Bailout 3: The Cranky Economist Speaks

Another comment on the "bailout" from cranky economist Dean Baker:

Congressional support for the bailout was a big victory for those who want to redistribute income upward. The bailout is about taking money from the schoolteachers and cab drivers and giving it to incredibly rich Wall Street bankers, who are so incompetent that they drove their banks into the ground.

This upward redistribution was done under the cover of crisis, just like the war in Iraq. But there is no serious crisis story. Yes, the economy is in a recession that is getting worse, but the bailout will not get us out of the recession, or even be much help in alleviating it.

Baker goes on to make a case that the reason for the bailout is a false claim of imminent freezing of the financial system. Instead, it is an empty threat by the banks to avoid being taken over by the Federal Reserve. Baker says the Federal Reserve would not allow the financial system to freeze, but would keep it going by seizing control of the banking system. Wall Street hates that idea. But you and I would still have access to ATMs, and small businesses would still have access to loans to keep themselves liquid. The ones to lose would be the executives and large financial stakeholders.

We're being scammed again by mythical weapons of mass destruction.

Bailout 2: Bailout or Feeding Frenzy?

Bailout or feeding frenzy?

The failure to pass today's bill promising a solution to the credit crisis should not be a big surprise. Numerous members of Congress were reporting contacts from constituents opposing the Bush/Paulson plan at ratios between 100/1 and 1000/1. This weekend's Citigroup acquisition of Wachovia Bank should give us a clue into the anger and opposition of the populace. Citigroup swooped in and acquired an enormous range of financial resources at fire sale prices. This is exactly the kind of profiteering, even racketeering, that the average person suspects is going to happen.

Citigroup, it is said, has tried without success to build a consumer banking business for many years. Raking in money in other ways, they were among the financial institutions not overwhelmed by the mortgage crisis. (What happens when this morphs into a consumer credit card debt crisis, is yet to be seen.) Bad decisions by First Union, which renamed itself Wachovia when it acquired the previously well-managed bank, included buying the mortgage company which specialized in one of the now-despised mortage innovations, option adjustible-rate mortgages. These are the ones that let the borrower take the option of not making a payment now and then (and adding it on the end of the loan period). Now they own too many bad mortgages.

The strange thing about this crisis of "securitized" mortgages is that they are really worth much more than the market is saying. Around 2.5% of mortgages are in foreclosure. Many of those have been processed into interest-bearing securities, or bonds. So on average, it might be that the value of such a bond, in real terms of how much it would pay out, may have dropped to around 97.5 cents on a dollar. But let's estimate that the mortgage bonds are worse off than that because they are encumbered by additional mortgages which are not yet in foreclosure, but in danger. And let's say that these securitized mortgages have a larger share of the bad mortgages from the recent frenzy of bad financing than the 2.5% rate would indicate. So maybe these interest-bearing bonds may pay out 90 to 95% of their face value. Maybe a few would be even lower, or much lower. But that would not cause such a crash. What causes the crash is that since no one wants to buy these securities, their price drops way below their adjusted value. Then the holders may find themselves with a cash-flow problem. They need to sell some securities, but they can't get a buyer at a fair price. When this infects the whole market, the financial institutions start to treat these securities as if they are worth almost nothing. As a side effect, a powerful and wealthy institution like Wachovia finds its stock dropping to pennies. But buying them at a low price is a great idea if you don't have to worry about cash flow. The government has time to see them pay off, and maybe at a good profit.

In walks Citigroup, with the help of the FDIC, to pay a measly $1 per share to buy one of the largest banks in the world with assets galore. Buying at a fire sale lets them reap a huge reward. Just like Bank of America bought Countrywide and Merrill Lynch. Just like J. P. Morgan Chase bought Washington Mutual. After all this hoop and holler about a financial crisis, the US is left with three financial giants who have an even greater ability to dominate the financial business and exercise a joint monopoly over setting interest rates and fees.

This so-called bailout had nothing to say about the concentrated power of wealth in the hands of the few. And its fatal flaw was that it did nothing to help the other people caught in the mess of bad mortgages. The bailout plan had no provisions to help refinance mortgages for common people, homeowners who are facing foreclosure in a weak economy. It was suggested that by buying these mortgage-based securities, the government would be able to refinance mortgages for homeowners. But owning the security is not the same as owning the actual mortgage. These remain in the hands of banks, savings and loans, and other mortgage institutions all over the place. This plan does not offer any relief to them. It offers relief to large financial instutitions who have questionable securities.

So an additional provision to assist homeowners might have been enough to win a few more votes. The provision to deny "golden parachutes" are a gesture toward the common borrower, but not much more than that. Real help to homeowners is what was needed. The long and heated meetings about bailing out the economy could not muster the compassion and courage to do what was right. The proposal allows the same feeding frenzy to go on. As one commentator said today (I can't remember who), the homeowners who endure foreclosure faces the greatest crisis. They can't go back to their neighborhoods. They lose the bedrooms and kitchens where they lived. They no longer live where their ball teams or other social connections had been built up.

The Neighborhood Assistance Corporation of America released the following comments:

There is one reason for the financial crisis – Foreclosures.
There is only one solution – Restructure mortgages to make them affordable.
Who would benefit – Everyone.

This seems to me to sum up the shortcomings of the proposed bailout.

Thanks to reports on NPR's Morning Addition, AP news reporting by Sara Lepro, and the insights of my friend Steve Bumgardner for helping me think abou this issue. Any erroneous reporting and reasoning is mine.

Bailout 1: Mary Nelson and Job Losses

Mary Nelson, a leader I admire greatly, wrote the following about the current Wall Street mess on the Sojourners God's Politics blog.

In Money We Trust
by Mary Nelson 09-23-2008

The Wall Street debacle reminds me of the fall of Babylon … of the excesses of greed over the common good and the little folks (like the ones in my low-income community) getting the short stick both before, during, and after. A recent article talked about how, in the last few years, the fear of the risks of getting discovered and regulated were overcome by sheer greed. Greed over fear. Clearly, this is a time for sackcloth and ashes for some. It strikes me as sheer nonsense that our money has “In God We Trust” clearly printed on it. It is more appropriate to say, “In Money We Trust.” Our misplaced spending priorities mean $12 billion a month on war in Iraq and Afghanistan, propping up big corporations without capping their personal profits, but neglecting poor people without homes, health insurance, and quality public education.

But we all have gone haywire in this atmosphere of excessive greed, thinking we could get rich or richer, making risky choices and spending far more than we need to get what we want. Buying and spending was promoted after 9/11 to help get the country going again: “Go out and buy,” the president said. In our community financial education classes, we help people understand the difference between needs and wants. Our officials and a lot more of us need to understand and act on the difference between needs and wants as well.

Mary Nelson is president emeritus of Bethel New Life, a faith-based community development corporation on the west side of Chicago. She is also a board member of Sojourners.

What were the risks people took? Analysts on the radio today said that if something does not ease the financial crisis, lines of credit will dry up, meaning many small and medium sized businesses, and some large ones, will not be able to make payroll. Average folks will start losing their jobs. Large corporations will not be able to get quick loans to keep their operations going, and plants could shut down. We already know that the big companies are almost through raiding the pension funds and health care promises they made to workers. The ones who are hurt the most are not the ones playing games with the millions and billions. A person who loses ten out of twenty million is not nearly so bad off as someone who loses her only livelihood in a bi-weekly or monthly paycheck.

Carter's RACE 1: Gnosticism, the Body, and Black Churches

I'm working slowly through J. Kameron Carter's new book, Race: A Theological Account. My first response is that it promises to share a place in my learning with a few other books which seek to narrate the emergence of the intellectual, social, and political character of the modern age and its dissolution. Carter, like me, is convinced that critical yet contingent events, movements, and developments occurred at critical moments congregated around and in relation to the European venture into global empire. With apologies to my friend JKC, I will attempt to articulate a few of the things I have been learning.

Having offered a structurally parallel argument about hierarchical arrangments of bodies that appears in the disputation between Irenaeus and Gnosticism, Carter moves to show how a restructuring of humanity in the European imagination asserts and deploys the concept of whiteness as an ordering principle. He finds the critical move of differentiating whiteness in the modern construction of Jews as deficient humanity. This initial Enlightenment vision of rewriting Christianity as whiteness affirms a supersession of the covenant with the Jews and simultaneously severing Jesus from his Jewish covenantal flesh. A spiritualized Jesus, mascot for white supremacist visions of a world order in which European empires manage the globe, contributes to the classification of non-European bodies (politic) as lesser forms of humanity, a hierarchy of racialized bodies (politic). Carter finds in the early articulations of Christian faith among African Americans an apprehension of how racialized theology and politics has gone wrong, along with insight into the path theology must take to again be true to the God of Israel and of Jesus Christ.

When it came time in my Christian Ethics class to discuss Jim McClendon's Ethics, chapter 3, it occurred to me that McClendon's initial argument had waded into the same waters of which Carter's more recent book gives richer historical and theoretical account. McClendon argues that in confronting the misconstrual of bodily existence and nature, individualism of the sort that severs body and mind has greatly harmed Christian thinking about the natural and the body. He turns to the insights of certain scholars of the black church to argue that a residue of wholeness lacking in much mainstream theology can be found in the practices of the black churches, some of which he labels as embodied religion, life-affirming faith, conversion narrated through bodily experience, presence to God and one another, participation in the life of God, possession by the Spirit, and openness to the depth of human suffering. A key element of the articulation of such an argument is the hermeneutical stance toward recapitulation of the stories of Israel among the Africans of this continent.

McClendon approached this topic with some trepidation, recognizing that he could be construed to be stereotyping black people in the same ways that racism has always done so. Thus, it is critical to see that his argument is not that the black church exhibits emotion, ecstatic movement, etc., but that it witnesses to a wholeness which does not assign opposites to body and mind, to black and white. If I am reading correctly, then Carter's argument affirms and extends the insight that McClendon ventured 22 years ago.

What's Wrong with Community Organizing?

After the Republican Convention speakers made fun of community organizing, Christophe Ringer wrote an excellent piece about their show of ignorance and dissembling on this matter. There is some good description of what community organizing is about. He also challenges the orthodoxies of how black leaders are supposed to lead.