2008 The View From the Wage Earner
posted by on September 16 at 16:15 PM
Even with a common-man bank like Washington Mutual in trouble, the current financial crisis probably feels somewhat remote to people without real estate holdings and stock portfolios. (Which, I would guess, is a large chunk of Slog readers.)
If you don’t have stock, don’t do business with fancy places like Lehman Brothers, don’t own the place you live in, and don’t have bank deposits above the $100K limit for getting FDIC help if your commercial bank fails, then how exactly does this whole mess relate to you?
Here’s an answer, via Swampland:
While we have recklessly disregarded the need for prudent supervision of our banking and financial systems, the real problem is even deeper.For eight years we have papered over the fact that American consumers do not have the purchasing power to sustain economic expansion…
The wage and salary increases that have occurred since 2000 have not been sufficient to even maintain the level of income that most families enjoyed at the beginning of this decade. Employment has not kept pace with population growth. And even though worker productivity has increased by nearly 20 percent over this period, weekly wages are barely higher than they were on the day the current president took office.
Under normal circumstances, we would have seen the effects of slow wage and job growth much sooner in the economic cycle. But the Bush administration and their enablers at the Federal Reserve Board found a way to inoculate the economy temporarily from the fact that the paychecks which Americans were taking home were insufficient to buy the goods and services the economy was capable of producing. The prescription was easy credit—car loans, credit cards, and most importantly, mortgages.
The current crisis, then, has one root in all this easy credit, but a somewhat deeper root in the paychecks Americans are receiving. (And, of course, another, perhaps even deeper, root in the ratio of people who will live within their means no matter what to people who will borrow whatever it takes in order to live the way they wish to live.)
And if you don't rely on credit to live your lifestyle? I guess I just stay within my means, then.
And as a “Joe Sixpack” (the wages, certainly not the abs) kind of Slog reader myself, it looks as though our economy has shifted waaay far toward one that only functions well if consumer spending can be kept going going going. If that’s so, the combined shocks of reduced spending and the long, slow unwinding of housing prices will rock the economy pretty hard, in ways that will be obvious to us all on the level of daily life. I suppose that if it’s a good thing to move the economy toward a firmer base (assuming one can be found), then this collapseyness is an important part of getting started on it. Still, it won’t feel especially positive on a moment by moment basis.
As others have pointed out, our current regulatory environment privatizes profit while socializing risk. Starting in special trading sessions over the weekend, insiders today are continuing the process of carving up the assets of Lehman that were actually worth something while leaving the junk bonds to be eaten by somebody else. As in most other cases of deregulation-fueled debacles like this, that somebody else will probably ultimately be the taxpayers, who will be forced to bail out failing financial institutions. Currently it looks like insurance giant AIG is teetering on bankruptcy due to a domino effect.
What is the downside of issuing bad loans and offering credit cards to people with no income if you are not personally responsible for making up the losses? The last I checked, the people who got rich on the Mortgage Bubble are still rich, just like the people who walked away with all the money when the Savings and Loans all went tits-up in the eighties. Every time one of these bubbles bursts, a tiny class of very wealthy people walk away with not only the profits they made in the process of gaming the economy and precipitating these disasters, but pocketfuls of government bailouts and golden parachutes as well.
It is all part of a massive wealth transfer that is effectively bringing about the end to the middle class.
Car loans are going to be more difficult to get, credit card rates will probably also go up. Or, more insidiously the "penalty" interest rates will kick in if there's any issue with your account and stay there forever.
Western Washington will take much longer to recover from this recession than the rest of the country because our existing sales taxes are so high. They will act as an economic anchor, depressing consumer spending. And no, the fucking trains Sound Transit promises for 2025 won't be worth adding another .5% sales tax on top of the nasty 9.1% sales tax we pay now.
Happy with the REgressive tax structure our DEMOCRATIC political cabal in this State/City slapped on us over the past 20 years? You shouldn't be.
One thing that's never really been addressed is that the houses in mostly coastal US cities have appreciated far beyond the ability of most people to afford them anyway.
Traditionally, people can afford a house that's 3-4 times their gross household income. Even now with falling prices, the cost of houses in places like Hell-LAy, SF, Seattle, etc is more like 8-10 times average gross household income. In that case, it doesn't matter if fixed mortgage rates are 5.875 or 6.25 because most people will never be able to afford a mega-mortgage anyway and first-time homebuyers are locked out of the market.
Prices are going to have to fall further to bring them back into balance with most Americans reduced buying power.
We keep hearing over and over that house prices need to stabilize, but has anyone addressed that aspect of the housing crisis?
There is a place for regulation and government efficiency.
But not with America-hating Republicans.
Especially Dino Stalin Rossi and Karl Marx Rove, advisor to Commissar McCain and Reichsmarshall Palin.
1 to 2: .5 wreckless borrowers to 1 responsible person. I don't really know.
Economic dominoes.
See them fall!
The end of the American credit age!
And there followed another angel, saying, Babylon is fallen, is fallen, that great city, because she made all nations drink of the wine of the wrath of her fornication.
----------------> Revelation 14:8
On deck: WaMu
Economic dominoes.
See them fall!
since when is wamoo a common-man bank? what's common about the 5 scrapers they own downtown?
switch to a credit union, SMCU for example. better rates, much lower risk, local ownership (the members).
As long as ATM's and branch tellers are cashing paychecks, not much worries. The month bills are paid when the checks clear, so as long as that happens, those of us with investment portfolio's heavy in dvd's, comics, baseball cards, or vinyl records should be all good.
Back in the early aughts, the Argentina bank runs were started when the cash machines one after another stopped putting out bills. But that was when unemployment there was up in the 30% range, not the *yikes* 6% range we currently have. If those living month-to-month paychecks stop due to layoffs and downsizing... well, I guess unemployment checks need cashing someplace too. unless, if after 7 months, even those checks stop arriving, then things will be different. Bottom line... if unemployment doesn't grow, if the month-to-month wage earner keeps earning a wage, if there is money to spend, and cash withdrawals happen from a reasonable number of atms, then all will be good.
Comments Closed
Comments are closed on this post.