The folks at Lehman Brothers Investment Bank obviously didn't have any friends in Washington. Today they find themselves part of the Barclay's Financial Group after being forced into bankruptcy, while the AIG Insurance Group gets $ 85 BILLION dollars from the U.S. government, i.e, you and me, in return for an 80% stake in the company. Funny, I don't feel like the owner of an insurance company. I feel like the sap who bought a pig in a poke.
It takes a special kind of talent to wreck a trillion dollar company. You typical fly over boob couldn't do it. He or she might insist on investing in hard assets and eschewing risk. Only the Harvard and Columbia business school types have the talent to wreck take a healthy company and run it into the ground.
I thought Republicans favored allowing the free market to work and let the chips fall where they may. Silly me. When it comes to covering the backsides of the Wall Street honchos, we're all socialists now. It helps that the secretary of the Treasury, Henry Paulson, is a creature of Wall Street and a member of the club. I wonder what he had against Lehman Brothers?
Of course, our government is not being truthful and transparent with us. My intuition tells me that the telephone lines were burning up between Washington and the money managers in Europe and China, with the money managers making it very clear that unless their interests are protected on Wall Street, the money flow to America from these countries would be cut off. Without foreign money the United States lacks the cash to finance our government. My friends, the dirty little secret is that America is broke and in hock to foreign investors who can, at their whim, break our currency and collapse our standard of living. In this respect the current financial crisis is worse than the Great Depression, because, whereas during the Depression the country possessed reserviors of wealth capable of being tapped for stimulating the economy, such is not the case today. We don't have the cash.
We are headed toward two possible outcomes. Since the global economy cannot absorb the U.S. defaulting on its debt or experiencing a financial meltdown, our creditors around the world will continue to advance us money, but with new strings attached. These "strings" could take many forms, but the bottom line will be the lost of independence of the United States to control its own tax and spending policies and government budget. Think of what happens when the International Monetary Fund loans money to a third world country. The IMF dictates tax, spending and budget policies to the debtor country. That's what is going to happen to the United States. Some face saving facade will be concocted to make it seem that we remain in control of our destiny but the truth will be that we will lose control over the finances of our government.
The second possible outcome may be worse. Faced with this Everest of debt and with no way to pay it aside from confiscating all the wealth in the country, the Federal government may opt to monetarize the debt. The Federal Reserve will vastly expand the money supply and inflate the currency, with the consequent effect of devaluing the dollar. The "value" of the debt held is reduced is reduced in absolute terms, but then, so is every pension, retirement plan, and any other asset valued in dollars. Since the great majority of assets held by regular Americans is valued in dollars, the effect of devaluing the dollar is to pauperize the American people.
Tis' indeed a fine mess we find ourselves in. Unfortunately, neither major presidential nominee has demonstrated any grasp of the magnitude of the problem. In fact, their public pronouncements and economy planks would make things worse. Obama wants to EXPAND government and raise taxes. The result is predictable. Since the holders of capital are already nervous about U.S. investments, everyone capable of moving their wealth off-shore will do so. In other words, raising taxes on the "rich" can' t work because the "rich" have the capacity to limit their exposure to taxation. Obama must expand taxation, and expand it enormously, on the American middle class to pay for his redistributive programs. McCain isn't much better. Neither has addressed the simple truth that America can't pay the debt associated with continuing Medicare and Social Security in current form.
The Baby Boom generation, whatever its other accomplishments, now has the distinction of being the most profligate generation in the history of mankind. It inherited a wealthy country with a stable currency and economy, and bankrupted the country, destroyed the currency and wrecked the economy. And its leaders don't have a clue how to fix the mess. When people are afraid there is a danger they will opt for a leader who tells them what they want to hear. Its happened before and it can happen here.