Alexandra Sánchez (USA, AC 08-10)
This should be aesthetically pleasing, despite its content. It should not be a complete, mathematical analysis of the current economic situation; that would be impossible. It will not be crammed with statistics that a novice to the study of Economics would never understand.
What are possible however areopinionand a summary of the happenings. The responses and or the economic opinions from both the McCain and Obama Camps are also related.
This article is now being industriously modified on September the 29th. Today, a vote decided the temporary fate of the US economy. Some in my home country would be so audacious as to state that it shakes the rest of the world. It does, but I wouldn’t be so quick to say that it s the only factor. The fact that one bank was almost bought out by a British one says a lot. And the fact that the banks around here aren’t too chipper is notable. There are problems roaming about in Europe as well. Nonetheless, Wall Street is Wall Street.
Hopefully you’ll allow me to share some of my personal thoughts before I attempt a background of this “crisis:” one of the biggest in history. I won’t mince the words. It reminds me of the Great Depression, and the Stock Market Crash of ’29.
The United States, not “America”, as in the continent, is in a state of an economic hurl. The state of the dollar in comparison to the British pound sterling and the euro has been weak over the past few years. There was a small boost over the summer that has been virtually lost. Back in my home of the Bay Area, California, I most likely scared a few passers-by at 23:00 hours when I passed by the bank and read 1.86 dollars to one pound. I’ll leave it to the imagination in what way I celebrated. It had been at approximately 2 US dollars to 1 pound since 2005. A slight relief hit me, even though we’ve been experiencing a recession, and in melodramatic terms, we’ve been screwed.
But, something happened in 2000. Since thenthe legend that the United States is one of the most prosperous economies in the world, regardless of its status as a stably-organized one, is laughable, and indeed, at the moment, not living up to its reputation. I remember being 10 and starting to hear about the falls of NASDAQ, and the DOW, and all the other names that litter the Market, a private sector that leaves…. Well, that digression will come later. Of course, there have been good times as well. But for this impressionable mind, there are memories of many bad times, and it’s been customary.
Now, back to the background. The torpedo that has struck the Stateshas now pervaded into the rest of the World. Hullo Britain and Mainland Europe. A crisis of this sort is natural. But I humbly ask: when will we stop the mal-handling of at least one of our economies? And though fluctuations are natural, healthy even, we mustn’t tarry, because we often overlook the situation of the one at the bottom of the economic ladder. Which brings another point.
I’m here on the other side of the pond, as we would say in Latin America, and somehow this crisis has affected me more as a sort of “ex-patriot.” Back home, I’d be fine. The situation would unsettle me, but whilst on this Isle, my quest to understand this econ is now stronger. Here, the plight of the taxpayer, and the philosophical quirks on sacrifice and “Main Street” versus saving an economy for the long haul, hit me more with my limited information and media sources. It might be nostalgia, and my yearning to presence these moments, despite my elation here. This may be what the UWCs are for: a new perspective, and perhaps a new investment in one’s country.
Applying Marx, and lightly resuming on an analysis, we could and would say that what the Bush Administration has undertaken and accomplished is an example of a glitch and burn in Capitalism. Capitalism is another debate, but I will now embark on the biggest of the many economic issues the US has faced these past 8 years.
According to The Economist, and the widespread knowledge in the US, we are in major debt at the moment. Under “W,” George Bush, our economy is in deficit. We are fighting a war overseas. This links directly to our economy, taxpayers’ money, the middle-class, etc… I will now venture one point, and will only resume it much later in the future.
This article is about the US economy, but it is for an audience who is also humanitarian, who along with thinking mathematically, has empathy. Not only is the War affecting the Economy, it is firstly costing innocent lives. The innocent lives include the Civilians of Iraq and the neighboring countries, the rest of the world’s troops, and ours. Afghanistan will be spoken of another time.Please forgive this tangent on the war, but the economy and the War are interconnected.
Now we’ll be talking pure Market, and domestic, economic policy.
The United States is suffering a mortgage crisis, and there are many homes on foreclosure. In my region, if one were to go into the ultra-suburbs, like Antioch, California, about every other home would now be owned by the government. Hopefully your next logical question: and the people in them? Seemingly forgotten. With this new indirect expense of the $700 billion bailout, who’s looking out for the foreclosed? It is now the correct moment to bring up Obama and McCain, and to take a stab at how they regard the people.
A few days ago, there was an attempt at a bipartisan meeting in the House to resolve the crisis. According to Harry Reid, a Democrat and Senate Majority-leader, McCain did more to “hurt the process.” However any Republican, would mostly likelyblusterthat McCain is a “maverick,” and incredibly helpful in any bipartisan talks.Hum. Even if I were a Republican, the pick of Sarah Palin, the unexpected, momentary suspension of his campaign, and his initial negation to last Friday’s debate would be enough to place my trust elsewhere.
Wouldn’t one want a debate to really prove knowledge on the economy? Wouldn’t one want to prove through an active campaign a preparedness to face the problems that loom ahead for the next president?And, given John McCain’s remarks to Tim Russert, a news anchor, not too long ago, “I know a lot less about economics than I do about military and foreign policy issues. I still need to be educated,” would that just mean that he doesn’t know enough?
But… to be fair, McCain may have needed time to learn about the economy. In these few months he should have learnt, no? It is, after all, a very important period in the country’s history. To justify what he had said to Tim Russert, he gave this response on January the 24th, 2008 at a debate in the state of Florida: “ I have been a consistent fighter to restrain spending and to cut taxes,” after having praised the Reagan Revolution. Sounds like Reaganomics to me.
An economic movement in the United States favored by the Republicans (right-wing). It proposes tax-cuts for the rich and limited spending on say, education, and the like. There may be some military spending, but that’s mostly it. This may sound abominable already. Reagan believed that by allowing the rich more freedom with their money, and less taxes, they would invest in the economy. Investments might include: business, which would create more jobs, etc… This is the “Trickle-Down” theory. However, the rich tend to take their money elsewhere or spend it all, and it does not even reach the rest of the population.
Yes, the Trickle Down theorem, a small problem. Since when haveReaganomics trulyworked? Can it not be that the ”Trickle Down” theorem is now being applied the other way around? Taxpayers’ money was wanted to bail out Wall Street peeps, and to pardon their debts. A “Shift-up” Theorem, which will be later explained and linked with the curious failure of the bill, makes more sense.
Recently, Obama sent an email containing these points to some of his supporters: “No Golden Parachutes, Main Street, Not just Wall Street, and Bipartisan Oversight.”
In essence, the first indicates a strong negativo, “no,” to “reward the irresponsible Wall Street executives who helmed this disaster.” The second addresses the idea that “any bailout plan must include a payback strategy for taxpayers… and aid to innocent homeowners who are facing foreclosure.” This means that whatever the case, civilians are reimbursed somehow. And the final that, “ a bipartisan board [is needed] to ensure accountability and oversight.” Basically, that both Republicans and Democrats must have a say, to prevent any extremes, and to protect the people.
Now for the juicy stuff, the wee fluff. Hopefully you’re still reading.
WHAT’S REALLY GONE DOWN:
Here’s a gist of the situation, according to Le Monde, the New York Times, Bloomberg, The Economistand the BBC.
-The US Economy has been really hit hard, particularly this past year.
– Recently, two major securities firms, Lehman Brothers and Merrill Lynch, declared a sort of bankruptcy. Lehman Brothers is now liquidated, even though Barclays, a British Bank, tried to buy them out. Merrill Lynch was luckier though, as Bank of America bought it out for $5o billion. The fact that the fifth largest investment bank of the country was in major trouble was shoved onto the government, and Wall Street. Lehman Brothers shares plummeted, and it wasn’t saved.
– A week before the 13th and 14th of September, Fannie Mae and Freddie Mac, two major investment banks, were nationalised by the US government. Basically, they were bailed out. The government has provided the same sort of support in “limited” amounts to JP Morgan in order for it to buy Bear Sterns. The “limited” amount of help heralded in the form of $3o billion.
– Another major bank, WaMu, formerly known as Washington Mutual, (one of my family members’ bank) was in a state of panic as well. Its shares dropped 60 percent this week. Eventually, the Federal Deposit Insurance Corporation intervened. Since the 16th of September, customers have withdrawn approximately $16.7 billion making the bank incredibly unstable. People have lost jobs, and JP Morgan Chase eventually bought out the bank.
– Citigroup bought out Wachovia on The 29th of September. Global shares have gone down, and the economies of France and Germany are also suffering.
– Wall Street is panicking, and headlines such as, “And then there was none: What the death of the investment bank means for Wall Street “ don’t exactly make matters better. No matter what you think of the US, the thought is daunting.
-On a personal note. The problem hits base when Patelco Credit Union buys out your own credit union, Cal State 9. Not good news for the state of things, but at least the money’s not lost. There’s an interesting dichotomy.
THE BAILOUT PROPOSAL:
– The legislation, the bill, contains: supervision by an independent board, security for taxpayers to make sure they obtain any of the profits made from the bailout, ways for homeowners to remain in their homes (i.e, some foreclosure relief), and rules to make sure that the big guys, the CEOs in the private sector, are not getting a free ride at the taxpayers’ expense.
– According to Bloomberg, both candidates, especially Obama, were pronounced satisfied. In effect, it is what he proposed. He did not propose not having a bailout. All he stated was that “any” form of bailout or similar would have to protect taxpayers. If the plan did not include that sort of protection, it would have been inconceivable for him to support it.
– Henry Paulson, the Treasury Secretary, and Ben Bernanke, the Federal Reserve Chairman, had stated that the plan is imperative in “restoring the flow of… the US economy.”
– “W” was also a great supporter.
“NO” TO THE BAILOUT PROPOSAL:
I asked my mum the other day to sum up the issue for me. This was at the beginning of the crisis, about a week and a half ago. Basically she told me about Lehman and Merrill Lynch, and about what many “ordinary” people feel.
A bailout is basically the government taking most of the taxpayers’ dollars to save the banks. If the government hasn’t got much to begin with, meaning they’re in debt, they use taxpayers’ money. Of course, this can seem like quite a patriotic ideal: “gladly letting the government use my money to save our nation’s economy.”
Here’s the issue. Many people are sick of the private sector having so much power in the US government. They are sick of lobbyists who petition members of Congress for their own gain and absolutely tired of the government favoring small interest, the private sector, instead of the people. Taxes are a huge factor as well.
As a country, we know straightaway when companies are faring badly, and we always rush to help them, in the form of our tax dollars. When was it that those big firms last helped the people, the vox populi?Hence, we arrive at the “Shift-Up” Theorem.There’s barely a peep when corps are happy. Therein lies part of the overarching debate.
So, people like John Kerry, much of the blogosphere, the grassroots, and of course, the people, were against the plan. It is quite a phenomenon. I find it can be attributed to the people having found a voice, place and networks in this election. We have been willingly forced out of our kip.
THE PRESSURES AND WHY THE LEGISLATION FAILED:
I don’t pretend, nor will I insinuate why it failed. It is not my job. All I can safely say is that a major event has taken place. The House is probably shell-shocked that the bill didn’t pass given the crisis (228-205). We are at a sort of standstill in business. And Congress is now furiously working on new proposals. However, there are some possible reasons and factors, of why it failed.
1) The White House put so much pressure in favor of the bill. According to them Capitalism, more or less, is subject to danger if the bill or something similar doesn’t occur.
2) The people have put so much pressure against the bailout, for the reasons above.
3) Because of these two reasons, there is a conflict of interest, and it becomes incredibly hard for the House to decide. It is an incredible situation, and a slightly boosting one for some liberals, and staunch, old-fashioned republicans.
4) The core of Republican Economics: along the lines of the “Invisible Hand,” and the Free Market. If the government bails out the banks, the economy is reliant on the government, which benefits the businesses. But, if one truly believes in the “Invisible Hand” idea, in which the Market sorts itself out, this is not the same thing. It would be contradicting “true Republicanism.” So… the Republicans who voted against the bill, may have been motivated by Nancy Pelosi’s (Speaker of the House) rebuking remark about the core republican ideas.
FINALLY, THE OVERARCHING DEBATE:
This is the debate. It boils down to whether we choose to say “enough is enough” with the lobbyists, the big firms, and their issues when we’re suffering economically; or, if we realize that like it or not, our economy could completely fall apart if we don’t do anything now.
The fact that the country is having a philosophical and moral debate with many elements of pride, frustration, and perhapsindividual sacrifice for an ideal is astounding. A whole country is at a halt, at least in the papers. One wonders if people think of it, in the heat of passion. Do they pause and think, “By saying no to saving the banks, what is our other alternative? Borrowing more and more from other countries, digging ourselves into a deeper, more cumbersome hole than it already is? Or do we shelve our pride, and give in this once to possibly save the economy? What if we don’t give in, what if we’re absolutely tired and we’re conscious that this decision will affect us for sure if no money is bailed?”
The House will be drafting more in the next few days, it won’t be for the people to directly decide, unless they have elected wisely. It will be tentative, and there will be a gnawing at the clock. For the sake of the people, something has to give, and something needs to be crafted.
Which way now? What now? If I could think of some conclusion to this wait, I would, but I can’t.
– United World College Student Magazine –