill, are totally, totally unregulated, and the swap market is something like now about four times the size of Wall Street, in terms of securities that are regulated. And it really turned a lot of the economy into a secret casino, all this action going back and forth, people betting on bets.

And how this related to the subprime crisis is, about this same time, you know, securities firms started bundling all these bad or risky mortgages and securitizing them, and then they would sell these securities or buy them and then buy swaps or sell swaps to cover the possible loss. So it really enabled a lot of firms to go hog wild on the subprime stuff.

The subprime "stuff" has now led to a massive rise in foreclosures and a fall in profits as investment banks are forced to write off billions in bad investments. That in turn destroyed credit markets and confidence in Wall Street. Even after interest rates were cut seven times by the Fed, little improvement was registered, and there was a rise in joblessness and inflation.

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News Dissector Danny Schechter made "In Debt We Trust," warning of the crisis, and has written Plunder, a new book chronicling its spread. He is also involved in the HomeSweetHome Project, with songs against foreclosures. Send comments to Dissector@mediachannel.org.

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