The mess we’re in

The FDIC, one of those "liberal" "socialist" things foisted on free-market America by Franklin Roosevelt, had to step in Friday to avoid a major bank run. More failures are expected and — dirty little secret — only about $2.5 trillion of the $7 trillion deposited in U.S. banks are actually federally insured.

Seven trillion sounds like a lot. But Americans are in hock to $12 trillion in mortgage debt as housing prices have collapsed, the last big factory of America (making houses) has all but shut down, and foreclosures are reaching records. The Iraq war will cost another $3 trillion. The U.S. national debt is $10 trillion (nearly double from 2001). That ought to tell you something about the mess we’re in.

What’s being little reported about the seizure of IndyMac "Bank" is that the institution is a bastard child of Countrywide, Angelo Mozilo’s death star of subprime calamity (now a boulder around the neck of Bank of America). IndyMac was spun off because it was collatoralizing mortgages too big to be sold to Fannie Mae and Freddie Mac, now on federal life support. The bubble was so huge, fed by so much fraud and bad policy, that the barons had to find "innovative" ways to keep it going.  And all that time, the regulators waved it on. This is the mess we’re in.

It may be years before we know what’s really been going in with Fannie Mae and Freddie Mac. The feds say they’re fine and don’t need a bailout, then spend days secretly working out just that. These mammoth institutions are supposedly shareholder-owned public companies, except when they’re not, receiving special treatment from the government and deploying a monumental lobbying army to keep getting their way. Now the taxpayers will get the bill.

Fannie and Freddie guarantee or own half of all the nation’s mortgage debt. When people as low down the totem pole as me were warning years ago of a bubble, Fannie and Freddie, along with Greenspan’s Fed, kept blowing it up. They have been instrumental in foisting and maintaining several destructive forces beyond the housing bubble: the idea that America can stop making things of real value and merely trade "financial services" with each other; suburban sprawl that is going to be increasingly costly; the idea that "the American dream" is a consumer product, rather than what’s enshrined in the Constitution; the Ponzi scheme of "home ownership" without any of the sacrifices and responsibilities that once entailed, and the massive, contrived allocation of resources and jobs to a sector that has now collapsed. This is another measure of the mess we’re in.

The mess we’re in? The New York Times reports that banks and investment houses have quietly poured $10 billion in to shore up supposedly safe money market funds, so serious is the credit crisis.

The mess we’re in? Every major American brewery is owned by foreigners, capped by Anhaeuser-Busch being bought by the Belgians (!). A nation that would lose control of its booze has lost control of its destiny, as Franklin should have said. Foreign equity and sovereign wealth funds (essentially countries themselves) are rapidly buying major American companies. Along with that goes the critical power over capital formation and the inevitable destruction of communities as good jobs are lost (meet me in Saint Louie, Louie). Meanwhile, our debt grows to the Red Chinese, who build subways and cutting edge, if ugly, architecture while we let most of our cities crumble and most Americans sit as "consumers" plugged into the Matrix. The weak dollar is telling us something — screaming, really. Americans say, "glug, swallow."

President Bush and President-elect McCain meet this ongoing calamity with platitudes about the free market. But the free market of their propaganda doesn’t exist. There is, of course, the gamed market where well-placed people like Phil Gramm get rich while average Americans see their incomes fall and benefits evaporate. But the actual economy is mixed, global and highly complicated — much more complicated that "conservatism" can handle. How does an august newspaper such as the Washington Post cut through the daily cant to help readers see this fraud? They run a series on the murder of congressional aide Chandra Levy. This is the mess we’re in.

The media are particularly culpable here. Every story is boiled down to a "he said, she said, conservative vs. liberal, we dunno…" tale for idiots. But we do know: global warming is real, human caused and in need of desperate attention; the Iraq war cannot be "won" — we merely have to choose between an ongoing colonial empire or something else; the health-care system is hopelessly broken and can only be fixed with a single-payer system — and the greed of business and the insurance companies is to blame. We know, actually, that offshore drilling won’t help high gas prices. Not only, as the Democrats say, because it will take years to "be felt," but because the oil giants aren’t even using the millions of acres of leases they now have, and America’s remaining oil would barely cover our consumption for a year or two. The oil executives know they are in a mature industry, that most oil is controlled by nations anyway, and peak oil is real. Except nobody’s told the American people who want to keep driving like its 1965. Enough of them may be so delusional, they will fall for anybody who promises that.

This is the mess we’re in. The jig is up. That which is unsustainable will not be sustained, and here we are. It took years to create. It can be addressed and made better, but it will require a level of government activism on behalf of solving the problems — we’ve had years of government activism to make McCain and Gramm’s buddies rich — not seen since 1932. Perhaps even greater. And the answers are not found in the rigid ideologies. Doing this will require sacrifice and a sense of common purpose we may no longer possess. And unlike 1932, most Americans are doing OK enough — there’s cheap stuff from China at Wal-Mart and the new iPhone — that they may be content to sit in the pot as the water boils.

We’ll find out in November.

p.s. — If you think this is painful reality to read, check out Jim Kunstler’s post before the markets opened Monday.