Preamble to a Legislative Travesty: Bailout Bill of 2008
By Edwin L. Young, PhD
March 24, 2009
The media shills for this bill have blinders on their eyes and can only see this issue from the perspective of the wealthiest ten percent of Americans and the financial institutions that serve, almost exclusively, them. For example, the cry that the ‘people’ will not be able to buy cars and homes, will lose their pension funds, will lose their jobs, etc. is totally bogus. This has been true for the ordinary American for the entire span of the Bush Administration. We hear such a loud outcry on TV because it is the wealthy who can afford to pay for those outcries. And, remember, someone had to be able to buy those stocks yesterday when the DOW JONES market fell by 777. That was not the poor and middle class buying those stocks. It was the rich who would stand to make huge profits if the bailout is passed.
(REVISED) Foreclosure Crisis, Mother Jones on Credit Crunch (See at Bottom), A Metastasizing Global Financial System (See at Bottom), and Kucinich’s Opposition to the $700,000,000 Bailout (See at Bottom), and Finally, My Advice to Obama
Median and Average Sales Prices of New Homes Sold in United States
Please take a moment to peruse the chronological list of Median and Average Sales Prices of New Homes Sold in United States.
When the average is this much less than the median, it means that the upper 50% have much more expensive homes. The divergence of the median above the average began to escalate rapidly from the 1963 Period Average Sale Price of New Homes $18,000 versus the Median Sale Price $19,300 = only +$1,300
to the 2007 Period with the Average Sale Price of $247,900 – (minus) Median Sale Price of an extreme of $313,600 = +$66,000. The biggest escalation took place in the last seven years. If we had more accurate statistics, we would probably see that the top quadrant or top 10% paid for home purchase was more like $1,000,000 (one million dollars). Many of the latter were probably investments made with the Bush tax cuts and refunds combined with home equity loans. Now these are the people begging for the 700 BILLION DOLLAR BAILOUT.
Median and Average Sales Prices of New Homes Sold in United States Annual Data.
Average Median
1963 $18,000 $19,300 +1,300
1964 $18,900 $20,500
1965 $20,000 $21,500
1966 $21,400 $23,300
1967 $22,700 $24,600
1968 $24,700 $26,600
1969 $25,600 $27,900
1970 $23,400 $26,600
1971 $25,200 $28,300
1972 $27,600 $30,500
1973 $32,500 $35,500 +16,000
1974 $35,900 $38,900
1975 $39,300 $42,600
1976 $44,200 $48,000
1977 $48,800 $54,200
1978 $55,700 $62,500
1979 $62,900 $71,800
1980 $64,600 $76,400
1981 $68,900 $83,000
1982 $69,300 $83,900
1983 $75,300 $89,800 +54,000
1984 $79,900 $97,600
1985 $84,300 $100,800
1986 $92,000 $111,900
1987 $104,500 $127,200 +37,000
1988 $112,500 $138,300
1989 $120,000 $148,800
1990 $122,900 $149,800 +22,000
1991 $120,000 $147,200
1992 $121,500 $144,100
1993 $126,500 $147,700 +$13,000
1994 $130,000 $154,500
1995 $133,900 $158,700
1996 $140,000 $166,400 +19,000
1997 $146,000 $176,200
1998 $152,500 $181,900
1999 $161,000 $195,600 +29,000
2000 $169,000 $207,000
2001 $175,200 $213,200
2002 $187,600 $228,700 +33,000
2003 $195,000 $246,300
2004 $221,000 $274,500
2005 $240,900 $297,000 +69,000
Period Median Average
Median and Average Sales Prices of New Homes Sold in United States
Annual Data
2006 $246,500 $305,900
2007 $247,900 $313,600 +$16,000
From 2000 to 2007 the median price increased by $206,000
Note: The sales price includes the land.
What would you conclude from these figures on the history of the housing market? Who are the ones who will be hurt if there is no Bailout? Who will be hurt and who will be helped by a credit crunch? See Mother Jones below:
In 2007, Mother Jones came out with this analysis of the credit crisis facing US families:
http://www.motherjones.com/news/exhibit/2007/09/exhibit.html
See what Dennis Kucinich (in short nix it) has to say about the 700 billion bailout and other commentary on it at Democracy Now:
http://www.democracynow.org/2008/9/29/is_this_the_united_states_congress
Compounding the Problem with Stock Trading over the Internet
Electronic Communication Network (ECN) has automated stock order processing and provided brokers with the latest competitive price quotes via a computer terminal instantaneously.
With its advent, the more advanced ECNs would gradually develop from regulatory changes that began to be developed out of a 1994 U.S. Justice Department investigation of possible antitrust violations by Nasdaq itself. Prior to the ECN, the number of errors brokers made in trading stocks for customers was exorbitant and ECN brought an end to that problem.
The Nasdaq adopted new order handling rules that integrated ECNs into the Nasdaq system. Shortly after this settlement, the SEC adopted Regulation ATS, which permitted ECNs the option of registering as stock exchanges or else being regulated under a separate set of standards for ECNs. Naturally, the move was overwhelmingly to the ECN and its regulations. However, during this Bush administration, regulators were given the wink and allowed to look the other way, permitting gross disregard of regulations by the giant Savings and Loans, Investment Banks, and Brokerage Houses.
Here is a brief history of how volume of trading of trading was affected by the EC|N:
In 1970, there were 2,231,200 stock exchange trades per day.
In 1989, there were 546,493,600.
At first, when stock exchanges made the transition to ECN there was sudden drop in the number of daily trades: In 1994, only 72,000,000 (MILLION) per day. Two years later, as the market adjusted to internet trading, daily trades rose to: 1996 101,000,000+. Then, post transition to ECN, five years later, the number of daily trades zoomed astronomically: 2001 (pre 9/11) the volume was 5,555,000,000 (BILLION) and has remained at that level since ECN normalized.
The International Stock Exchange (ISE) became operative in 2007. Since that time, mergers and acquisitions have constantly reduced the number of trading exchange institutions and investment banks.
My View on the $700,000,000 Bailout vs. the $25,000,000 GM Loan Is as Follows:
Concerning the GM hydrogen-electric cars and $25 billion subsidy from US, here are the facts.
The Volt comes during a turbulent time for GM and the U.S. economy. Why? Because auto sales plummeted as gasoline prices escalated. The automaker lost $18.75 billion during the first half of the year. Along with other automakers and suppliers, GM is lobbying Congress for $25 billion in loans to help retool plants for hybrid and electric technologies. The US big three automakers’ loans would total $50 Billion. Bailing out US financial institutions may not be justified, but there is a big difference between them and the auto industry. The financial institution crisis was created by the Bush economic policies such as huge tax cuts that caused an irrational exuberance and rush to invest in real estate by people who were ill equipped to maintain such exorbitant investments, especially when their energy costs and cost of living rose and jobs shipped out. Conversely, the decline in the auto industry is directly related to the Bush administration’s favoring Oil industry and foreign policy that has threatened Oil supply, and on and on. While home owners and mortgage companies may deserve relief (setting aside whether this policy is advisable), certainly the ‘systemic’ problem with energy, i.e. dependence on foreign oil and the damage fossil fuels are causing, deserves funding to assist retooling for hydrogen-electric cars. This, at least, begins to solve so many of these problems, not the least of which are those problems affecting but not caused by the auto industry. This seems more than justified in light of a consideration of the broader view for our nation. Wagoner pointed out that the loan program was approved as part of last year's energy bill to help automakers retool plants to meet stringent new standards for fuel efficiency. However, funding for the program has not approved, as yet. OK, now the auto industry loans have been approved.
Just consider that the Chevrolet Equinox Fuel cell vehicle uses hydrogen for fuel, and its only emission is water, as does the Volt and others from GM and quite a few other domestic and foreign automakers.
These new autos are ready now and their factories could be ready to roll them off retooled assembly lines in 25 months if retooling loans are passed by Congress.
The big problem in the US, but not such a big problem in Canada and Europe, is the fueling station infrastructure. Neither should wind energy be a problem for us, as it requires only minimal new infrastructure. Since hydrogen and liquid natural gas can both be installed in current gasoline service stations quite easily if there were loans available to do so, why is the government stalling? Well, you probably guessed it. The big oil companies who are flooding the airways with ads for more drilling are diverting attention and having far too much influence on Congress. These conscienceless monsters are the big stumbling block.
Well, think about this. The peace, stability, and population welfare of the entire world, as well as the fateful Climate of the earth, hangs on whether we have the wisdom and will to convert to these new brands of vehicles and new forms of energy and build the necessary infrastructure. It would be far less costly to pay for these conversion programs than it would be to deal with the disastrous effects of continuing on our current greasy course. Congress cannot afford to be weak-willed about this issue because it is truly matter of life and death for our planet and its people and not a singular matter of bailing out GM and the other US auto industries.
It is the system! I do not mean just the financial system, nor the system inclusive of the branches and agencies of the government, nor independent regulatory system, nor free enterprise and capitalism. Rather, it is all of these plus multinational corporations, plus US corporate law and especially the Sherman Anti-Trust Act and Clayton Act and the economic regulatory agencies; plus the Tax system and recent tax legislation; plus the structure of the media and the FCC; plus the structure of our two party election system and its system for campaign finance; plus the marketing and advertizing sector; plus the conspicuous consumer culture; plus our monetary system; plus the IMF and World Bank; plus the all parties involved in the our energy system; plus the exploitation of the natural resources and labor of underdeveloped countries by the developed nations; plus the failure of public policy to heed the scientific and engineering community; plus the structure of our educational system; plus the structure of the lobbying system and its undue influence; plus the blind subservience to ideology rather than pragmatism; plus the worship of the past, especially a constitution that has not been revised to adapt to the modern world that is so vastly different from 18th century America.
No, pointing the finger of blame at CEOs or even agencies is a philosophically deadly ineffectual way to approach our current problems. Rather, we must step back as mature, knowledgeable, intelligent leaders and take on the daunting task of examining each of these systems and examining them all as components of the encompassing, interconnected, structure and systems of our nation and gradually but systematically experiment with alternative solutions across the entire spectrum and then revise as flaws are detected in each. Management by objectives is one tool from the business community that could be of great help in achieving these goals.
September 2008 Will Live in the History Books
This debacle is history repeating itself. It may seem odd, but I see what is taking place as reminiscent of the nineteenth century wherein the government ripped off the Indians. However, the Indians knew they were being ripped off. Today, the people may be suspicious but they do not know what is going on. That is because our economy and financial systems are such far-flung, elaborately filigreed lattices, and so arcane and complex that no one but a small handful of the brightest of non-governmental economic experts know what is going on and maybe no one fully understands. It was comforting to hear Senator Shelby say that he has on record over 200 of these experts saying they disagree with Paulson.
Advice to Obama
Obama, do not discount Kucinich! I will vote for you no matter what position you take on the Bailout. However, while it may be noxious and difficult, the 700 billion bailout must not pass. Average Americans will have to learn to rein in the impulses to indulge in use of the credit cards. The upper income housing speculators will have to live with their losses but their economic circumstances will make it possible for them to eventually recover and be the wiser for it. The opulence of the Wall Street companies and the dandies of world of high finance will have to live a slight bit less lavishly.
The main work for Congress and the new Obama administration will be to reverse the Bush Tax policy that favors only the very rich; rewrite fair and tight Anti-Trust Laws, prohibiting global monopolies; stop blackmailing underdeveloped countries with IMF, World Bank, and US loans so that they have to sell out their natural resources at out bidding; end corporate loop holes and overseas depositing (e.g. Cayman Islands) to avoid taxes; work toward fair labor laws worldwide; end big subsidies to corporations like Oil corporations; and finally to develop regulations of Wall Street and the major financial institutions that will put an end to the bias of Washington toward them and begin to favor the financially naïve average American.