U.S. Orgy of Debt
Americans borrowed to hilt, then housing bubble burst
By ERIC MARGOLIS
Sun" -- - NEW YORK -- The financial panic
sweeping the globe is maddeningly complex, but the cause of the
worst financial crisis since the 1930s Great Depression is
America has reveled for two decades in an orgy of debt. The U.S.
national debt is now twice its net worth. From Wall Street's
"masters of the universe" financial powerhouses such as Goldman
Sachs, Merrill Lynch, Lehman, and Morgan Stanley, to the
humblest homeowners, America's national motto became "borrow to
the hilt and bet."
The traditional regulated banking system was pushed aside by
Wall Street's financial titans who created their own money in
the form of complex securities and furiously traded these exotic
instruments and borrowed recklessly against them with little
government regulation or oversight.
As Kevin Phillips points out in his prophetic book, Bad Money,
America's primary business became non-productive finance.
Manufacturing fell to only 12% of GDP. Wall Street titans grew
obscenely rich by simply passing around paper. Inflated or
semi-worthless securities increased in bogus value at each stage
of the trading process.
Wall Street was allowed to virtually print money and peddle
toxic securities around the globe because the big financial
houses and heads of hedge funds bought the politicians of both
Equally important, the mammoth financial and housing bubble thus
created was hailed by the Bush administration as proof positive
of Republican free market philosophy and the true road to
More cautious European and Canadian bankers were dismissed by
Republican chest thumpers as financial sissies.
This Ponzi scheme worked so long as markets kept rising. When
the music stopped - disaster.
It's uncertain how far damage from America's financial
equivalent of Hurricane Katrina will spread. Hedge funds, money
market funds and automakers could be next. Real estate losses
may reach $636 billion by 2012.
All stock market gains of the past 10 years have been wiped out
in the most dangerous crash since the 1930s.
The "free market" Republican administration has ended up
nationalizing nearly $1 trillion worth of businesses, including
the federal mortgage agencies Fannie Mae and Freddie Mac, Bear
Stearns, and global insurer AIG. Welcome to Wall Street
One thing is now clear. When great empires run onto the
financial rocks, their power quickly ebbs. France's Sun King,
Louis XIV, ended his once glorious rein in near bankruptcy
caused by his long, ruinous wars with the British and Dutch.
Louis XVI's runaway borrowing to finance the American Revolution
helped ignite the French Revolution. The Soviet Union's collapse
was caused by spending half its national income on arms, and
failure to modernize industry.
Over the past decade, the U.S. foreign debt doubled. Japan and
China now hold 47% of the U.S. foreign debt and finance
Washington's wars. The addition in recent days of at least $1
trillion in new debt will cause interest rates to rise and the
dollar to weaken. Even the U.S. government's AAA credit rating
now is in question.
Washington may no longer be able to spend half the globe's
The $12-13 billion a month wars in Iraq and Afghanistan will end
up costing $750 billion by December 2008. There will be less
cash in Washington's kitty to buy foreign dictators and prop up
their regimes, as in the Mideast and Central Asia. Less cash to
pay for little wars in Africa.
Less for exotic anti-missile systems and death rays.
America's enormous global power is based as much on its
financial might as military muscle. Wall Street has been the
vehicle and policeman of America's hegemony. It shaped the
destiny of the globe and made many nations subservient to the
demands of New York's titan bankers. Wall Street is essential to
raising capital for business expansion, but often it resembled
New York's ruthless loan sharks: Once you borrowed from them,
you never got off the hook.
Americans will have to relearn the hard truth that you can't
borrow your way to prosperity.
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