Friday, September 26, 2008

Column #53 THE PRESIDENT'S ADDRESS TO THE NATION

(Week 9 - Friday, Sept. 26)

Following are selected excerpts from President Bush's speech to the nation on Wednesday evening in which he addressed the current financial crisis, and urged the adoption of a proposed $700 billion dollar scheme to "rescue" banks and other major financial institutions. To his words quoted below, I have added my own commentary and explanatory (in my view) inserts in [brackets].

"Financial assets related to home mortgages have lost value during the house decline, and the banks holding these assets have restricted credit." [These "financial assets" are people's mortgage contracts that "investors" have bought up with money borrowed from banks in order to be the recipients of their "interest" payments. (see Col. #5)]

"As a result, our entire economy is in danger." [The condition of our "entire economy" is being linked to the interests of the financial speculators who are buying up our "debt" paper.]

"So I propose that the federal government reduce the risk posed by these troubled assets and supply urgently needed money so banks and other financial institutions can avoid collapse and resume lending." [It is being proposed that the federal government borrow money to replace what the banks lost through speculative lending. The phrase "avoid collapse and resume lending" is an indirect reference to the idea that the money lent to buy such "troubled assets" is on deposit in the lower courses of the fractional reserve pyramid, and constitute, therefore, much of the "reserves" that are supporting the consumer borrowing above it.]

"This rescue effort is not aimed at preserving any individual company or industry." [It is aimed at preserving the gains of the speculative financial "industry".]

"See, in today's mortgage industry, home loans are often packaged together and converted into financial products called mortgage-backed securities. These securities were sold to investors around the world... Two of the leading purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac." [Fannie Mae and Freddie Mac have been presented to the public as financial agencies dedicated to getting people into their own homes. Whatever good may have been done through them in this respect, the President's words are a tacit admission that "when push comes to shove", it is the "investments" of speculators in home mortgages who are getting "bailed out", while the investment of the homeowners who pay them is not taken seriously into account.]

"The decline in the housing market set off a domino effect across our economy." [This is another way of saying that the decline of the housing market has precipitated a collapse of the fractional reserve formula.]

"When home values declined, borrowers defaulted on their mortgages, and investors holding mortgage-backed securities began to incur serious losses. Before long, these securities became so unreliable that they were not being bought or sold. Investment banks, such as Bear Stearns and Lehman Brothers, found themselves saddled with large amounts of assets they could not sell." [The phrase "incur serious losses" makes it seem (though not explicitly) as if banks and speculative "investors" were holding money that is now being lost. They were not holding money; only speculative paper that gave the appearance of being money because there was always someone else waiting in the wings, presumably, that had money in hand that they were ready to trade for that paper. There is virtually as much money in the economy as there was a month ago, except that now the holders of it are not so willing to play at the gaming tables in the casino that the monetary system has become.]

"I'm a strong believer in free enterprise, so my natural instinct is to oppose government intervention. I believe companies that make bad decisions should be allowed to go out of business." [Then why do we not let the speculators go out of business, and leave the productive sector unburdened by their "enterprise"?]

"And if you own a business or a farm, you would find it harder and more expensive to get credit. More businesses would close their doors, and millions of Americans could lose their jobs. Even if you have good credit history, it would be more difficult for you to get the loans you need to buy a car or send your children to college. And, ultimately, our country could experience a long and painful recession." [The American people possess the key to their own credit, and that is to issue their own adequate supply of money directly out of their own public treasury, which is the sure antidote to "recession".]

"But given the situation we are facing, not passing a bill now would cost these Americans much more later." [I find this to be a misguided sense of urgency. It is as if we the people are being rushed to plunge back into the "debt"-money system before we have had a chance to think about what it has wrought. This is our perfect opportunity to see the workings and consequences of the private-bank-money system exposed and examined. If the enforcement of the fractional reserve formula were suspended, we could let the money in the banks just be money (not "reserves"), and that would allow us to take any time we needed to come to our senses.]

"First, the plan is big enough to solve a serious problem. Under our proposal, the federal government would put up to $700 billion taxpayer dollars on the line to purchase troubled assets that are clogging the financial system." [If one finds dead leaves clogging one's gutters, the sensible thing to do is to flush them out, or at least allow the natural flows of water over time to do so. Why, then, do we not allow the "troubled assets (i.e. unsupportable "debt" contracts) that are clogging the financial system" to be flushed out?]

"The government is the one institution with the patience and resources to buy these assets at their current low prices and hold them until markets return to normal." [The President is acknowledging that the government is effectively the borrower of last resort (after the people lose confidence and/or are no longer willing or able to borrow more) for the private monetary system.]

"And when that happens, money will flow back to the Treasury as these assets are sold, and we expect that much, if not all, of the tax dollars we invest will be paid back." [This is wishful thinking. The proliferation of "debt", public and private, will only continue.]

"The final question is, what does this mean for your economic future?" [This "bailout" would insure that our economic life in the future would be consumed by ever greater quantities of "debt."]

"Earlier this year, Secretary Paulson proposed a blueprint that would modernize our financial regulations. For example, the Federal Reserve would be authorized to take a closer look at the operations of companies across the financial spectrum and ensure that their practices do not threaten overall financial stability." [I fear that "modernize our financial regulations" is a euphemism for transferring even greater power to the institutions that have presided over the crisis that is now coming to pass.]

To be clear, I am not singling out our current President as the scapegoat. Truth be told, I don't hear either of the "major" Presidential candidates say anything that gives an indication that they have distanced themselves from the mode of thought that got us into this mess (though some of the less regarded do, namely Ron Paul, Dennis Kucinich, Cynthia McKinney and Ralph Nader). Surely President Bush has had his part in this, but so have previous presidents, and virtually everyone who has in their own sphere helped to shape the economic life. This is not a time for haste, blame or recrimination. Rather, it is a pause for soul-searching, both as individuals and as a nation. I do not exclude myself. I think that there is a bright new future than can come out of this "financial crisis," but it will not happen by making an ill-conceived and massive "bailout" of the failed ideas and practices of the past.

Richard Kotlarz
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites:
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

1 comment:

true debate said...

The 1992 Presidential Debates with Ross Perot were not dull. His warnings have now come true. Replace John McCain with Ron Paul. Add Ralph Nader and Cynthia McKinney. Barack Obama must earn his victory, not win by default.

Washington University '81