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Sacramentan Phil Angelides was in town yesterday signing reports at a local bookstore (thankfully there are still some). Noteworthy? Apparently not, there was hardly a mention in the local media.
There was, of course, some buzz in January when Mr. A released the report of his federal commission, “The Financial Crisis Inquiry Report,” after an exhaustive 18-month investigation of the worst U.S., perhaps worldwide, financial crisis since the great depression, nearly a century ago.
The commission’s work is the definitive piece (apologies to Michael Lewis and other contributors) on this debacle, which is so aptly described in Mr. A’s report as an avoidable result of “human action and inaction.” Quite unlike the famous characterization of the financial crisis by Goldman Sachs CEO Lloyd Blankfein (one of the human actors in this drama) as “an act of God.”
Why is this important? Well, as any biblical scholar can tell you, it was necessary for the prophets of the Old Testament to recount the “bad news” of societal injustice before the storytellers of the New Testament could declare the “good news.”
And Sacramento is still mired in the bad news – struggling housing and construction, anchor public services problematic what with the State budget crisis, one of California’s leading communities in unemployment and foreclosures. According to Realty/Trac, one of every 151 homes in greater Sacramento received a foreclosure filing in January. Local real estate prices are being driven down by absentee owners buying lucrative short sales and foreclosures. Just coincidentally, Harper’s March edition features “Homeless in Sacramento.” Sad, given all the local politicking and confusion over this uniquely human issue.
What do we generally know about all this? A quick review of readily accessible federal and state reports reveals that out of every 30 American adults:
1 is in prison, jail, on parole or probation
2 are “officially” unemployed
2 have quit “looking” for employment or can’t find full-time employment
2 are under-employed, working at near-minimum wage
2 work two or more jobs just to get by
Thus, nearly one out of every three American adults has lost out on the “American Dream.” Startling numbers for “the most-wealthy nation on earth.”
More numbers: one percent of Americans account for 25% of the nation’s income, the worst wealth inequality in modern history. (Fifty years ago, the top 1% accounted for just 10%.) Of every five homeowners, one is now “under water” (a mortgage greater than the home’s value) and 100,000 homes are foreclosed every month. Or: one in every four - yes, an incredible ¼ of - U.S. children live in poverty. And despite healthcare reform, many Americans will continue to lack health insurance, joining a long queue at the nearest ER for urgent health care, entirely foregoing needed preventive care.
How did we get here? Repeal of the Glass-Steagill Act in 1999 enabled banks, Hedge funds, and assorted scoundrels to market risky derivatives and other instruments, setting up the financial crisis. Wall Streeters pushed the no-regulation, free-market mantra of Ronald Reagan, supported by SEC “regulators” in a revolving-door employment dance with Street firms who paid them handsomely to not-regulate, all abetted by inept financial ratings agencies.
But the problems began much earlier. Over the past three decades unions lost the right to organize, employers finding ways to ignore the Wagner Act, the result: flat median hourly wages (the bottom one-fifth declining) while, astonishingly, worker output per hour nearly doubled and (equally astonishingly) executive salaries rose by five times.
At the same time, big employers found ways, through “reorganizations” (aka bankruptcies) to unload their health, severance and pension obligations to workers. With flat or lost wages and disappearing “fringes,” workers traded their union cards for credit cards. And, unfortunately, usury has been simultaneously legalized. Examined your credit card interest rate and fees lately?
There you have it: higher productivity, but lost purchasing power; easy credit, easy debt; defaults; worthless derivative instruments (except for those insiders who sold short on the way down and now lazily drink their Coronas on a Cayman beach); firms like Lehman Bros. imploding, others like Goldman Sachs bailed out by taxpayers only to now pay huge bonuses to the same staff who created the mess; problematic, never-ending wars pushing us ever more into debt. “Financial reform” legislation by the last Congress does little to prevent all this from recurring.
The point of all this dismal information? Perhaps in our arguably still the best of all capitalist democracies, the old adage “caveat emptor” or for us monolinguists: “let the buyer or, even more important, voter beware.”
Oh, by the way, a big thanks to Mr. A for reminding us about how we got into this fine mess; many of us have short memories.
Sacramento economist, writer and small business owner