The bookends of George W. Bush’s presidency featured two financial fiascos caused by the same phenomenon; unregulated financial trading. The first of these fiascos was the collapse of Enron Corporation in December 2001; the second was the US banking collapse in September 2008. Bush stated that he believed in the free market. What he did not explain was that the market had become one that was free to be manipulated on a colossal scale, free from any kind of prudent regulation or constraint. However, Bush was not to blame for lack of regulations in financial markets. The officials of the Clinton administration in the 1990s had systematically and deliberately dismantled them.
Enron was able to rig the energy market by shutting down power stations in California and importing power from out of state, which was free from the price caps of California generated power. Other market manipulations were not so successful and mounting losses had to be hidden by off-the-books partnerships. Auditors Arthur Andersen went along with this financial misrepresentation and, consequently, just like Enron, went out of business.
Credit Default Swaps were the financial instruments that brought down the banking system in 2008. These were insurance contracts taken out against mortgage defaults. So great was the profit to be made that numerous contracts were taken out against the potential default of the same mortgage holder. Interested parties were able to persuade the regulators that these contracts were not a kind of insurance and should not be regulated as such. True insurance contracts are heavily regulated to ensure that funds are available in the event of a loss. The colossal losses resulting from sub-prime mortgage defaults broke the financial system.
Since the 1980s, Americans have been persuaded that any form of government intervention or regulation was against the public interest. The market was thought to be the arbiter of all financial dealings; laissez-faire governance was the guiding faith. This faith also applied to America’s trading relationships, where free trade was the prevailing mantra. No national industrial policy was needed, and so the industries of America’s northern heartland were permitted to decline to such an extent the entire cities are being downsized and suburbs returned to parkland.
American corporations have been busy downsizing their US operations and offshoring as much of their workforce as possible. The big-box retailers have made the overseas sourcing of goods their major business strategy. It is now rare to find an American manufactured product.
Americas elite has hugely benefited from the state of affairs just outlined, while failing to explain the consequences of their manipulations. The public is only dimly aware of the deep problems facing the country. The ever growing mountain of debt is totally unsustainable and been caused by completely irresponsible economic management. The total public and private debt has reached to over $57 trillion, of which almost $14 trillion is owed to foreign interests. The fundamental question is how is this laissez-faire farrago going to pay its way in the world?
America has been able to run up this huge debt by virtue of the US Dollar being used as the world’s reserve currency. However, this situation is not permanent. The BRIC nations (Brazil, Russia, India and China) recently met in Russia and indicated that they may push for a new reserve currency. When that happens the debt markers will be called in, causing a collapse in the value of the Dollar and a rapid decline in America’s standard of living.
Radio and TV talk shows throw various economic theories and prejudices about as if they were self-evident truths. Almost none of them are, but do have a long development stretching back over hundreds of years. To fully understand the nature of the dialogues concerning the current disaster one must delve into the history of these ideas to comprehend their relevance in today’s crisis. The first few chapters of this book outline such a history to give a background and perspective for the later chapters.
The author believes that this country has been badly off-track for the past 30 years and that the 2008-9 crisis is the predictable outcome of both political parties placing themselves squarely in the pockets of the “haves” and their ideologies. The “haves” have immensely benefited from this arrangement, but the country has not. The “haves” have effectively sabotaged America by putting the county at risk. The rising levels of income inequality and the clear double standards operating between Wall Street and Main Street could lead to major social unrest. More importantly, however, the “haves” have placed the entire economic future of the country in jeopardy. They may have set de-industrialization in train to such an extent that economic decline cannot now be arrested. The “American Dream”, with all its motivating hopes and promises may be over. This outcome, if it happens, will not be the result of external enemies, but a self-inflicted tragedy perpetrated by the greedy, incompetent, and immoral.
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The Foreword of Sabotaging America follows:
