Certain aspects of the Wall Street meltdown are not unlike the great Ponzi scheme foisted on investors by Charles Ponzi who promised a 75 per cent return on investment in 45 days and 100 per cent return in 90 days to investors in Montreal in 1919. Just as the floor fell out from under those duped by investors, it was predicted by many economists who were watching this unprincipled scheme that the same would happen on Wall Street, where mortgages were sold down the line, each taking a cut until the money stopped flowing and collapsed into the mess we see today. Ponzi went to jail, but there were no such laws or protections in place to prevent irresponsible sellers of sub-prime rate loans to those unaware of their consequences.
More and more, we’re hearing blame laid at the feet of Fannie Mae and Freddie Mac. That is unfair. The 30-year old Reinvestment Act of 1977, designed to help rebuild some of our nation’s most debilitated communities, can hardly be held responsible for this international financial fiasco that has recently occurred. Nouriel Roubini, professor of economics at New York University, predicted this crisis in 2006. His analysis reveals that most of the toxic loans were not Fannie Mae and Freddie Mac initiated; 80 per cent of these sub-prime loans were due to private sector underwriting where there was gross mismanagement, a lack of supervision and oversight, not that of the regulated quasi-government financial institutions, Fannie Mae and Freddie Mac. It will be important to fight against those impulses that offer little tolerance for the facts as 12 million homes are valued below costs, and direct our attention to both the truthful assignment of responsibility and to solutions.
Though there is a reluctance to assign responsibility, let’s not forget that there has been a long line of bad economic policy primarily of Republican making, beginning with Ronald Reagan’s trickle-down economics, characterized as voodoo economics by President George Herbert Walker Bush, who during his own administration gave a green light to deficit spending which resulted in a burgeoning national debt now at the $10 trillion mark. It was only last month that the national debt clock at Times Square had to add space for another digit! We can say with conviction that the Bill Clinton days were in fact the good old days, as compared to the present economy. When he came to office he reversed nearly 12 years of failed economic policy and left office with the gift of a $22 million surplus to the American people that significantly reduced the deficit. As George Bush leaves office, we are victims of the worst meltdown in economic history short of the Great Depression.
As the effect of this financial crisis is comprehended and a recession is ushered in, among other consequences Medicare recipients will need to brace for reductions and baby-boomers may not receive the medical benefits they have worked hard for and expected to receive at some level. Youth will suffer as good paying jobs with medical benefits will be in short supply and college beco mes less affordable as family budgets tighten. The answer is to put people to work by building the nation’s crumbling infrastructure and to inspire the nation toward energy efficiency to overcome this prolonged detour in the road.
In less than two weeks the American people will decide who will be the best steward of the economy and a nation in two wars, reeling from the shock of economic free fall. It will be intelligent, constructive, and inspired leadership that will not only extricate us out of the current crisis, but will allow us to thrive. For those who have lost it all, we will need to help restore not only their faith in a new economy, but deliver actions that will help them rebuild their lives. We can do it and we will.
Bettye Baker lives in Oak Bluffs and Gettysburg, Pa. She writes the Oak Bluffs column for the Gazette from May to September.