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Friday, May 04, 2012

The Machiavellian vs the Proletariat - whose economy is it, anyway?

"You sit around here and you spin your little webs and you think the whole world revolves around you and your money. Well, it doesn't, Mr. Potter. In the whole, vast configuration of things, I'd say you were nothing but a scurvy little spider!" - George Bailey, from the 1946 film, "It's a Wonderful Life"
In this crazy capitalist, consumer-driven economy of ours, you can be the populist hero George Bailey or the manipulative banker, Mr. Potter. Mitt Romney and his surrogates, want to remind you, though, that even George Bailey was a money lender. His Building and Loan went broke because Potter called in the note, and there was no money when the people came for it.

In 2008, according to Mitt Romney's friend and colleague at Bain Capital, Edward Conrad, it was the investors who panicked and caused a run on the banks, wanting their return when the short term investments didn't pay off. "The banks did what we wanted them to do," Conrad said in a recent interview with New York Times writer, Adam Davidson. "They put short-term money back into the economy. What they didn’t expect is that depositors would withdraw their money, because they hadn’t withdrawn their money en masse since 1929."

According to Conrad, the system was working. Davidson writes:
"[Conrad] argues that collateralized-debt obligations, credit-default swaps, mortgage-backed securities and other (now deemed toxic) financial products were fundamentally sound. They were new tools that served a market need for the world’s most sophisticated investors, who bought them in droves. And they didn’t cause the panic anyway, he says; the withdrawals did."
You see, to Edward Conrad, we are just poor, dullard consumers who don't get the value of the "investor class" (aka the 1%) to our economy. "Most citizens are consumers, not investors," he told Davidson. "They don’t recognize the benefits to consumers that come from investment."

Davidson interviewed Conrad in advance of the publication of his book, “Unintended Consequences: Why Everything You’ve Been Told About the Economy Is Wrong.” Davidson characterizes the pro-bank, pro-wealth disparity scree with the anti-blurb, "This could be the most hated book of the year."

Conrad ignores the many other factors that played a role in investors wanting their money back. Manufacturing has been leaving this country in droves since 1970s, and according to PolitiFact, no president lost more manufacturing jobs than George W. Bush - over 430 million per year he was in the Oval Office. Yet Bush insisted that Freddie Mac and Fannie Mae work with conventional lenders and community groups, "such as the National Urban League, the National Council of La Raza, ACORN(!) and others," to get people into "a home of their own," even if they couldn't afford it, as a stepping stone to the "American Dream."

More homes being bought meant more loans. More loans meant more money for banks. Eventually, they started bundling the loans together in units and selling those. When the investors Conrad says made a run on the banks for their money, it was partly because the siphoning off of manufacturing jobs caused consumers to lose confidence, and real small businesses (not small corporations that wore the moniker for the funding) began to lay off people. Notes couldn't be met, homes were lost through default, and as the defaults increased, those who held the notes began to panic. So it was a loss of jobs, and the resulting loss of consumer capital, that caused the economy to collapse.

Conrad has proposed what could be called the anti-Dodd-Frank legislative step of "creating a new government program that guarantees to bail out the banks if they ever face another run," Davidson says. Does Conrad's pal, Romney, really think that the public wants banks to receive guaranteed bailouts every time there's a colossal financial system fuck up? How would they sell that to the Tea Party folks, who hate the Bush bank bailouts?

Davidson's interview with Conrad reveals that people like him see people as either the innovative, risk-taking investment class, or as "art history majors," who seem unwilling to put forth the effort to succeed. He claims that there should be more people like him, and they should be making double the money they do now, disparity be damned. To him, it seems, you're either in a yacht, or your treading water. Tread harder, because a rising tide may lift all the boats, but unless you innovate a floatation device, you'll drown, which Conrad would probably say, in the whole vast configuration of things, is your own fault.
Hancock-Bain bldg
John Hancock Tower, Boston, MA,
home of Bain Capital
(from RhythmicQuietude, through Creative Commons)
-PBG
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