American Manifesto Part Six: Debt Section One

American Manifesto Part Six: Debt Section One

The National Debt has a Consequence

We need to get the government out of the retirement business and phase out social security by facilitating defined contribution over defined benefit paradigms.  We need to get the government out of Medicaid and Medicare into a real universal healthcare system with IRS linked deductibles and co-pays. 

The current social security system is dead like Norman Bates mother in the attic. We have pillaged the system for the working to fund the previously retired.  The only reason social security ever seemed feasible for any length of time was when the number of working Baby Boomers outnumbered the retired by a higher multiple of something like sixteen to one than today’s workforce, which is like three to one and dwindling.  The system was never capable of sustaining this inevitable inherited flaw that we are now facing as the Boomers retire, but we fleeced it, by missing scheduled payments like every public retirement plan.

Generation X is about to get Bernie-Madoff’d by the federal government led by vote-catering to earlier generation’s seniors.  Generation X is at the bottom of a ponzi scheme.  If we are not then just let us opt out like current government employees.  Social security is a corpse that our irrational fiscal promises killed.  It’s not a benefit.  It’s a tax paid by the unborn and the young in a whirlwind of taxation without representation to satiate the greed and entitlement of Boomer America who financed the funding off to their successors.   

We each should be on our own for our standard of living in our retirement.  We can fund and take care of our healthcare through our government.  We should be responsible of our own living expenses.  If healthcare was addressed properly, then the privately saved retirement funds of American citizens could be budgeted without the unpredictable mandated impoverishment of today’s health systems and the rhetoric over social security could diminish. 

The Housing Market Cluster Fuck

Some people will argue that the government has a tangential responsibility to ensure there are expansive affordable housing markets.  The misguided form of Keynesian economic theory we enacted substantially contributed to FNMA and GNMA and the mortgage crisis, which unlinked risk for reward free market dynamics and burdened taxpayers with risks that should be born by banks.  There are better methods.  Re-implement Glass-Steagall. 

We need to provide working poor with matching tax incentives to save up for housing down payments to solidify entry level equity into homes purchased through traditional private financing markets.  Otherwise taxpayers guarantee debts, while mega-banks retain the gratuity, champion a capitalist system, and act as closet-socialists with the government indemnifying their major risk through FNMA mortgage insurance.

Real private markets would be more helpful than creating a secondary taxpayer-subsidized market that segregates the borrowers with divergent financial instruments that neither the private markets nor our government can be trusted not to manipulate for profit by abusing poor Americans for either their dollar or their vote to put them in a house they are not fiscally-ready to fund in perpetuity. 

A person saving for a twenty percent housing down payment is the responsible and traditional path to homeownership.  A credit market that circumvents the tenant of correlating mortgages to income streams and vested interests in the value of their dwelling undermines the permanence of sustainable market values in a community.  It segregates traditional borrowers from governmentally-subsidized ones negating the ability of personal-vested interest to anchor neighborhoods.  Once neighborhoods are tipped towards a lack of individual personal empowerment and rely on the government other social issues of crime and poverty proliferate.

Rather than sending out taxpayer welfare checks and food stamps unmitigated to millions of people every month, why not divert a substantial portion of that funding to programs that give the working poor an investment account that accrues funding as a matching percentage to their W-2 wages earned that goes into a lifelong mortgage down-payment investment account that can only be used once and must meet a twenty percent equity threshold for the privately appraised value of the property utilized.  Why not raise the minimum wage and offer a pre-tax deduction to fund the account?  Even workers in the shittiest jobs would have an avenue to participate. 

Social security was a supplement to living expenses in its original design.  If people want to defer portions of their taxes into a government mandated IRA maybe that would be feasible, but still probably inefficient.  Any IRA should be individually directed through privately-managed funds, not a government social security administration.  The IRA’s could be restricted to the same type of investments Social Security uses, just link the accounts to actual investment performance owned by the individual.  Do not promise assets that have previously been spent or have never existed.

Look at the effects of FNMA and GNMA and the mortgage-based investments of the pseudo-governmental entities.  These mortgage vehicles destroyed the mortgage industry because the government mandated quotas on low income borrowers.  The industry got greedy and less risk-adverse in part because by law the government guaranteed the loans.  The private market hedged its own risks on mortgages, but burdened the taxpayers through the federal government with bailing private lenders out when the private lenders feasted on high-risk sub-prime lending for years. 

This was based on the premise that gargantuan banks were so entwined with the financial health of America that like cancer cells in our financial body we could not extract them.  These bailouts were like chemotherapy.  The bailouts were toxic but deemed necessary because of our latent denial.

Research the Community Reinvestment Act and how it has evolved since 1977, and similar laws like the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, which required Fannie Mae and Freddie Mac to support “affordable housing lending” while purchasing and securitizing mortgages.  Did the Community Reinvestment Act known as the CRA lead to the entire current mortgage crisis; certainly not.  But these types of acts encouraged banks into the highly profitable and highly risky sub-prime lending practices to low income borrowers and then securitized them through FNMA and Freddie Mac, which were inevitably sponsored by taxpayers. 

The CRA created rating systems for banks that were considered to allow mergers and acquisitions inside the banking industry.  These “too big to fail” banks coordinated expansions with significant consideration of CRA scores.  This system allowed interest-only loans where borrowers paid only a portion of the interest accruing and none of the principal on a monthly basis.  The loans escalated into higher payments to make up for the difference in later years.  This system was destined to explode on taxpayers. 

These lending practices encouraged banks to make loans regardless of risk, because the risk was ultimately held by the taxpayers in so many instances.  The media bemoans the horrors of foreclosures, but these homeowners were only renters.  Translation we built too many fucking expensive houses, baited the trap with no money down, gave closing fees to banks, and the taxpayers are stuck with a slew of piss-poor housing assets with no more renters. 

These types of lending practices that defied the core rate associated with risk principal that guides private lending markets in a capitalist free market economy were not isolated nor even in their majority lent to low income areas, but rather across America.  We saw Americans buying more house then we could afford and needed because lending practices were so loose.

States and cities that saw booms in the average selling price of homes from the late 1990’s to the mid 2000’s were cycling down in a devaluation of property to re-adjust to what the price probably should have been in the first place by 2008.  States that never saw such inflation in housing prices were now not suffering as badly as states like California, Nevada and Florida.  Regulation was lacking.  Current period profits were maximized at the expense of the long-term losses the risks associated with those short-term revenues created.

From a political view, this is a failure of both sides of the aisle.  The policies forced lending to the poor on the bottom-end.  The rules encouraged banks to ignore historical levels of scrutiny to comply with Democratic-oriented mandates.  The lack of accountability for corporate banking profits appeased the banking industry.  Republican-oriented inaction led to the expansion of reckless lending. 

Rates should have never been that low on bottom-end high-risk loans to lure people into borrowing when the banker hedged risk on the backs of the taxpayers by splitting and selling the loan into sixty-six pieces.  The correct free market reaction should have been to charge higher rates, not the bait and switch which actually happened.  Markets could not really charge higher rates, because the Federal Reserve repeatedly repressed them in an escalation of commitment to our downfall to hide our mammoth federal deficit. 

We as the taxpayers should have never been making those guarantees on such a broad scale.  Who cares if you are a good credit risk, everybody gets about the same rate, and everybody wins right? 

The Band-Aid for our 911 Bo Bo

The terrorist attacks on September 11, 2001, created an artificial insecurity in the U.S. economy predicated on the fear of additional attacks.  The shock and pain we felt as a country due to the horrendous and unprecedented nature of the acts were processed through a psychological transference into panic-based negative economic implications, which were blown out of proportion. 

The U.S. government tried to make us feel better through capitalism by accelerating economic activity from the later part of the decade to 2002 and 2003 through the Bush tax cuts and other tax laws like section-179 depreciation, bonus depreciation, and zero percent financing for six years for U.S. auto makers escalated sales activities. 

The reality was that 9/11/2001’s impact on the U.S. economy was made worse by placating our psychological need to feel better, rather than the rational sober economic results of the airplanes, buildings and death.  A more dispassionate economic reaction would have been more prudent.  (Candy for dinner kids?  That’ll make your bo-bo fell betta.)  Compare a blown up Moscow Metro train station in 2010 to 9/11/01.  Perspective or trillions of fear dollars: pick.  Countries that know pain freak out less when they get cracked in the jaw and see death.

Purchases of United States automakers SUV’s exploded.  Heavy-weighted framed vehicles like GM’s Hummers and Suburban’s were put into the same traditional depreciation class as certain farm equipment.  Businesses could deduct sometimes more than half of the cost of the vehicle on their current year tax return.  That is why we saw such a boom for SUV manufacturers.  With that massive incentive diminished and the higher costs of gasoline the U.S. auto industry reeled to adapt from such a significant investment in the sports utility vehicle market sector.

The U.S. entered the second Iraq war, which has been endlessly debated as to its necessity from a security standpoint, but can not be debated for its inherent drain on our economy.  Invasions are fucking expensive to finance.  Dollars are not afterthoughts, especially when playing Team America World Police with fear diarrhea skid-marks.

Banks continued to consolidate.  Traditional Keynesian economics to reduce interest rates by the Federal Reserve have been applied over and over during the last decade.  We have artificially mandated historic lows and run out of room to assist cash flow.  We have burdened our economy with a fragile and timid outlook afraid to raise interest rates to a realistic level out of fear of inflation. 

(Our wafer thin skin is set to hemorrhage.  Fuck the Federal Reserve, end it.  We need a detox from quantitative easing.  Bernanke is a bureaucratic shill, not Nostradamus.  He’s smart, but he has been bought.  Bernanke knows deficits are the demon.  We only keep the rates so low, because of the federal debt.  Available private-market lending is a symptom.  Timing rationalized panic-based counteractions that are to our long-term detriment.  )
Continued Pt 6 Debt Section Two