So last week we discuss the distribution of wealth in the US, how inequitable it is, and how damaging it is to our economy. I briefly spoke of our healthy economy that was made up of 70% of consumer spending. So what happened? How did we go from that, which was pre 2008, to the economy we are seeing today? And who is to blame? Like the old saying says, follow the money. So let's do that, but the easiest way will be to start at the beginning. This is a long story that will take several posts to explain, so today let's just focus on how this started.
It goes back to before 2008. The tech bubble had just burst, and then 9/11 happened. We were in a perilous economic time in our history. We all remember President Bush (W) making his special appearance to tell us that we were in danger of an economic crash. He may not have used those exact words, but that is what he meant. So what happened after that?
We created another bubble. This bubble was a mortgage and credit bubble. How did this bubble form? It started with mortgage companies, Countrywide is a good example, but not the only guilty mortgage company. They were making something called liars loans. Liars loans are loans that are given with no documentation of income or ability to repay the loan. There were waitresses reporting incomes of $12,000.00 a month; Janitors reporting $10,000.00 a month! No way were waitresses and janitors making that kind of money. If that was true, you would see a lot more people wanting those jobs. I was a bartender at the Sturgis motorcycle rally when I was in college. I did it for years, and that is some serious money, and even with all of that money being thrown around I never would have made $12K in a month. The idea of it is just ridiculous on its face.
Now I know what you are thinking. Why would these mortgage companies give loans to people that wouldn't be able to repay them? Because they weren't keeping the loans. Since they weren't keeping the loans, they didn't care if they could be repaid. They would make their money by bundling the loans together and selling them to Wall Street banks. Now Wall Street banks have criteria that must be met in order for a loan to be held by them. A man by the name of Richard Bowen, who was the Business, Chief Underwriter of Citibank, noticed that 60% of the loans they had purchased from these mortgage companies did not meet their credit criteria. He reported this to several people, all high ranking executives including the CEO, but to no avail. They were not worried because they were also bundling and selling these loans. Some went to Freddie Mac and Fannie Mae, others went to countries like Iceland, who ended up bankrupt when it all crashed. Yep, we bankrupted a country! We'll talk about that more in future posts.
This bundling of loans is called CDOs, Collateralized Debt Obligations. It is a bundling of loans, also bonds and other assets, that are then divided into different risk assessments. Financial services companies like Standard and Poors, Moody's, and Finch were grading these loans. The grading these companies gives lets investors know how risky these investments are. Now these loans were junk. 60% of them at least were going to fail. But that didn't stop these agencies from giving them a AAA rating, the highest rating. This meant to investors that this was a safe investment, even though it wasn't. Why did these agencies give the highest credit rating to these junk loans? Because the banks were paying them to rate them. If they gave high ratings, the banks would keep bring them more business and they would make more money too.
This was just the beginning of the crash. This led up to it. Once those loans started failing, the you know what hit the fan! Everyday a large corporation was failing. Bear Stearns, Lehman Brothers, AIG, Freddie Mac, Fannie Mae. Watching the news was terrifying because you didn't know who was gong to fail next. Bear Stearns went under in 7 days! It was all unraveling so fast!
So next week we are going to talk about these companies. We will also talk about Henry Paulson and Ben Bernanke, and the decisions they made. I'll also speculate (educated guesses) at why they did what they did.
Until then much love to you all and (((HIPPPIE HUGS)))
Luci
Showing posts with label inside luci's head. Show all posts
Showing posts with label inside luci's head. Show all posts
Sunday, March 17, 2013
Sunday, March 10, 2013
Inside Luci's Head: Wealth Distribution, What We Think It Is and What It Really Is
Distribution of wealth. We have all heard a lot about this lately, but what is the real wealth distribution, and what does it mean to us in our everyday lives? I found a fantastic youtube video that explains this in a very clear and concise way. It is only 6 minutes long, and well worth every second. This video will show you what people think wealth distribution should be, what people think the wealth distribution is, and what the distribution of wealth really is. The difference between what people think it is and what it actually is is stunning!
So now you know what the distribution of wealth really is. So how does this affect you in your everyday life? It is really pretty simple. The more concentrated the money is, the less money the average person has. When our economy was strong, 70% of it was from consumer spending. When the consumers don't have money to spend, it is impossible to maintain that 70% consumer spending that we saw in the strong economy. The wealthy don't need more money and it is harmful to our economy because they don't spend it. When spending shrinks, the economy shrinks.
Quality of life will also shrink for most of us. We won't be able to afford the same level of housing, food consumption (hello ramen for dinner!), gas consumption, vacations, reliable cars, all of the things you spend money on. You won't, or likely already don't, have the same amount of disposable income that you once had. And all the signs point to it getting worse, but no one wants to say that.
As consumer spending drops, businesses will shrink. As businesses shrink, more people will lose their jobs. Which leads to more unemployment, and we already have enough of that. Yes, the unemployment numbers look better, but that is because it is only accounting for people that are collecting unemployment. It doesn't account for those long term people whose unemployment benefits have run out. Or people like my boyfriend who finished school and then couldn't find a job. Because his pay in school came from grants, he didn't qualify for unemployment. The numbers you see in the media are misleading. And I hate the term "people who have given up looking for work". Who has given up looking for work? As long as you have a home and bills, you will be looking for a way to pay for them. And that will require work.
So what can we do? Well, we can make the capital gains tax equal to the tax on money that is earned for starters. We don't need to tax the rich more because that wouldn't be fair. However, them paying a lower tax rate on capital gains isn't fair either. Make them equal. We can eliminate the tax break for corporations on meals and entertainment. We could end the subsidies on oil, but we would then need to be prepared for higher gas prices.
We do need to cut spending, but the austerity implemented by the sequester isn't the answer. That is going to hurt people, without any kind of help. No one likes to pay taxes, but when you live in a society there is a responsibility to take care of each other. A country is only as good as its population. If the citizens are suffering, like the citizens of the United States are, the country looks weak. Eventually we will look (be) a third world country, with even more people living in the streets, an uneducated population, and a country full of sick people that won't have access to health care (which means we will have a work force that is unproductive and ineffective). This is not the path we should take. We don't need to do this! It doesn't have to be this way!
How we got here is a long story, but next week I will begin to explain that. We will go back to 2008, and examine what went wrong, who did it, and why they did it. Until then, write your senators and congressional representatives. Tell them you want a fair and balanced system. Tell them you will not sell out the poor and the middle class to feed an elite rich class of people. Is it class warfare? You bet it is, but the poor and middle class did not start it. The rich started it by pillaging the middle class, and the poor. Someone once said that the end result of capitalism is one person ends up with all the money, and we are starting to see that now, but it doesn't have to be that way. Demand jobs that pay a living wage. Demand equal taxation. Demand that the people you elected take care of you, and if they don't then don't vote for them again. Read about the financial crash. Learn about what happened, and how you, the average person, were completely ripped off.
Until then, much love to you all and (((HIPPIE HUGS)))
Luci
So now you know what the distribution of wealth really is. So how does this affect you in your everyday life? It is really pretty simple. The more concentrated the money is, the less money the average person has. When our economy was strong, 70% of it was from consumer spending. When the consumers don't have money to spend, it is impossible to maintain that 70% consumer spending that we saw in the strong economy. The wealthy don't need more money and it is harmful to our economy because they don't spend it. When spending shrinks, the economy shrinks.
Quality of life will also shrink for most of us. We won't be able to afford the same level of housing, food consumption (hello ramen for dinner!), gas consumption, vacations, reliable cars, all of the things you spend money on. You won't, or likely already don't, have the same amount of disposable income that you once had. And all the signs point to it getting worse, but no one wants to say that.
As consumer spending drops, businesses will shrink. As businesses shrink, more people will lose their jobs. Which leads to more unemployment, and we already have enough of that. Yes, the unemployment numbers look better, but that is because it is only accounting for people that are collecting unemployment. It doesn't account for those long term people whose unemployment benefits have run out. Or people like my boyfriend who finished school and then couldn't find a job. Because his pay in school came from grants, he didn't qualify for unemployment. The numbers you see in the media are misleading. And I hate the term "people who have given up looking for work". Who has given up looking for work? As long as you have a home and bills, you will be looking for a way to pay for them. And that will require work.
So what can we do? Well, we can make the capital gains tax equal to the tax on money that is earned for starters. We don't need to tax the rich more because that wouldn't be fair. However, them paying a lower tax rate on capital gains isn't fair either. Make them equal. We can eliminate the tax break for corporations on meals and entertainment. We could end the subsidies on oil, but we would then need to be prepared for higher gas prices.
We do need to cut spending, but the austerity implemented by the sequester isn't the answer. That is going to hurt people, without any kind of help. No one likes to pay taxes, but when you live in a society there is a responsibility to take care of each other. A country is only as good as its population. If the citizens are suffering, like the citizens of the United States are, the country looks weak. Eventually we will look (be) a third world country, with even more people living in the streets, an uneducated population, and a country full of sick people that won't have access to health care (which means we will have a work force that is unproductive and ineffective). This is not the path we should take. We don't need to do this! It doesn't have to be this way!
How we got here is a long story, but next week I will begin to explain that. We will go back to 2008, and examine what went wrong, who did it, and why they did it. Until then, write your senators and congressional representatives. Tell them you want a fair and balanced system. Tell them you will not sell out the poor and the middle class to feed an elite rich class of people. Is it class warfare? You bet it is, but the poor and middle class did not start it. The rich started it by pillaging the middle class, and the poor. Someone once said that the end result of capitalism is one person ends up with all the money, and we are starting to see that now, but it doesn't have to be that way. Demand jobs that pay a living wage. Demand equal taxation. Demand that the people you elected take care of you, and if they don't then don't vote for them again. Read about the financial crash. Learn about what happened, and how you, the average person, were completely ripped off.
Until then, much love to you all and (((HIPPIE HUGS)))
Luci
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