Print Edition: September 20, 2008
WANT TO INVEST IN MY NEW BUSINESS?
What if I told you this? I’ll be going door to door in Cadillac next week looking for investors in my new business. What I’m going to do is build a whole bunch of houses. Then I’m going to sell those houses only to people who can’t possibly afford them. They will, however, be able to move into the houses because I’m going to give them the money I collect from my investors, minus a fee for my time and trouble. Eventually, the buyers will be unable to make their outrageous house payments so they’ll be out in the street. The people who loaned them the money (all my investors) will lose their money too.
Now this might not seem like a good deal for everyone, but that’s because you don’t understand business. The key thing to remember is that by the time all the buyers and investors realize what has happened I will have collected several performance bonuses and will be enjoying a hefty golden parachute retirement package. That’s all that really counts here.
My guess is that if I came to your door with this business opportunity you’d do one of three things: 1) Slam the door in my face, 2) Physically toss me head first off the porch, or 3) Head for your gun cabinet. Why? Because no human being with an intelligence level higher than a cinder block would even consider such a hair-brained, completely ridiculous, and downright dishonest scheme. You’d spot this con job coming down Mitchell Street from five miles away.
Unfortunately, my friends, that is what the current Wall Street mess boils down to. I’ve read millions of words, looked at hundreds of charts, and listened to scores of so-called experts and it still comes down to this: You can’t base your entire banking, building and real estate industries on selling people houses they can’t afford and have no way of paying off. Yes, some people will make short term profits, but in the long run it’s a house of cards that the slightest breeze will collapse. Billionaire financier Warren Buffet has called these practices "financial weapons of mass destruction." Guess what? Boom!
USA Today noted: "Analysts say too many companies have borrowed too much to buy high-risk assets backed by subprime mortgages, which are loans made to borrowers with poor credit." In ad editorial the paper also observed that the reasons behind these maneuvers included a quest for ever higher profits and bonuses.
In essence, these characters knew what they were doing and didn’t care. They were getting their share of the American dream and if the lives of the little guys, like the average citizens of Cadillac, got trampled along the way so be it. This is another example of how trickle down in theory has run amuck to become tinkle down in practice.
Ah, but wait, you say. Our buddies at the Federal Reserve will fix things. Not so fast. You need to realize that the Federal Reserve is not really Federal and not really a Reserve. It’s an association of twelve banks under the supposed guidance of Congress. Here’s the way it describes itself in its own documents: "As the nation's central bank, the Federal Reserve…is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms… Therefore, the Federal Reserve can be more accurately described as "independent within the government…The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation's central banking system, are organized much like private corporations…"
In fact, as recently as this April a United States Federal Court of Appeals ruled: "Federal Reserve banks are not federal instrumentalities…but are independent, privately owned and locally controlled corporations…"
Without beating this to death, the bottom line is what you’re now seeing with the bailouts of Wall Street firms and companies like AIG is the banks taking care of their own. They’re members of a closed club and what’s best for you, the American citizen, is not a consideration. There’s no money for things like universal health insurance, for example, but when banks need a handout there just happens to be $85 billion sitting around doing nothing.
Just remember, these same birds are the ones who have benefited most from the Bush tax cuts. They are also the same crowd to whom George Bush wanted to turn over the Social Security system. Can you even imagine what a calamity we’d be seeing now if that had happened?
What to do? John McCain wants to assemble a commission to study how this all happened. Hey John, here’s an idea, why don’t you just ask your chief financial advisor Phil Gramm? He’s the one, while a senator, who led the charge to get rid of oversights in the housing market.
Barack Obama wants to end tax cuts for the wealthy and then spend that money. Hello, Barack, ever hear of the national debt? You might want to reduce that first.
What a tragic state of affairs. All because a "business practice" that any sane person, any average person on the street, even fairly observant farm animals could have predicted was doomed to certain failure – was allowed to run unfettered by any sense of corporate ethics or governmental oversight.
I just hope we have enough integrity to apologize to our children for our legacy. Herbert Hoover may have been right when he said: "Blessed are the young, for they shall inherit the national debt."
Jim Neff is a local columnist. Comments to neffzone@gmail.com. Read Neff Zone columns online at www.neffzone.com/cadillacnews.
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