Thursday, August 9, 2007

Bush's Herbert Hoover Blues

Sometimes it is hard to be an historian. You pick up the newspaper and the past stares you in the face. For example, there is a big crisis rapidly taking shape on Wall Street related to the bad debt incurred by the mortgage industry, which has led to a large rise in foreclosures. Since large numbers of people have their pensions tied involuntarily to the stock market through various public, union, and company pension plans which serve to "supplement" social security, (for higher income workers social security in reality is a supplement to these pensions) such developments are a real threat to the security of millions, not just stock market speculators and big investors. Also, since housing is a necessity, unless one considers homelessness an option, the dangers to many low and moderate income people with no savings paying off mortgages in a declining "housing market" with possible foreclosure staring them in the face represents a real social disaster.

So what is Bush's response? According to the New York Times today, he, speaking at the Treasury Department after discussions with department officials , referred to the escalating crisis as "not a cause for worry but a natural adjustment from the improvident lending of recent years."

Wow! At the beginning of the Great Depression, Andrew Mellon, Herbert Hoover's secretary of the Treasury, told Hoover to "liquidate" stocks, labor, farmers, everything, and let things "adjust." The depression, Mellon went on to say, was "not altogether a bad thing," since it would encourage the people to work harder and compete more now that the "easy money" was gone (the headline of the Times article by the way was "Bush faults Easy Money for Volatility). Of course, the "easy money" of the 1920s didn't exactly fall into the hands of the masses of working people and the wild stock market speculation of the late 1920s in the U.S. had a great deal to do with the policies of detaxation for corporations and the rich and the undermining of government regulation because that only weakened business confidence and investment that Mellon and advocated and to a considerable extent implemented in the Harding and Coolidge administrations before the depression hit under Hoover.

Bush's policies, reviving in an extreme way the Reagan spend and detax and deregulate policies of the 1980s, which were in themselves were a revivial of the right-wing Republican administrations in the 1920s and their doctrine of "trickle down" prosperity, have been the foundation for the debacle in the mortgage industry today, just as the Mellon policies of the 1920s helped to both bring upon the crash and then turn the crash into a general economic collapse (Reagan's policies, one should remember, led to the Savings and Loan disaster that American taxpayers will have been paying off for two decades and will continue to pay off for decades to come).

The U.S. was saved in the 1980s from a far-reaching depression, after the 1987 stock market crash, as Paul Volcker, the Federal Reserve Chair in the period, who was often at odds with Reagan, noted dryly, by the very regulatory structures and federal insurance protections that the Reagan administration was attacking.

But that was then, when Reagan and his successor George Bush I, were expanding the national debt from 1 trillion in 1981 to four trillion in 1992. The debt is over 10 trillion today, and countries like the Peoples Republic of China and Japan, whatever their substantial differences in terms of their economies and larger political social values, finance the U.S. debt, in effect lending the U.S. money so its citizens can buy their goods, the way the Republican administrations of the 1920s, with very different aims certainly than China today, lent European countries money at high interest rates so that they could buy U.S. goods while maintaining high tariffs in the U.S. against Americans buying any foreign goods. A global economy centered around a U.S. consumer economy swimming in consumer, state and corporate debt is untenable in the long run and may very well be untenable, given the Bush policies, even in the short-run.

And yet, just like Mellon and Hoover in the early 1930s , who responded to the depression by raising tariffs, refusing to even address the question of the necessity for relief (in both humanitarian terms and also in terms of reviving a collapsing mass purchasing power) and continued to entertain the fantasy that, as Hoover said over and over again, "the economy is fundamentally sound" and all would be well when international trade revived, Bush today literally said that the problem was that the U.S. a "weakening" of the "competitiveness" of U.S. as against international capital markets and said that he "discussed" the possibility of "further tax cuts and reduced regulation" as a solution.

Even the Times reporter, Steven R. Weisman, had difficulty reporting this with a straight face. In what I considered to be a tongue-in-cheek comment, Weisman noted that "Mr. Bush, who has a Master's Degree in Business Administration from Harvard, confidently used phrases like liquidity, risk assessment, and market adjustment to describe complex economic conditions. In the next paragraph, he referred to Bush's use of the term liquidity as "financial jargon" and mentioned subsequently that the Democrats were responding to the crisis "less philosophically" (it is hard to think of Bush as a philosopher) by calling upon the federally sponsored mortgage buyers to buy more loans and thus put money into the housing market (a sort of return to Keynesian fiscal policy that the Reagan and Bush administrations have seen, when the fiscal policy is not about military spending, as a liberal heresy to expunged from all economic policy.

Bush doesn't even have enough sense to realize that he is profoundly ignorant of the crisis that his administration has helped to engender. Unlike Hoover, who was left holding the bag for policies carried forward by his predecessors, Bush took an economy where there had been
significant deficit reduction in the late 1990s and modest but significant real wage growth and drove it into a mountain of debt, deepening economic inequality, and greater reliance on imports of everything which the debt sustained.

Bush's further comments that the Democrats demands to use the federal Fannie Mae and Freddie Mac agencies to prop up the housing industry was wrong because those agencies have had accounting scandals (under his administration, one has to add) and "have to be reformed first" was the kind of statement one might expect from a con man who contends the troubles he helped bring about in the past are an excuse for not doing anything about the troubles he is creating in the present. Bush's further statement that the crisis was not structural, but rather the result of borrowers failure to read the "fine print" of their mortgages and that "there needs to be financial education measures in place" was good for a laugh, but nothing more.

Bush also said that he would veto the Children's Health Insurance bill that the Democrats are pushing because it would raise taxes and "nationalize'(Weisman but that in quotes which did help me from falling over) the "health sector"(my quotes from Weisman) but what should
anybody by now expect.

One might mention to Bush that Herbert Hoover did say that federal relief and jobs programs, which the New Deal government eventually established, would "rot the moral fiber of the American people" but he would probably say that it did rot the moral fiber of the American
people, except those who voted for him.

In summary, there is a major economic crisis developing thanks to and with the assistance of the administration. Hopefully Bush and the Republicans will be out of power and a progressive administration in place before that crisis floods public agencies like the FDIC, the FSLIC, the federal lending agencies in place to protect the people from economic storms the way Hurricane Katrina flooded New Orleans while the administration watched and did very little.

Norman Markowitz

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