June 4, 2011
THEY SAY THAT 'MONEY MAKES THE WORLD GO ROUND.' YET THE MINDLESS PURSUIT OF MONEY MAKES THE WORLD COLLAPSE, GOING ROUND AND A ROUND IN A DEATH SPIRAL.
Jeff Madrick, Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present (New York: Knopf, 2011) ("Greed will always be with us, but it rises and falls with the times. Some rebalancing between government and business may have been necessary by the 1970s, and some reworking of government programs was needed. But the reforms went blindly ahead. Vital purposes of government were rejected. An age of greed did not begin in the 2000s. It started decades earlier, and the crisis of 2008 was not its culmination, and probably not its end." Id. at x. The players: Lewis Uhler, Walter Wriston, Sandy Weill, Ayn Rand, Alan Greenspan, Tom Peters, Jack Welch, Paul Volcker, George Soros, Milton Friedman, The Chicago School of Economics, The Chicago School of Law and Economics, Richard Nixon, Arthur Burns, Leverage Buyouts, Hostile Takeovers, Ivan Boesky, Michael Milken, Ronald Reagan, Angelo Mozilo and on and on, and including you and me as stupid consumers who jumped on the greed wagon and who discarded the old value that a penny saved is a penny earned.'' "More to the point, consumers were supporting the economy by reducing their savings or borrowing in light of their newfound--if temporary--wealth in the stock market. Personal savings as a percentage of GDP was around 8 percent in Greenspan's early years as Fed chairman, and 12 percent at the start of the 1980s. By 1988, the rate had fallen to 4 percent and was heading to 2 percent in 1999. Even the federal budget surpluses were the result of significant degree of temporary increases in capital gains tax collections. The soaring stock market led to outsized profit for investors, who took them, and paid more taxes to the federal government. This bonanza would soon end. Id. at 241-242. "The low rates between 2000 and 2004 were the lifeblood of the housing boom. Thousands of new mortgage brokers, and twenty or so giant ones, were vying with one another to sell mortgages to lower-income Americans, relying in particular on adjustable rate mortgages, or ARMs. Buyers paid low interest rates in the first two years of the mortgages after which rates rose, usually substantially. But with house prices rising relentlessly, the homeowner could refinance with another ARM, or pay down some of the mortgage and reduce the monthly payments. A rapidly growing number of these were subprime mortgages, sold to home buyers with poor credit, But middle-income Americans also often took ARMS, to buy homes once out of their reach. With rates so low and no federal oversight, mortgage lenders practices, long suspect, became widely abusive. Even the FBI warned in 2004 of an 'epidemic' of fraud in subprime mortgage writing, but it had devoted so many of it resources to antiterrorist activities, it had little left to pursue unscrupulous mortgage brokers." Id. at 244. And, then, the music stopped.).