This is the synopsis of the argument put forth by a NYU economics professor
Brief synopsis:
The bailout proposed by Henry Paulson does not even address the systemic collapse of the financial and banking system brought on by the collapse in the asset (mortgage) and credit bubbles. If you are trying to stabilize the system, i.e. capitalism. What needs to be done is 3 things: 1) take toxic products off the balance books of wall-street, but in a way that does not have taxpayers footing the bill, meaning that the creditors and investors need to take the hit. 2) need to recapitalize the banks so they can start a new round of growth, this can happen only through government lending to the banks, because no one else has enough capital nor is willing to lend it. 3) and this is key, you need to decrease the debt levels of homeowners, meaning restructure the ARM loans into fixed rate loans and re-negotiate the loans at current market values so you do not have negative equity problems. Without this re-negotiation of debt the crisis will not resolve itself, because US consumption is and will drop dramatically and send us into a deeper recession then is already projected [18 months]. The average household debt to income ratio in the US is 140%, this is unsustainable given the current economic climate.
This recession will mean gradual decline in the value of the dollar and higher interest rates as well, and higher unemployment rates, officially up to 8% potentially, unofficially - once we include those out of work who stopped looking and those forced into part-time work who want full-time - around 13-15%. oh, and we still have the possibility of a massive number of smaller banks going belly up, this is in addition to the run on all the investment banks - Goldman Sachs, Merrill Lynch, etc, the insolvency of IndyMac, WAMU, Wachovia, etc. What is next for collapse is the hedge funds and money market funds. and the FDIC is running out of money.
what we are now seeing is a global recession, one that if it is to be corrected requires a massive restructuring of the financial banking system. increased regulation and oversight along with the collapse of the shadow banking system - investment banks, hedge funds, money market funds, broker dealers, non bank mortgage lenders - and extensive regulation of mortgage backed securities and collateral debt obligations. along with increased minimum liquidity requirements, minimum capital requirements, limits to leverage, reporting requirements, etc. to prevent bank collapses if a 'run to withdraw money' occurs, which was a major problem this time. [the entities in the shadow banking system were over leveraged, had high debt levels with little capital on hand, since they had invested in long-term illiquid investments. thus when people ran to draw their money out, the entities did not have enough cash on hand, could not gather together enough capital in time because they could not sell off the illiquid investments, and no one would lend them more money. they were therefore unable to 'pay out' to their debtors while having enough left over to cover day-to-day expenses. they therefore went belly-up]
without this overhaul of the financial system and a restructuring of US household debt the 18 month recession could turn into a Japan style decade long recession - which was caused by doing too little too late and not addressing the fundamental structural problems.
---------------
I still think 18 months sounds rather tame. I do like how he is addressing 'main street'.
now lets move from the level of capitalism as a system and its needs to everyday life, the arena for struggle and revolution. I would love to see some bottom up movement. i see no better time for an 'organizational' push for affordable or socialized - community owned and operated but state and federal funded - housing. No other time highlights the disconnect between capitalism's demands for profit above anything else and people's social need and right to affordable housing. but rights are not given by those from above but taken by those from below, rights are won through struggle. rather than letting those at the bottom continually be subjected to the profit motive, which underproduces low cost affordable housing and overproduces high profit luxury homes, it is time for community mobilization to demand the social right to affordable housing, thus the elimination of the profit motive from housing. homes should be about living not making money. the subprime crisis is a perfect example of why the lower classes will never have good quality affordable housing under capitalism - there is no profit in it without the creation of mortgage products that are systematically unsustainable and toxic. leaving home ownership for the poor and people of color to the vagaries of the marketplace and the profit motive created this whole mess in the first place. now is the time for a movement for socialized housing at the community level. this would allow the local community to have control over the rebuilding of social space, to create a space for life, debate, party, labor, art, pleasure, peace and so on, operated from the flow of life. rather than social space dominated by the logic of profit, control, the automobile, and so on - the time of death.
The fact that this collapse or 'moment' has not spurred a grassroots push to raise this issue is deeply problematic.
Brief synopsis:
The bailout proposed by Henry Paulson does not even address the systemic collapse of the financial and banking system brought on by the collapse in the asset (mortgage) and credit bubbles. If you are trying to stabilize the system, i.e. capitalism. What needs to be done is 3 things: 1) take toxic products off the balance books of wall-street, but in a way that does not have taxpayers footing the bill, meaning that the creditors and investors need to take the hit. 2) need to recapitalize the banks so they can start a new round of growth, this can happen only through government lending to the banks, because no one else has enough capital nor is willing to lend it. 3) and this is key, you need to decrease the debt levels of homeowners, meaning restructure the ARM loans into fixed rate loans and re-negotiate the loans at current market values so you do not have negative equity problems. Without this re-negotiation of debt the crisis will not resolve itself, because US consumption is and will drop dramatically and send us into a deeper recession then is already projected [18 months]. The average household debt to income ratio in the US is 140%, this is unsustainable given the current economic climate.
This recession will mean gradual decline in the value of the dollar and higher interest rates as well, and higher unemployment rates, officially up to 8% potentially, unofficially - once we include those out of work who stopped looking and those forced into part-time work who want full-time - around 13-15%. oh, and we still have the possibility of a massive number of smaller banks going belly up, this is in addition to the run on all the investment banks - Goldman Sachs, Merrill Lynch, etc, the insolvency of IndyMac, WAMU, Wachovia, etc. What is next for collapse is the hedge funds and money market funds. and the FDIC is running out of money.
what we are now seeing is a global recession, one that if it is to be corrected requires a massive restructuring of the financial banking system. increased regulation and oversight along with the collapse of the shadow banking system - investment banks, hedge funds, money market funds, broker dealers, non bank mortgage lenders - and extensive regulation of mortgage backed securities and collateral debt obligations. along with increased minimum liquidity requirements, minimum capital requirements, limits to leverage, reporting requirements, etc. to prevent bank collapses if a 'run to withdraw money' occurs, which was a major problem this time. [the entities in the shadow banking system were over leveraged, had high debt levels with little capital on hand, since they had invested in long-term illiquid investments. thus when people ran to draw their money out, the entities did not have enough cash on hand, could not gather together enough capital in time because they could not sell off the illiquid investments, and no one would lend them more money. they were therefore unable to 'pay out' to their debtors while having enough left over to cover day-to-day expenses. they therefore went belly-up]
without this overhaul of the financial system and a restructuring of US household debt the 18 month recession could turn into a Japan style decade long recession - which was caused by doing too little too late and not addressing the fundamental structural problems.
---------------
I still think 18 months sounds rather tame. I do like how he is addressing 'main street'.
now lets move from the level of capitalism as a system and its needs to everyday life, the arena for struggle and revolution. I would love to see some bottom up movement. i see no better time for an 'organizational' push for affordable or socialized - community owned and operated but state and federal funded - housing. No other time highlights the disconnect between capitalism's demands for profit above anything else and people's social need and right to affordable housing. but rights are not given by those from above but taken by those from below, rights are won through struggle. rather than letting those at the bottom continually be subjected to the profit motive, which underproduces low cost affordable housing and overproduces high profit luxury homes, it is time for community mobilization to demand the social right to affordable housing, thus the elimination of the profit motive from housing. homes should be about living not making money. the subprime crisis is a perfect example of why the lower classes will never have good quality affordable housing under capitalism - there is no profit in it without the creation of mortgage products that are systematically unsustainable and toxic. leaving home ownership for the poor and people of color to the vagaries of the marketplace and the profit motive created this whole mess in the first place. now is the time for a movement for socialized housing at the community level. this would allow the local community to have control over the rebuilding of social space, to create a space for life, debate, party, labor, art, pleasure, peace and so on, operated from the flow of life. rather than social space dominated by the logic of profit, control, the automobile, and so on - the time of death.
The fact that this collapse or 'moment' has not spurred a grassroots push to raise this issue is deeply problematic.
