Page 3 of
3 COMMENT Ideology wins, the people
lose By
Julian Delasantellis
which
can't now unload it back into the markets for
anything near what they paid for it.
This
could act to free up billions of dollars from the
banks' balance sheets, restoring at least part of
the liquidity now sorely lacking from the
short-term money markets. Also, Fannie and Freddie
could make a policy decision to at least
temporarily use a lighter touch with the subprime
borrowers entering into default whose mortgages
they would then own, potentially saving hundreds of
thousands of them from
foreclosure . Perhaps best of all, in a Washington
where it's 100 times easier to get a policy "no"
than a "yes", both Fannie and Freddie have
expressed their willingness to act in such a way
to solve the crisis.
Perhaps a combination
of the FDIC plan with the Freddie and Fannie
initiatives could effectively work to save both
the subprime homeowners and the markets.
Ain't gonna happen. Bush has already shot
down the Freddie/Fannie solution. When the FDIC
plan reaches his desk he'll undoubtedly do the
same, unless, of course, the stock market is then
down a couple thousand points from where it is
now. With this administration the imperative of
enforcing the ideological orthodoxy of free market
supremacy ruling over an enfeebled and emasculated
government far and away takes precedence over the
interests of the quarter of a million American
families now losing their homes through
foreclosure every month.
The
battle-hardened foot soldiers of laizzez faire
ideological conformity are now receiving and
accepting their combat orders to march out onto
the carnage-sodden battlegrounds of the American
cable news television pundit landscape. Since two
of the American states now being hit hardest by
foreclosures, Michigan and Ohio, have Democratic
Party governors, it is now being claimed that the
entire subprime problem lies not with unregulated
Wall Street finance, but with incompetent local
state house incumbents. (The fact that California
and Florida, also both now getting hit hard with
foreclosures, have Republican governors is
something not talked about.)
This strategy
worked with Hurricane Katrina, as White House
mouthpieces laid the blame for the incompetent
federal rescue response at the feet of Democratic
Louisiana Governor Kathleen Blanco, so they must
figure that if the people are stupid enough to
accept it once, there's no reason they won't fall
for it again.
Ideology wins, the people
lose. So what else is new; "what time is
American Idol on?"
America has been
seduced by ideology's siren song. Ideology is
intoxicating, addictive; it replaces the
disconsonant jangle of reality with the simple
symphony of a secular theological purity and
certainty; it takes whoever is debauched by it to
what the Greek historian Herodotus called "the
happy land of absolutes".
Maybe there is
one thing that might bring Americans back to the
land of the real. Much like spoiled
thirtysomething socialites who have never worked a
day in their lives, perhaps America's choice of
believing what it wants to believe over what is
real derives from the fact that, for decades upon
decades now, America has been allowed to live
beyond its means.
With the exception of
the years of the Clinton surpluses, the US Federal
Budget has been continually in deficit since 1970;
the balance of payments on current account - what
the US borrows/lends from/to foreign nations, has
been in deficit since 1983.
If someone
else is paying for your reality, it’s easy to live
in fantasy. But there are signs that this
situation may be changing. The federal government
maintains a running monthly ledger, called the
Treasury International Capital, or TIC report of
how much finance the nation draws in from foreign
sources. (I wrote further about the mechanics and
implications of TIC data in my March 24, 2006,
ATol article, US living on borrowed time - and
money.)
The most recent data
for August, released on October 16, show a
stunning reversal of foreigners' willingness to
pay for US profligacy. Instead of foreign capital
interests actually putting money into the US in
August, for that month the TIC data actually went
negative, indicating that, for that month at
least, the net capital inflows into the United
States were at minus $163 billion. That includes a
minus $35 billion capital flow into long-term US
government securities, the principal car park
where foreign capital traditionally sits.
This is the worst net TIC data report
since the late 1980s, and it is the first time
that foreigners have been net sellers of Treasury
bonds since 1998.
Those who think that
America is still looking at an upcoming forecast
of unending sunny economic skies brought to us by
meteorologist George W Bush say that the August
TIC data was anomalous due to that month's severe
economic crisis. That is of course possible, but
even with all that month's travails, the Dow Jones
Industrial Average, the S&P 500, the NASDAQ,
and the price of the Treasury's benchmark 10 year
note all closed up for the month.
In other
words, although you could still make money in US
markets even in August, foreigners chose to take
their money and run.
Most commentators are
looking at the August TIC data with far less
sanguinity, interpreting it as indicative of a
growing reluctance of foreigners to forever
finance a country that can't live within its
means. In much the same way as the famed 18th
century English literary light Samuel Johnson once
said that nothing focuses the mind like the
prospect of a hanging, perhaps the prospect of
finally living within its means will focus the
nation's mind away from ideological fantasy and
back towards practical policy solutions to the
nation's problems.
But it won't be easy,
and it won't be pretty. Just as the paparazzi
press captured the famed pictures of Paris Hilton
in tears in the back of a police car as she was
transferred from her fantasy life of privilege in
the Hollywood Hills to the reality of the Los
Angeles County Jail, perhaps we will soon see
similar pictures of forlorn American consumers in
tears, weeping inconsolably outside such high-end
retailers as Restoration Hardware or Coach,
mourning for the mindlessly acquisitive consumer
lifestyle that soon might be no more.
Julian Delasantellis is a
management consultant, private investor and
educator in international business in the US state
of Washington. He can be reached at
juliandelasantellis@yahoo.com.
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