A Crash Course in Economic Crashes

By Larry Beinhart, AlterNet. Posted September 16, 2008.

The first time I was in a car crash, I was 6 or 7 years old.

That's a long time ago. But there are certain things about it that I remember quite vividly.

My father was driving. The road was icy. We began to slide. This was in the days before seat belts, and cars had bench seats, upholstered but not shaped for each individual bottom. My father shot out his right arm and pressed me against the seat back to keep me from flying forward if, indeed, we were going to end up hitting something.

What was most extraordinary was how long it seemed to take. How time slowed while we slid forward and sideways, heading onto the shoulder, then past it. It seemed as if we had all the time in the world, yet there was nothing we could do to get off the ice, alter the trajectory, slow down ... nothing ... until we crashed.

As I read the economics news, I'm having that exact same sensation that we're in a slow-motion crash.

Each week, sometimes daily, we slide by a new warning sign, another wreck that's already off the road.

The new one is Lehman Brothers.

Before that, Fannie Mae and Freddie Mac. Before that, Bear Stearns.

In August, "one in every 416 U.S. households entered the foreclosure process." In spite of a 2005 law that made personal bankruptcies more difficult and that allows creditors to squeeze money out of people even after they've gone bankrupt, personal bankruptcy rates are soaring. General Motors stock has been trading at 1950s prices. Like GM, Ford is laying off thousands of workers. Both of them are asking for federal assistance to survive. Pension funds are routinely failing.

Then there are my personal experiences.

Like when I go to the gas station and watch the ticker on the pump go up over $50, $60 and then $70 to fill the tank. Or when I go to the supermarket and lay down $140 for what cost me $90 a year or so back.

From time to time I run into rich people or their handlers. In February I was traveling with a lawyer from one of New York's leading law firms. He does the legal work on IPOs. He told me the firm's January 2008 business was down 90 percent from January 2007. A couple of days ago a hedge fund guy dropped in on our regular tennis doubles game. Between sets he mentioned how hard it was to get credit these days. "On a secured loan," which means 40 percent backed by assets, mostly commercial real estate -- he was talking about $120 million and up -- "the banks want 20 percent interest."

Every analyst I see or hear blames it on the "housing bubble" and the "subprime mess."

That doesn't seem right.

It doesn't explain why the dollar has lost about a third of its value against the Canadian loonie and the euro, among others, or why gold is bouncing up against the $1,000 ceiling -- both of which happened before the bubble sprang a leak.

It doesn't explain why the stock market -- as measured by the Dow Jones average -- is down (adjusted for inflation) about 15 percent from 2001. Moreover, at its peak during the Bush years, it was only 14 percent (adjusted) over the 2001 mark.

It doesn't explain why median income is down -- depending on who's reporting it -- $700, $1,000, $1,200 per person, over that same time period. Even median family income, with more people working per family, is down.

It doesn't explain why, during the so-called Bush boom, corporate profits were at an all-time high, but corporations were starved for places to invest the money.

Let us presume that government policy has an effect on the economy.

What are the policies that have produced this economy that's on an icy road, sliding in slow motion toward the cliff, or, if we're lucky, maybe just into a ditch?

The core, the very heart of Bushonomics, is cutting taxes, especially for the wealthy.

I find it impossible to figure out what George Bush's motivations for anything are. He may have that impulse because he himself, his family and his friends are all very rich and they'll save themselves millions of dollars over the years. Maybe it's political. As he once said, the super-rich are his "base." It may be a class thing, borne of the belief that rich people are rich because they're better and will do better things with the money. It may be the mystical belief that "the market" makes everything better.

Whatever the truth is, the tax cuts were sold as economic stimulus and jobs packages with the promise that they would not create deficits. This last was based on a romantic Ayn Rand vision of millionaires racing into the backwoods to build, build, build new businesses that would create jobs, "good jobs," and new taxes would be paid by the businesses and the workers, making up for the initial deficits.

Alas, none of that ever happened.

Deficits were created.

Bush went on a war spending spree. That made them bigger. Whatever boom there was did not create sufficient revenue to the government to make up for deficits.

See more stories tagged with: lending crisis, financial crisis

Larry Beinhart is the author of Wag the Dog, The Librarian and Fog Facts: Searching for Truth in the Land of Spin. All are available at LarryBeinhart.com. His new novel is Salvation Boulevard (Nation Books).

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