Thread: Katrina for the Rest of Us

October 16, 2008
Katrina for the Rest of Us
By Froma Harrop

For a while, I had expected to emerge mostly unscathed from the eight years of George W. Bush.

I managed not to be in New Orleans right after Hurricane Katrina awaiting rescue by a blundering federal agency. I had held on to my medical coverage and so was not hurt by the nonexistent national policy regarding the uninsured. Neither a toxic borrower nor a toxic lender be -- as I believed and practiced -- and so I did not have to petition Washington for a bailout.

Meanwhile, I had saved and invested and did all those prudent things people are told to do: Put the max allowed in your 401(k). Check. Keep your mortgage small and pay it down. Check. Fight off Car Lust and keep the 7-year-old Honda a couple more years. Check.

I knew the Bush era would weigh heavily on my financial future nonetheless. As a payer of the income tax, I face many years of being dunned for the $11 trillion national debt, the $500 billion budget deficit and the Wall Street bailout, currently weighing in at $2 trillion and swelling.

But a big, immediate Bush-sized calamity? That I had avoided. I had made it into October of the president's last year. Only three months to go. So far, so good.

Then the stock market crashed.

As an investor, I had avoided the real estate speculation that once seemed the easy path to riches. My modest portfolio was full of blue chips, the bedrock of the American economy. But even with Monday's Dow bounce, stocks of all kinds are trading a good third below their level of a year ago. Despite my conservative careful approach, a big chunk of the money is gone.

I also have a 401(k) portfolio into which I had industriously put a slice of my paycheck every week. Now look at the wreckage. To think I passed up a shiny new convertible for this.

Is the crisis really the fault of Bush, and with him, Republican lawmakers who refused to adequately regulate? Largely. Two things are at its core: One, the financial derivatives that no one understood but were sold as insurance against defaults on risky debt. (These greased the craziest lending practices.) Two, the lax rules that let financial institutions hold only $1 of capital to cover $30 of lending.

"But what about Fannie Mae?" my Republican friends passionately interject. They say that Democrats pushed Fannie to help expand lending to lower-income folk (read "minorities") by buying up their iffy loans. In 2005, they stopped Republicans from tightening the oversight of Fannie.

My friends have a point, though a limited one. Granted, Fannie should never have been allowed to traffic in subprime debt, but within that riskier universe, it had relatively high standards for quality. It never bought the worst of the worst, but the real estate bust is such that many homeowners who had made respectable 20 percent down payments find their houses suddenly worth less than the amount of their mortgages.

As for the Republican efforts to better regulate Fannie, why did they fail? After all, Republicans in 2005 controlled the White House and held majorities in both houses of Congress. The answer is that too many of their own backers were making big money off the real estate bubble.

In any case, the subprime meltdown was only the trigger for a far bigger problem involving many kinds of debt. In sum, an executive culture was allowed to get fabulously rich by taking outlandish risks.

Anyhow, the party is over, they say. Well, the party never really began for many of us -- but yes, the party is definitely over.


http://www.realclearpolitics.com/articl ... of_us.html

Anyhow, the party is over, they say. Well, the party never really began for many of us -- but yes, the party is definitely over.

Know the feeling and the future looks worse than ever.

Froma, sorry to burst your bubble, but somebody should.

The US has been on the ropes ever since the Clinton era. Think back to the beginning of massive Japanese imports in the 1980's and how that decimated certain areas of the country that had once been propserous. Detroit, Michigan is a prime example.

Since the late 1990's we have had a much more serious situation brewing-------rapidly increasing imports from China, outsourcing to India and migration of manufacturing jobs South of the Border. Bush had us on "Life Support" so people didn't notice that we were in trouble. It can't go on forever.

Obama is going to try to continue in a state of denial. I was at a "Fair Trade meeting" two nights ago where laid off union workers were complaining about the loss of jobs. But any type of "Inclusive Society" strategy is going to see those American workers further challenged by Third World emigres. This is totally "A New World." We probably won't like it.

I guess Froma did her own financial planning, and did not have over half of her IRA in a fixed income fund. Well she got what she paid for.

I also have a 401(k) portfolio into which I had industriously put a slice of my paycheck every week. Now look at the wreckage. To think I passed up a shiny new convertible for this.

Well I am so glad that Froma is so financially responsible that she rues the money in her retirment fund as she could have bought a new car that loses lots of value when you drive it off the lot.