Problem Stated:
Continued market unrest of uncertain duration follows a decline of more than 10% in the value of the average tax favored retirement savings account invested in publicly traded stocks, bonds and mutual funds.
Indirect Cause:
General acceptance of the faulty economic theory that financial growth as well as fair wages and prices are best achieved by allowing "the market" to govern.
Direct Causes:
From my outpost on the plains of eastern Colorado, I may have sufficiently unobstructed views to think clearly about the international economic crisis and the strategies being pursued by the United States government to bring things under control. My purpose is to briefly state the nature of the problem, to identify its causes and to suggest the outline of a set of measures that are more likely to lead to economic stability than the measures being considered under the recently enacted $700 Billion bailout plan (I realize that isn't the politically correct description, but I believe it is a more accurate description, and also object to the political rhetoric about the plan's benefits to "main street").
To define the problem that we need to address in a way that would justify emergency governmental intervention, I believe that a general financial crisis exists in the United States when continued market unrest of uncertain duration follows a decline of more than 10% in the value of the average tax favored retirement savings account invested in publicly traded stocks, bonds and mutual funds. It is my understanding that those circumstances currently exist.
This crisis has multiple causes and manifestations, the details of which are far more difficult to analyze than any readable commentary can address. However, the causes can be summarized very briefly (if generally): our current financial crisis has been caused by the general acceptance of the faulty economic theory that financial growth as well as fair wages and prices are best achieved by allowing "the market" to govern, translated into practice by policies that allow businesses to operate with minimal regulation while reducing funding for governmental oversight and enforcement of even those minimal regulations.
To be more specific without going beyond the scope of ready comprehension, the current crisis was caused by faulty accounting rules; non-compliance by businesses and accounting firms with even those accounting rules; deregulation of business, including prominently deregulation of banks, insurance companies and financial services companies; general failure by government entities charged with regulation of business and finance to enforce remaining regulations; and government-supported initiatives allowing the unregulated markets to prey on American consumers, workers and retirees.
The result of these policies has been to transfer wealth to the major stockholders and executives of a small group of favored industries (including the insurance, banking and financial services, petroleum, and pharmaceutical industries). With the support of our government, consumers have been encouraged to overspend on homes, furnishings, vehicles and short-lived consumer goods in order to create economic growth. The over-emphasis on growth in the economy generally and in stock value of publicly traded companies combined with lack of enforcement of anti-trust (and other) laws has predictably lead to unsustainable business strategies, unwise consolidation of businesses and other unfair and anti-competitive practices.
To effectively address and control the crisis in financial markets, we can't continue to entrust our economic future to the judgment of political appointees predisposed to a market paradigm grounded in faulty economic theories. Prudence would dictate emergency legislation to address the financial crisis, and protect the American public as well as agricultural producers with the following emergency measures :
(i) immediate cessation of trading of public securities for a reasonable period of time (I suggest at minimum two weeks for proper reflection); (ii) immediate enactment of an emergency federal usury law applicable to existing debt as well as existing lines of credit that prohibits combined interest and fees of all types payable on unsecured consumer and small business loans and credit facilities (including credit cards, revolving credit facilities and bank advances to cover checks exceeding available balances) to exceed an amount equal simple interest accrued, calculated in arrears, at 18% per annum (based on actual days elapsed from the date of advance to the date of repayment) with a similar limit of 10% per annum on secured loans, regardless of decreases in value of security; (iii) create an emergency office of credit services (using funds from the $700 Billion bailout legislation and personnel of Fannie Mae, Freddie Mac, and other existing federally funded federal and state agencies currently engaged in banking-like services) to (a) provide the credit needed by viable businesses to meet payroll and amounts needed to maintain business at current levels (not to fund growth); and (b) to address current mortgage loan issues and to provide new mortgage loans to qualified borrowers for qualified home purchases; (iv) establish price controls or subsidies to protect farmers and ranchers from losses due to increases in the price of their inputs that are not supported by market prices paid to the farmers and ranchers for their crops and livestock;(v) enforce the antitrust provisions of the packers and stockyards act and require USDA to permit small-scale animal slaughter and meat processing facilities to be operated under state supervision by individual farms and ranches and by small local cooperatives; and(vi) expand coverage of existing safety-net services such as unemployment compensation, disability compensation, Medicaid, USDA food programs for low income people, and food stamps to temporarily cover people who are unable to make payments for essential purchases and services.
http://www.monthlyreview.org/mrzine/galbraith290908.html
I also suggest reading James K. Galbraith's recent book, The Predator State, and George Soros's recent book, The New Paradigm for Financial Markets – The Credit Crisis of 2008 and What it Means, both of which were written with obvious foresight before general recognition of the current economic crisis.
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