I just had a thought as I sat down to read news and blogs this morning: we accumulated so much debt, collectively and individually, over the last half century that getting that under control is a task that rivals Hercules' cleaning of the Augean stables. And as we dig down through layers of crap we find more layers waiting to be revealed. This story from the New York Times illustrates my point. Freddie Mac and Fanny Mae are much like AIG--so thoroughly intertwined in our economy that dealing with them in a way that doesn't cause major pain and dislocations nationwide is extremely difficult. Doing so in this political environment--damn near impossible.
And this Washington Post article continues the story and takes it into the debate on taxes. How do we change a pattern that now permeates our whole society and that is aided and abetted at every turn by the Federal government itself? And the author is very likely right in his assertion that changing the tax code to eliminate or reduce the tax breaks that make debt so profitable for business would be fought tooth and nail by the business sector. But a thought just crossed my mind--might the business landscape become just a bifurcated as the rest of society between those who have and those who have not? The biggest complaint of small business over the last couple of years has been how difficult it is to get credit. Perhaps we should be glad that credit at the lower end has dried up. If our politicians are honest about helping small business perhaps leveling the debt playing field a bit by eliminating the tax breaks for debtor corporations is a good step. I wouldn't bet on it though. It sounds too much like good sense.
As I was reading this morning I had a very uncomfortable sense of deja vu. I think I have written a very good while ago that my paternal grandparents had a small farm when I was a child. The farm was about twenty acres on a gravel road. The house was a large two room tent--kitchen/dining in one room everything else in the other. The kitchen had the only running water--cold only. You answered nature's call at the outhouse a bit away from the house during the day and at the chamber pot behind the wood burning (later oil) stove in the bed/living room. They had electricity--two, maybe three, outlets and a bare incandescent bulb in each room. They also had an electrical outlet at the pump which was also electric. Grandma did all her laundry out there with an old wringer washer plugged in to pump's outlet. Why the deja vu, you ask? Well, because of this. And the New York Times article I linked yesterday (I think) about cities cutting off the power to their street lights or discontinuing their bus service--both to save money. My question--how many of the civilized services can we strip away before we can no longer call ourselves civilized? And in a fiscal crunch which payments continue to be made to whom and at whose expense? Robert Cruikshank at Calitics asks that very question. As does Glenn Greenwald at bearmarketnews. He also has an interesting quote from an Atlantic article written by a former IMF economist which should give us all pause. The economist was writing about the collapse of developing countries but his points all too closely describe what has been our Federal government's policies for the last decade or more:
"Squeezing the oligarchs, though, is seldom the strategy of choice among emerging-market governments. Quite the contrary: at the outset of the crisis, the oligarchs are usually among the first to get extra help from the government, such as preferential access to foreign currency, or maybe a nice tax break, or — here’s a classic Kremlin bailout technique — the assumption of private debt obligations by the government. Under duress, generosity toward old friends takes many innovative forms. Meanwhile, needing to squeeze someone, most emerging-market governments look first to ordinary working folk — at least until the riots grow too large."
The wealthy have had a nice ride but working and middle class people have been punished severely.