Friday, May 15, 2009

The Financial Storm

Stephen Lendman
Global Research
May 15, 2009

Reviewing Ellen Brown’s “Web of Debt:” Part III

This is the fourth in a series of articles on Ellen Brown’s superb 2007 book titled “Web of Debt,” now updated in a December 2008 third edition. It tells “the shocking truth about our money system, (how it) trapped us in debt, and how we can break free.” This article focuses on America’s “web of debt” entrapment.

The Debt Spider Captures America - American Workers Consigned to Debt Serfdom

America has been trapped for over two centuries, with today’s debt level way exceeding developing nations. Like bankrupt people staying “afloat by making the minimum payment(s) on (their) credit card(s), the government (avoids) bankruptcy by paying just the interest on its monster debt” - now double in size since Brown’s first edition and onerous enough for Controller of the Currency David Walker to warn earlier of its unaffordability by this year. If America can’t service the amount, it’s officially bankrupt and the economy will collapse. If it happens, IMF austerity will follow and turn America into Guatemala. Other vulnerable economies as well - permanent debt bondage and worker serfdom.

Catherine Austin Fitts was a former high-level Wall Street and government insider. She points to a “financial coup d’etat” conspiracy between the two to hollow out America, centralize power and knowledge, shift wealth to the top, destroy communities and local infrastructure, create new wealth by rebuilding them, and leave human wreckage in its wake.

She also calls today’s crisis “a criminal leveraged buyout of America (meaning) buying (the) country for cheap with its own money and then jacking up the rents and fees to steal the rest.” She calls it the “American Tapeworm” model:

It’s “to simply finance the federal deficit through warfare, currency exports, Treasury and federal credit borrowing and cutbacks in domestic ‘discretionary’ spending…This will then place local municipalities and local leadership in a highly vulnerable position - one that will allow them to be persuaded with bogus but high-minded sounding arguments to further cut resources. Then to ‘preserve bond ratings and the rights of creditors,’ our leaders can be persuaded to sell our water, national resources and infrastructure assets at significant discounts of their true value to global investors” - masquerading as a plan to “save America by recapitalizing it on a sound financial footing.”

In fact, it’s to loot the country by shifting wealth offshore and to the top. Also, to destroy the country’s middle class, consign US workers to serfdom, then meet expected civil disobedience with military force, followed by mass internment in over 800 FEMA detention camps in every state.

Today, the rich are getting richer while millions of Americans struggle daily to get by and live perilously from paycheck to paycheck, a mere one away from insolvent disaster.

Given where we’re heading, Warren Buffett warns that America is changing from an “ownership society” to a “sharecroppers’ ” one, no different than feudal serfdom. Economist Paul Krugman calls it “debt peonage,” much like the post-Civil War South that forced debtors to work for their creditors.

Make no mistake, it’s a corporate America scheme for a plentiful reserve army of labor no better off than in developing countries - at low wages, no benefits, weak unions if any, and government engineering the whole scheme. Even personal bankruptcy protection eroded under the Bankruptcy Abuse Prevention and Consumer Protection of 2005 - benefitting lenders at the expense of borrowers by keeping them chained to their debts.

It requires many more people “to file under Chapter 13, which does not eliminate debts but mandates that they be repaid under a court-ordered payment schedule over a three to five year period.” Homes, in some cases, may be seized and even owe a “deficiency, or balance due” if its sales price doesn’t cover it. This Act “eroded the protection the government once provided against (various) unexpected catastrophes (like job loss and high medical expenses) ensuring that working people (henceforth) are kept on a treadmill of personal debt.”

Even worse are loopholes in the law letting “very wealthy people and corporations….go bankrupt….and shield(ing) their assets from creditors…” This bill was written at the behest of credit card companies that entrap consumers in debt, charge usurious interest, and demand repayment no matter what besets them. In one respect, debt bondage is worse than slavery. As property, slaves had to be cared for. Debt slaves have to fend for themselves and pay tribute (interest) to their captors.

The Illusion of Home Ownership

In 2004, household home ownership rates were “touted” to be nearly 69%. In fact, only 40% of homes are debt-free, but that percentage fell given the amount of refinancing in recent years. As a result, “most mortgages on single-family properties today are less than four years old” meaning they’re many years away from free and clear ownership.

“The touted increase in home ownership actually means an increase in debt (and) Households today owe more relative to their disposable income than ever before,” although in recent months they’ve been repaying it and saving more.

Earlier, and still now, low “teaser rates” entrapped households in onerous debt, fueling the housing bubble as another Federal Reserve/lender ploy to pump “accounting-entry money into the economy,” set it up for trouble, then let financial predators exploit it for profit. The same strategies for Third World countries are playing out in America with too few people the wiser.

The 19th century “Homestead Laws that gave settlers their own plot of land (cost and debt free) have been largely eroded by 150 years of the ‘business cycle,’ in which bankers have periodically raised interest rates and called in loans, creating successive waves of defaults and foreclosures” - worst of all for subprime and other risky mortgage holders defaulting in record numbers with millions still ahead in what’s playing out as the nation’s worst ever housing crisis showing no signs of ending.

The Perfect Financial Storm

It looms in the form of inflation and deflation given the enormity of newly created money at the same time borrowers can’t repay loans that then default. When that happens, “the money supply contracts and deflation and depression result.”

When the housing market corrected between 1989 - 1991, “median home prices dropped by 17%, and 3.6 million mortgages” defaulted. The equivalent 2005 decline “would have produced 20 million defaults, because the average equity-to-debt ratio….had dropped dramatically” - from 37% in 1990 to 14% in 2005, a record low as a result of equity extracted refinancings.

“What would 20 million defaults do to the money supply?” Two trillion dollars would evaporate or about one-fifth of M3. The fallout would cause huge stock and home value declines, income taxes needing to be tripled, Social Security, Medicare and Medicaid benefits halved, and pensions and comfortable retirements gone for the vast majority of workers. And that’s assuming a modest housing price decline when it’s already far more severe and continuing, giving pause to the virtually certain calamity ahead and devastation for the millions affected.

Policy changes in 1979 - 1981 laid the groundwork for today’s crisis by “flood(ing) the housing market with even more new money,” and much more. They let Fannie and Freddie speculate in derivatives and mortgage-backed securities and by so doing assume enormous risk.

In June 2002, writer Richard Freeman warned of the impending dangers in an article titled: “Fannie and Freddie Were Lenders - US Real Estate Bubble Nears Its End.” He cited the largest housing bubble in history made all the greater by Fannie and Freddie manipulation and stated: ….”what started out as a simple home mortgage has been transmogrified into something one would expect to find at a Las Vegas gambling casino. Yet the housing bubble now depends on (highly speculative derivatives as new) sources of funds,” made all the riskier through leverage.

In 2003, Freddie was caught cooking its books to make its financial health look sound. In 2004, Fannie did the same thing. Meanwhile, housing peaked in 2006, then steadily imploded, bringing the economy down with it.

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