The Economic Hangover: Part II

By: Don McNay
By: Don McNay

I hate to say "I told you so." I am in a small subset of lifelong Democrats (I voted for Obama) who have vehemently opposed the Wall Street bailouts since Day One.

Then I'll get on my knees and pray,

 we won't be fooled again


- The Who


I hate to say "I told you so."    I am in a small subset of lifelong Democrats (I voted for Obama) who have vehemently opposed the Wall Street bailouts since Day One. 


Being right doesn't change what is happening.  We are in an economic hangover.


Part II. 


Just like in the movies, the sequel is usually worse than the original.


Looking forward from 2008, it was easy to see what would happen.   


The bailout and stimulus money allowed us to limp along for a couple of years.  Now we are back to where we started, but worse, since we borrowed trillions to pay for getting back to the same point.


The housing market is in worse shape than before the 2008 crash.  Unemployment is bouncing along the 9% to 10% level and there is no quick solution for changing it.  


Goldman Sachs and Wall Street firms that were given bailout money have made big profits.  They couldn't help it.  It's like going to the casino where the house covers the losses and the gambler gets the gains.


America has limped along like a person who uses his credit cards to pay for groceries and utilities.  Now we are maxing out the credit cards and have to start making hard decisions.


Those decisions would have been easier if we had weeded out the "Too Big to Fail" companies with their lousy management, and had not spent trillions to push the problems down the road.


We propped up bad companies and allowed bad behavior to be rewarded with record bonuses.  No one went to jail.  Most of the worst actors didn't even lose their jobs. 


So what do we do now?


Pete Mahurin, the Bowling Green Kentucky financial guru previously featured in the Huffington Postpiece, "The Person We Should Be Moving Our Money To" The Person We Should Move Our Money To   once told me, "Generals often  fight the last war, instead of the current one.  The same thing happens in the financial world."


I thought about Pete's comment a lot and realized that Bernanke, Geithner and Obama throw around references to the Great Depression.  It hit me that they have the wrong era and wrong economic war.


Using the economic tactics of 1930 is like fighting in Iraq and Afghanistan using the trench warfare tactics of World War I - especially if we're not "lucky" enough to get another world war to boost production and pull us out of economic depression.


Modern armies use the latest technology.  So does the financial services business.    The documentary, Inside Job, begins by showing how banking deregulation in Iceland had an impact on the worldwide economy.  


The world being so interconnected was not the case during the Great Depression.  


The invention of derivatives and how a home mortgage from Main Street is split up into parts and sold on Wall Street are related to the advances we have made in technology.


I love technological tools.  They allow me to obtain information quickly.  But they don't make me wiser. 


We need to look at the future, knowing that technology will continue to get better and play a bigger role in how we live.  How does that help us and how does that hurt us?


Wisdom is needed in Washington.  Someone needs to hear the voices of Main Street and not Wall Street.


Instead of talking about something that happened 80 years ago, we need to looking at the1990's "lost decade" in Japan, as well as recent examples of how propping-up bad businesses has failed.


Harry Truman said "The only thing new is the history you don't know."  It would help if the people in Washington were at least reading the correct chapters.


If Bernanke and Obama were real students of American history, they would skip the Great Depression and go back to the Robber Baron era.  That is a better analogy for what happened in 2008.


Teddy Roosevelt and other progressives saw the evils of big business running amuck and did a number of things to rein them in.


If Teddy Roosevelt was president, today, I would not expect to see him giving billions in bailout money to Wall Street.  I see him pushing real regulation and prosecuting the bad guys.


I could see Teddy appointing a regulator like Elizabeth Warren.  It is ironic that Warren has generated strong opposition since she is the one person in Washington who understands how Main Street is taking it on the chin (or in other parts of the anatomy) and trying to do something about it.


I'm not counting on Obama's Justice Department for help.  A Joe Nocera NYT column, titled, "Biggest Fish Face Little Risk of Being Caught," says it all.  None of the big players in the economic crisis are being prosecuted.  The Justice Department is focusing its big guns on John Edward's sex life instead.


Edwards, (whom, unfortunately, I once backed for President), is a great tabloid story.  But his situation won't impact how my children and grandchildren live.  Wall Street does.


Wall Street took our money, laughed in our faces and is walking away scot-free.


Running a "Too Big to Fail" bank is far more profitable, and less risky, than robbing one.


There are things the individual can do.   


One that I have been living by for some time is the "Move Your Money" movement.   My money is in local banks in my home state of Kentucky.  I don't use credit cards or employ other methods that would give Wall Street the chance to slap me with big fees and interest rates.


Simple steps can make a huge difference.  It will really make a difference when big endowments and pension funds move their money away from Wall Street.


I feel like a bartender who told people to stop drinking but they kept doing it, anyway.   2008 was the first Wall Street hangover.  Now we are going through the second. 


I hope that movements such as "Move Your Money" are making enough noise on Main Street to drown out Wall Street.  Or, at least enough so we can avoid "The Economic Hangover: Part III."


Also, parts IV and V.

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