Post by death from above
This is interesting, but I think Pat Buchanan misstates one important
point in his blog, and he also neglects another one.
1. The one that he misstates relates to the idea of the Federal
Government, out of concern for the less advantaged mortgage-seekers,
"pressuring" the private banks and Wall Street to buy up all of those
mortgage-backed securities or collateralized debt obligations (CDOs)
along with other financial junk.
The fact is that plenty of people in the banking and financial world
were making huge amounts of money by speculating in CDOs.
There may have been some Big Government pressure to get the CDO
industry started, but for the past 10 years Wall Street hasn't been
investing in these now-worthless securities because Washington told
them to, or because the Wall Streeters wanted to let some poor single
mom in the innner city to buy a condo. Wall Street was in the CDO
market for PROFIT - for BIG profit, they hoped.
And the same is true for financial groups like Countrywide Financial,
which eagerly accumulated big fees for hooking people up with "sub-
prime" and variable rate mortgages, with the full realization that a
lot of these people couldn't afford the mortgages in the long term.
Countrywide Financial made big money doing this stuff, until it
didn't. And then of course it chopped up the risky mortgages into
CDOs that then were sold ... to the speculators on Wall Street.
Some poor and minority home buyers, and some middle class home buyers
who just got greedy, may have gotten some temporary gains from the
whole subprime mortgage industry.
But it was PROFIT and not liberal government regulations that got the
Wall Street investors, the big bankers, the hedge funds and the
Countrywide Financial finance people into this game.
2. The second point that Buchanan neglects, in fact he doesn't even
notice it, is the question of WHY the American economy has moved from
being manufacturing-driven 30 years ago to being increasingly finance-
Global free trade is no doubt part of the problem, and government
regulations may have inspired some US-based corporations to flee
overseas where they can make more money.
High wages for US workers, of course, are another factor that has
inspired "American" cormpanies to become transnational or
multinational companies, and to move their operations overseas.
If American workers 30 years ago had been willing to accept, say,
Chinese wages and a Chinese standard of living at the time, maybe the
big manufacturing companies would have kept their factories open here
at home. But of course, American workers would then have been earning
Chinese wages -- and how good would that have been?
But if you read your economic and financial industry carefully, I
think you have to conclude that it wasn't ONLY free trade and it
wasn't ONLY American wages and American economic regulations that have
inspired manufacturing companies to move to Asia, while this country
turned increasingly to an economy based on financial speculation.
Another big problem is that for the past 30 -40 years, dating back to
the 1970s, the whole world economy has faced a chronic threat of
"surplus capacity," "overcapacity" in key industries.
In plain English, the world since 1980 has had more than enough
automobile factories, more than enough chemical plants, more than
enough steel mills, more than enough shipyards, and more than enough
textile factories to provide all of these products that the market can
afford to buy -- at least given prevailing wage and income levels, and
prevailing consumer demand.
As a lot of American business magazines recognized in the 1980s, even
before the rise of China's industrial economy, the structure of the
world economy at the time meant that there was no real need for
additional investment in automobile, steel, chemicals, rubber,
shipbuilding and textile plants in the US.
In fact during the 1980s there often wasn't nearly enough American
demand for food to make it possible for American farmers to sell all
of the corn, wheat, soybeans, milk etc. that they were producing.
So given that the American industrial and agricultural markets in the
1980s were in a real sense "overbuilt," where were Wall Street
investors big and small going to put their money, in order to return
good returns on it?
Well, one thing that many investors obviously did was to invest in
"offshore" funds that financed economic expansion in India, China,
Thailand, Mexico, and other Third World locations -- even in Russia,
for awhile there. The profits on foreign investments simply were
greater than the profits on US-only investments, and so the smart
money tended to go there.
But the other thing that individual investors and big investment
houses have done is to put money into financial speculation -- not
into the production of manufactured goods and foodstuffs for markets
that already have enough of these things.
Result: The "financialization" of the US and also the global economy,
the conversion of an investment process that once financed American
industrial expansion into a different process that finances
speculative manias and bubbles, along with Chinese growth.
Whoever posted this link to Buchanan's blog calls this "finance
capitalism." But the problem doesn't only lie with the finance
houses, with the Wall Street speculators, nor with the government.
The problem partly is a flaw in * capitalism* itself, in an economic
system that is so fabulously productive in its ability to make goods
that it gluts its own markets, forcing supposedly smart investors into
risky gambles on financial speculation.
I don't think anybody has a very good plan for fixing capitalism;
obviously the old Soviet Union and the Communist satellite states that
surrounded it never did a very good job.
But the system nevertheless is broken, and it does need to be fixed or
replaced somehow. And just getting mad at the bankers or at the
politicians is not going to be enough.