Wednesday, September 24, 2008

As Capitalism Crumbles, U.S. Taxpayers Pick Up the Pieces

As Capitalism Crumbles, U.S. Taxpayers Pick Up the Pieces

As we all know, the world changed drastically on Sept. 11, 2001, when the twin towers of the World Trade Center fell.
This year, on the eve of Sept. 11, the twin towers of Fannie Mae and Freddie Mac crumbled. Then, on Sept. 15, Lehman Brothers and Merrill Lynch disappeared. Actually, that was a triple-tower collapse if you count AIG.
In a few years, the biggest pair of towers will collapse: Social Security and Medicare. Even today, they're looking shaky. How many ground zeros can we as people, a nation, and a world withstand before we admit something is very wrong with our global financial systems? What will it take to wake us up?
Government Can't Fix It
Personally, I believe the biggest it's a problem that so many Americans are looking to this year's presidential candidates, Barack Obama and John McCain, to save our financial system. How did we become so financially weak that we surrender our economic independence to politicians? Where does it say in the Constitution that the government should solve our financial problems?
And why have so many people throughout the world come to expect financial life-support from their political leaders? It seems most people will vote for anyone who promises a chicken in every pot and a guaranteed mortgage payment.
We're in the midst of a problem neither candidate can solve: A lack of comprehensive financial education in our school systems. What else explains the economic blunders committed by our political and financial leaders? Or why so many consumers are in debt up to their eyeballs? Or why millions of people expect a quick government fix of some kind?
Under Water
A few months ago, a friend of mine from Hawaii asked me if I wanted to buy his new powerboat with twin motors. Apparently, in late 2007, he purchased it brand new for approximately $85,000. His plan was to refinance his house when it appreciated in value and use the difference to pay for the boat.
Failing to obtain new financing, he called to ask me if I would buy the boat from him -- just take over the payments and it was mine. I passed, and the bank eventually repossessed his boat. Later, his wife called to tell me he's now having problems making his mortgage payments. Apparently, my friend planned to pay for his house the same way he planned on paying for the boat, by refinancing his debt.
I mention this story because it illustrates the problem Obama or McCain face: Limited financial education and diminished financial common sense. Apparently, my and the nation's business leaders all went to same school of finance.
A Cynical Aside
If you want to know why the towers of American capitalism are crumbling, I recommend reading "The Creature from Jekyll Island" by G. Edward Griffin. It's not an easy book to find, but once you start reading it's to put down. In fact, in many ways it's a murder mystery about the financial "murder" of the middle class.
A very important lesson in the book is how political leaders use financial spin to deceive the public. The very, very rich use the system to legally steal from the rest of us by appealing to our sense of patriotism. When our leaders say, "We're bailing out Fannie Mae and Freddie Mac because we want to protect the American people," they really mean "We're saving our rich friends."
All the bankers and politicians have to do is wave the red, white, and blue, play a few bars of "Yankee Doodle," and the masses get teary-eyed and pledge greater allegiance to legalized robbery. Yes, it's true that ignorance is bliss -- but ignorance is also expensive, and it cost us our freedom.
Freedom at Peril
A bailout can be different things. First, printing more money is a kind of bailout that leads to higher inflation. Rather than protecting people, it makes life for the poor and middle class more expensive. The other kind of bailout is protection for our rich and incompetent friends. If you or I fail at business, we fail. If we cheat and fail, we go to jail. But if you're rich and politically connected, your incompetence may be protected by a government bailout.
As a former Marine and a Vietnam War veteran, it saddens me to see some of the freedoms I thought I went to war to protect being stolen from us by bankers and politicians. Unfortunately, few Americans know the difference between the words "nationalize" and "socialize." Socialize means we turn more of our personal powers over to Big Brother, not free enterprise. It means we as a people grow weaker and need a higher power -- the same power that got us into this mess -- to protect us.
In short, when the towers of Fannie, Freddie, Merrill, Lehman, and AIG came crashing down, more came down than just money. What we're losing is the very freedom this country was founded on, and what most of the world yearns for.


Dexter(QuoteGuy) said...

Hi Robert,

Thanks for the insight. I'm doing everything I can to make sure I can be financially independent. Reading "Why We Want You To Be Rich", opened my eyes to the issues that we face today as a country. I'm grateful that there are individuals like you who are concerned for the well being of the people. Keep writing your books and I'll keep reading them. Many blessings!


Nintendo Wii Fanatic said...

Economic Fortune teller or Economic realist - A look at this coming depression and a huge financial readjustment.

In November 2006 I wrote an article entitled are you ready for the coming depression. While having no economic degrees - I don't believe it took Warren Buffet to recognize the U.S. economy was and is suffering some pretty big problems. Because of this I predict we will have an economic event that will rival the great depression, if not exceed it.

Why is this? Because as I stated in my previous article people today carry far greater debt loads than did their grandparents in the great depression. Thanks to credit cards most families carry a huge burden of debt. While the United States currently strains under the meltdown of mortgage related failures pushing the country into recession, I predict it will be the knock on effect of credit card defaults that will push the world into depression no matter how much the U.S. throws at it. Throwing American families into $25,000 worth of debt to cover wall street failures will only further enslave the U.S. people. 90% of U.S. families net worth is far less than their combined personal and 'government' debt. That means years of high taxes and financial slavery coming their way. The growing number of unemployed in the U.S. has the potential to become a flood - and unemployed people can't pay their credit card bills - this will be the source of the second economic shock to the U.S. economy.

None of the presidential hopefuls will say it, and certainly George Bush doesn't want to admit he screwed up - but this is the depression the U.S. and the world has to have. The U.S. has been over consuming and under producing for too many years. Record trade deficits need to be stopped. The U.S. insatiable appetite for oil needs to be ranged in severely. A depression will achieve this - although with great pain.

The real risk is mass unemployment - 25%-30% in the great depression. If we reach this number unemployed the potential for civil disturbance is huge and expect more authoritarian governments to arise - fascist Italy, Japan and Germany arose from the great depression.

Don't watch wall street - watch the job numbers - the rise and size of unemployment will be the true key of how bad this recession/depression will get. Last time the U.S. used this spare labor to build thousands of schools, parks, and government buildings. This time the U.S. should use it to build wind farms, solar farms, mass tree planting, an environment corps.

China's growth will not save the world economy - China's growth is dependent on its huge trade surplus with the U.S. - this trade surplus is about to massively shrink with consumer demand in the U.S. being moderated by hard economic times.

This depression can be an opportunity to build or governments may again seek the easy way out and throw us once again into a world war - a war which unfortunately will make WWII look like a picnic.

We live in interesting times!

Brian said...

Hi Robert,

I agree with your point about how the government can't solve this economic crisis. The government is the problem. Our country does not need government to hold our hands to solve the mortgage mess. They should let those financial institutions collapse for failing so people can learn from them. It is not the public's fault for their incompetence. Now taxpayers are stuck with this bill and that means less growth in the economy and less people will be spending on investments, real estate, etc.

Thank you for writing books about finances and business. Without your help I would still be thinking like an employee. Your mission is even more important than ever.

Brian Latvala