Forum Post: Wealth transfer from the tax payers to Wall Street and Banks
Posted 13 years ago on Oct. 18, 2011, 1:45 p.m. EST by architect56
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I am a 56 year old architect. This is the second time that I have experienced a deep real estate induced recession. The first was at the end of the eighties, this one is worse because it is global. I saw the red flags and prepared this time. Real estate is subject to gross abuse when appraisal prices are rising and lending is based on appraisals and not income streams. In the eighties I worked on an eleven story office building. Halfway through construction the developer told us he had no tenants for the office building. We asked if he was worried, and he said no. When he financed the project, he got a big fat development fee with no equity as part of the loan. As far as he was concerned, the bank could have the building back. He had more cash not less from borrowing to build this empty building. The mistake the lender made was not basing the loan on income received from tenants. The loan was made on what the lenders believed the building could be sold for. (The Japanese had been over paying for commercial real estate at the time.)
Well this developer was not alone. It was a house of cards. Many developers were doing the same thing. The result was a banking (and savings and loan) crisis and the tax payers got stuck paying for this "rip off" (as the government made good on fdic insured bank deposits) and the resolution trust corporation was set up to deal with the excess real estate.
Fast forward to the first decade of the twenty first century. Loans were made on houses, not based on what the buyer could pay, but on what the lenders thought the house was worth or could be sold for. The lenders did this because wall street needed residential loans to package into financial instruments that could be sold to institutional investors (state pension plans, etc.) The lenders were getting fees for these loans and selling the loans so if they went bad, it was someone else's problem. Another house of cards, and because these financial instruments went global, the entire financial system of the western world faced collapse. The economy is now working through this excess and the people that are getting hurt are construction workers, public sector workers, kids coming out of college, those that are for whatever reason a little harder to employ, those that were unlucky, etc.. This financial mess is much worse than the one at the end of the eighties and that took five years to work through.
If you care about changing this, there needs to be "claw back" legislation. The corporate shareholders, and corporate officers who benefited financially from what the corporate officers knew was dubious, should through at the minimum civil litigation, be subject to having to pay back there ill gotten gains. There should be a way to pierce the "corporate shield" much the way licensed professional engineers, architects and doctors cannot avoid responsibility through a corporate structure. Also, a special tax on the financial services industry in such a situation, should be required, as restitution for their incompetence. If there are no penalties for such behavior, it will repeat. The elected will never go after these reforms (Democrats or Republicans, although the Republicans are much worse about regulating businesses so this does not happen in the first place) because they need wall street and banking money to get elected.
Go after banking and wall street money, as a political movement. It is the only avenue for meaningful reform. The money raised from this effort can then go to infrastructure improvements and public workers. That will expedite an improving economy with opportunity for all.
We have been mislead by Reagan, Bush Sr, Clinton, Bush Jr, Obama, and nearly every other public figure. Economic growth, job creation, and actual prosperity are not necessarily a package deal. In fact, the first two are horribly misunderstood. Economic growth/loss (GDP) is little more than a measure of wealth changing hands. A transfer of currency from one party to another. The rate at which it is traded. This was up until mid ’07′ however, has never been a measure of actual prosperity. Neither has job creation. The phrase itself has been thrown around so often, and in such a generic political manner, that it has come to mean nothing. Of course, we need to have certain things done for the benefit of society as a whole. We need farmers, builders, manufacturers, transporters, teachers, cops, firefighters, soldiers, mechanics, sanitation workers, doctors, managers, and visionaries. Their work is vital. I’ll even go out on a limb and say that we need politicians, attorneys, bankers, investors, and entertainers. In order to keep them productive, we must provide reasonable incentives. We need to compensate each by a fair measure for their actual contributions to society. We need to provide a reasonable scale of income opportunity for every independent adult, every provider, and share responsibility for those who have a legitimate need for aid. In order to achieve and sustain this, we must also address the cost of living and the distribution of wealth. Here, we have failed miserably. The majority have already lost their home equity, their financial security, and their relative buying power. The middle class have actually lost much of their ability to make ends meet, re-pay loans, pay taxes, and support their own economy. The lower class have gone nearly bankrupt. In all, its a multi-trillion dollar loss taken over about 30 years. Millions are under the impression that we need to create more jobs simply to provide more opportunity. as if that would solve the problem. It won’t. Not by a longshot. Jobs don’t necessarily create wealth. In fact, they almost never do. For the mostpart, they only transfer wealth from one party to another. A gain here. A loss there. Appreciation in one community. Depreciation in another. In order to create net wealth, you must harvest a new resource or make more efficient use of one. Either way you must have a reliable and ethical system in place to distribute that newly created wealth in order to benefit society as a whole and prevent a lagging downside. The ‘free market’ just doesn’t cut it. Its a farce. Many of the jobs created are nothing but filler. The promises empty. Sure, unemployment reached an all-time low under Bush. GDP reached an all-time high. But those are both shallow and misleading indicators. In order to gauge actual prosperity, you must consider the economy in human terms. As of ’08′ the average American was working more hours than the previous generation with far less equity to show for it. Consumer debt, forclosure, and bankruptcy were also at all-time highs. As of ’08′, every major American city was riddled with depressed communities, neglected neighborhoods, failing infrastructures, lost revenue, and gang activity. All of this has coincided with massive economic growth and job creation. Meanwhile, the rich have been getting richer and richer and richer even after taxes. Our nation’s wealth has been concentrated. Again, this represents a multi-trillion dollar loss taken by the majority. Its an absolute deal breaker. Bottom line: With or without economic growth or job creation, you must have a system in place to prevent too much wealth from being concentrated at the top. Unfortunately, we don’t. Our economy has become nothing but a giant game of Monopoly. The richest one percent already own nearly 1/2 of all United States wealth. More than double their share before Reagan took office. Still, they want more. They absolutely will not stop. Now, our society as a whole is in serious jeapordy. Greed kills.