Thanks, GOP, For Ruining A Country So Your Friends Could Get Wealthy

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Back in 2000, I was warned that the world’s financial markets were heading towards disaster. The warning came from a lawyer whose law firm was helping create the instruments that began imploding a year ago and came tumbling down on Monday.

Until his death two years ago at age 83, Edwin A. “Eddie” Goodman, QC, OC, PC, was perhaps the most powerful deal-making lawyers in Canada. One afternoon in late 2001, I was lunching with Eddie at The Albany Club, the oldest of old boy hang-outs in Toronto where portraits of the numerous members who did a term or two as Prime Minister adorn the corridors.

“I don’t think anyone understands these goddamned deals we’re writing (finance and tax) paper for,” Eddie said while chewing on pieces of a rich Irish stew, bits of it spraying from his mouth as he talked. “They’re so fucking complicated it’d take years – maybe decades – of litigation to unwind them if any of them fall apart. And if they do collapse, they’ll bring down businesses and governments with them.”

We were talking about the raft of convoluted, intricate and highly specialized financial instruments that were becoming increasingly popular with institutional investors and traders from Bay St. in Toronto to Wall St., London, Hong Kong, Tokyo and Singapore.

From helping create the Toronto Blue Jays baseball team to having a lawyerly hand in every major commercial real estate deal in the country, nudging a reluctant Prime Minister Brian Mulroney into normalizing relations with China four years after Tiananmen Square and then bringing large and small Canadian businesses en masse to the mainland, to helping turn Four Seasons Hotels into a global luxury hotelier, Eddie Goodman left a massive mark on Canadian business and government from the end of World War II into early years of the 21st century.

In the process, he built what became one of Toronto’s most-powerful law firms. So, if Eddie said no one could understand the complex nuances of the financial instruments being created, then no one could. And he thought he knew the reason.

“These damn things are going to get sold and re-sold and then re-packaged so many times until no one is really sure who owns what, or what they own. I think that’s the whole point.” He paused briefly to wipe his mouth with a crisp, white, linen napkin. “Someone will get screwed because eventually, the whole fucking thing will collapse.”

As a person, Eddie was bothered by what struck him as a giant, unregulated, high risk game of three card Monty being created for global players who would have nothing much at risk in creating the underlying paper; as a lawyer, he knew it was his job to do the best he could for a client.

Eddie Goodman didn’t live long enough to see his dark premonition come true. But, as with many things during his truly remarkable life, he had a talent for seeing far over the horizon to know what was likely to come next.

crisis.gif“Sailing Into The Storm”
Skip forward to Meltdown Monday. While President Bush and John McCain were blithely insisting that Wall St. was merely experiencing an “adjustment” and the “fundamentals of the US economy remain sound,” billionaire investor George Soros took a dire yet more realistic view, warning “We are just sailing into the storm.”

This explains why Fed Chairman Ben Bernacke – who happens to a noted scholar on causes of the Great Depression in his other life as an academic – is shuttling frantically between Washington and New York, or on the phone to his counterparts in Europe and Asia, as he desperately tries to keep what he must know is a house of cards from collapsing. But in doing so, Bernacke must feel like the Dutch boy with his finger in the dike, trying to hold back the relentless, pounding ocean.

Fact: Even though the Federal Reserve discount window is charging banks less than 2% to borrow money, banks are charging other banks more than 6% for overnight borrowing. What that means is that American banks don’t trust each other enough to lend money amongst themselves, even overnight, at close-to-Fed rates.

Fact: While American International Group was the largest insurer of mortgage-backed securities, the crisis that still threatens to bring AIG tumbling down despite a massive infusion of capital into the company by the Fed as a last minute, desperate move, to keep the firm afloat, there are dozens of other, smaller companies like AIG who have insured the value of paper that is worthless.

Fact: As lenders become increasingly skittish, many commercial borrowers – even those with good or decent credit histories – will find it impossible to obtain debt at affordable rates. From small and mid-sized business to cities or even states may not be able to raise debt. A flood of Chapter 11 filings are likely to hit the courts, beginning in perhaps six months.

Fact: As businesses contract in the wake of tight money, unemployment will rise. Consumer defaults on their credit cards and mortgage payments will balloon, putting even more pressure on banks. Many will have to be rescued or allowed to collapse. Housing prices will continue to decline, adding to the woes of people just staying afloat who will own homes worth less than they paid for them

The End Of The Middle Of The Beginning
Between now and November 4, it is entirely possible that the past 30 years of deregulation, of letting business do what it wants without any reasonable government oversight, of believing that my wealth (if I had any) would trickle down into your pocket, will be exposed as the greatest Ponzi scheme ever invented by man. It bodes poorly for the nation but may well propel Barack Obama into The White House.

But before then, former US Treasury Secretary Robert Reich says, we are only at “the end of the middle of the beginning of the credit crisis.

“We created a kind of casino atmosphere,” Reich continues, “in which almost anybody and any bank could make a lot of money by going deeper into debt, by buying up all sorts of debt instruments, by selling securities to people who didn’t even know what was in the securities. In this sort of atmosphere we were begging for some kind of crisis.”

If that is not harsh enough language for you, read what Nouriel Roubini, an economics professor at New York University, posted on his blog: “This will turn out to be the worst financial crisis since the Great Depression and the worst US recession in decades.

“Hundreds of small banks with massive exposure to real estate will go bust,” he predicts. “Hundreds of US municipalities will go bust. Equity prices in the US and abroad will go much deeper into bear territory … This financial crisis signals the beginning of the decline of the American empire.”

charley-james.jpgAs I wrote in “The End Is Near For The Richest Poor Nation On Earth,” on Monday, the meltdown “marks the official beginning of the end of more than four generations of uninterrupted American prosperity.”

So thanks Ronald Reagan, much appreciated Bush 41, delighted to have known you, Bush 43. You must be so proud, Phil Gramm, the architect of deregulating everything financial and John McCain’s economic guru. And a special thanks to the yokels at the University of Chicago business school who created trickle down, supply-side economics back in the 1970s. All of you really spanked the donkey for all of us.

by Charley James

Charley James is an American journalist, author and essayist who lives in Toronto.

Reprinted with permission from The Progressive Curmudgeon

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Comments

  1. Dixie Dawg says

    If anyone spends a few minutes “digging” on the internet, you will find a flurry of websites dedicated to the fact that our government is trying to turn us over to a globalistic New World Order. I hesitate to say that because that one term conjures up visions of conspiracy theories from years past. However, what used to be deemed conspiracy theory now presents itself as bold, in-your-face facts.

    I do believe, based on what I have read and observed over the past four years, that yes, there is indeed a government plot, scheme or plan to turn this country “on it’s head”. The Bible even says that “the love of money is the root of all evil”. Jesus and His disciples predicted these kinds of scenarios over 2,000 years ago.

    Basically, the American public has been deceived. What was trumped or hailed as Compassionate Conservatism, the Religious Right, patriotism and the American Way has been used against us to accomplish a very deceptive and devious plan. Remember, it was the Religious folks who turned their backs on Jesus Christ and persecuted Him.

    Now, it’s the so-called Religious politicians who have turned their backs on us and are persecuting this country economically, politically and socially. Unfortunately, the American electorate just keeps on voting these anti-American traitors into office, and that’s what they are – TRAITORS.

    George W. Bush has done more in eight years to turn the Constitution upside down than any president in history. I am ashamed to say that I voted for him twice and I am now considering looking at the Libertarian Party. I disagree with a lot of the Democratic Platform and that’s why I’m not voting for Barack Obama, but I can’t vote for John McCain, either. That would be four more years of Bush. Nothing would change, it would probably only get worse.

    To be honest, I think both political parties, Republican and Democrat, are not thinking in terms of the American people. I think a lot of the politicians from both parties have their hands in the same wallets. This country truly needs a third party that honestly cares about the future of this nation and its population. What we are seeing from both sides are people who are sold out to large corporate interests and lobbying groups. It will take a very pro-active third party who truly has a desire to change the status quo to make a difference and it will take a large majority of the American population willing to change who holds the seats on Capitol Hill.

  2. nikolai says

    Illinoisgirl, I think a piece titled, “Thanks, GOP, For Ruining A Country So Your Friends Could Get Wealthy” is obviously opinion. James makes reference to being a reporter, but I think that should be taken in context with him reporting on what Goodman said at the lunch they had together; that’s how it came across to me, anyway. As far as what he is saying in this piece, my personal opinion is that he is RIGHT ON. As far as misrepresenting one’s self, look no further than Caribou Barbie.

  3. Illinoisgirl says

    I have always wanted to be a journalist, that is why I took journalism courses in college. That has been many, many years ago but I will never forget that the rule of thumb in journalism is to be OBJECTIVE and UNBIASED. Just stick with “Essayist” please. Do not use your pen to promote the politics of onw person. Activists have used their pens to overthrow a government, so please, do not misrepresent yourself, like Barack Obama does.

  4. says

    As a senior in high school I worked for Ronald Reagan in Washington DC in May of 1980 when he defeated George Bush for the republican nomination.
    As a kid I knew little about politics except that Jimmy Carter was one of the worst public speaking leaders of the country I could imagine and Reagan was one of the best.

    Of course few of us younger than 20 could know that Reagan was a bought and paid for speaker who had taken payoffs from Lou Wasserman in land sales in return for selling out the Union Reagan ran.(watch the lou wasserman story – The Last Mogul)

    What Reagan said at the time was he wanted to balance the budget and limit spending by reducing what the government took in.

    What most of us learned fairly quickly when hanging around the Republican insiders then and in later years was there was a secret agenda to not just reduce the intake of the government but to put the government in so much debt that there would never be an opportunity to build any more social programs long after Republicans left office.

    Needless to say for someone who had been capitvated by the original ideology . learning that there was a secret ideology that would not the leave the united states in good shape was extremely disturbing.

    When Reagan left he left a huge budget deficit.
    According to the secret agenda – mission accomplished.

    Even years later Clinton had to spend most of his first term rebuilding america’s finances and then was hamstrung from implementing any major programs like health care in his final years. (and Clinton was no F D Roosevelt – he was half a corporate republican himself.)

    So when I see Bush who is the most radical hard core ruthless of the secret republican strategist that ever existed – the pathological drug addicted mentally disturbed privileged yet unaccomplished son of a family that started their fortune trading with banned Nazi enemies of the US ..when I see him buying up horrible private debt leaving the country perhaps closer to the brink than after Hoover I wonder if it isn’t still part of the same secret agenda.

    It wouldn’t surprise me if it was Bush’s INTENTION to leave the country nearly bankrupt so it cannot rebuild a strong middle class that could effectively be a strong force in the world to regulate the international families that have always played one country against another for personal profit.

    Everyone knows now the Bush family record for three generations of working with any scoundrel from Hitler to the Saudis if it made them money even if it was against the interests of the USA.

    Bush’s goal may very well be to maximize the final transfer of private debt from his freinds to the US treasury while at the same time crippling the country as a force with the possibility of countering imperial families that now operate internationally in the world.

    Remember that when you see Paulson shifting more private debt to the US balance book this week.

    It is their last chance to keep shifting more of the US treasury cash into Bush family friends and coinvestor hands while crippling with debt the one country that could most easily come after bush’s interests around the world after he has left office.

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