I have to take issue with one of the statements made by Dean Baker in the piece Rob linked to.
The main cause of the economy's weakness is not insolvent banks and lack of credit; it's the loss of $4 trillion to $5 trillion in housing equity as a result of the bubble's partial deflation. Families used their equity to support their consumption in the years from 2002 to 2007, as the savings rate fell to almost zero.
No. The "main cause" is NOT the falling of the savings rate and subsequent use of housing equity. The failure to save, especially by the low-income target audience for the mortgage scammers, was a result of the consummate greed of corporate employers and the bankers whose asses are now on the line as they refused to pay employees what their productivity was actually worth.
The fact that wages have been stagnant for 25 years, that many of us are actually making less than we were 20 years ago, has been conveniently forgotten but incomes haven't even been keeping up with inflation, low as it was. It's been a good time for Wall Street but Main Street has been hanging on by its fingernails.
The assumption by the purchasers of scam mortgages was that the next years would be better. Wages would rise, buying power would rise. By the time those bubble payments came due, they told themselves, we'll be making enough money to pay them. And why shouldn't they believe that? It's what the leaders of our country have been saying for 8 straight years, politicos and Wall Street honchos, both. They can't keep paying us nothing, we told ourselves. They'd be cutting their own throats.
It never occurred to us that they wouldn't see that, that they'd be so blinded by greed and so frightened of the Inflation BoogieMan that they'd let this happen to the country rather than raise what they paid us by enough to pay our bills and even put some money away. It certainly wouldn't have occurred to us to that we would end up paying off the debts of the very people who have kept us in not-so-gentile poverty because our elected representatives, who are in their pockets, ignored us to save them.
We wouldn't believe it when some people tried to tell us and we still don't want to, but that is, plain and simple, the source of the anger that has stopped the Wall Street Juggernaut: "They lied to us, stole our homes and jobs, kept us broke for 3 full decades, and now you want us to bail them out??!!"
Bear in mind that those mortgages might have been done without fancy footwork if the people borrowing the money had higher incomes, as they should have. That the mortgages would have been paid. That the financial sector would have been making real money instead of money on paper all this time.
That is the reason we're in this mess. There is no other.
Tell your friends.
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