Thursday, November 27, 2008

Bush's Recession, Rooted In Self-Interest

Bush's Recession, Rooted In Self-Interest

By Bob Burnett | 28 November 2008

While there are many technical explanations for the current recession, the underlying cause is the pervasive ideology of 'self'-interest that has guided President Bush's administration and thoroughly permeated mainstream American ethics— in particular, the financial sector.

While George Bush ran for President as a born-again Christian and "compassionate conservative," his behavior indicated he was guided not by the principles of Jesus but rather by a narcissistic morality of personal advantage. While making a revealing documentary about the 2000 Bush campaign, filmmaker Alexandra Pelosi asked the candidate why she should vote for him; Bush replied. "It's in your interests." Pelosi observed, "He didn't push the country's interests— but rather, my interests." Bush's primary consideration was 'what's in it for me'?

As President, Bush conflated his personal interests— strengthening his power— with those of the United States and political considerations governed all White House decisions. In late 2001, after leaving his appointment as head of the White House Office of Faith-Based and Community Initiatives, John DiLulio observed: "There is no precedent in any modern White House for what is going on in this one: a complete lack of a policy apparatus. What you've got is everything, and I mean everything, being run by the political arm."

Presidential decisions were determined by a toxic alchemical mixture of power and greed. Major legislative initiatives— energy and healthcare— were written by corporate lobbyists to benefit their own interests at the expense of average Americans [[to this day, vice-president Cheney refuses to reveal what went on behind closed doors in the drafting of the admninistraion's energy bills: normxxx]]. And the President's self-centered attitude influenced both Main Street and Wall Street.

Bush promoted a national culture of profligacy. After 9/11, when asked how Americans should respond, he advised us to "go shopping." Rather than calling on our patriotism [[or ever commiting sufficient resources towards the war: normxxx]], the President [[cut taxes largely for the rich and : normxxx]] appealed to consumerism. Citizens responded by running up huge credit card debts and dipping deeply into their home equity. During the Bush Administration, Americans borrowed $6.2 trillion, doubling their debts and pushing the U.S. into a negative savings rate.

At the same time, the President expressed absolute confidence in the 'wisdom' of the 'free market' and greatly expanded the dangerous deregulation begun during the Clinton era. Among the consequences of Bush's extreme laissez-faire ideology were the accelerated flight of decent-paying jobs from the U.S. and pillaging of the environment. As Americans shopped until they dropped, [[mostly on borrowed money or money withdrawn from a house refi (not uncommonly into an ARM mortgage from a fixed-rate mortgage): normxxx]], financial-sector profits surged: by 2007 the finance industry represented a record 25 percent of US stock-market capitalization.

Aided by the loosening of regulations, banks such as Citgroup, broadened their scope of business and began to engage in a wide variety of financial activities [[a comingling of speculative financial activities with the more essential— which almost destroyed the banking sector in 1930-1933, and which the Glass-Steagall Act corrected for 66 years until its key provisions segregating banking practices were repealed: normxxx]]. With this explosive expansion came problems of control and oversight. The increased size of financial institutions made them more difficult to manage as executives at every level were pressed to make profits well beyond the range historically associated with banks.

At Citigroup, earning pressure caused bond traders to increase their participation in risky markets, particularly collateralized debt obligations (CDO's), which repackaged mortgages— notoriously sub-prime mortgages— with higher quality mortgages for resale to investors. The expansion of this niche business was fueled by its lack of oversight and its profitability— the fees were unusually high, so traders made millions in bonuses.

Because of deregulation, there was no Federal oversight of the CDO marketplace. Financial industry supervision supposedly came from rating agencies, such as Moody's and Standard and Poor's, but they failed to exercise the required due diligence. Nor did the internal auditors, such as Citigroup's "risk managers;" who were impeded both by the Byzantine nature of CDO's and their perceived value as major earnings generators [[and, hence, pressure to justify them regardless of merit. Besides, 'everyone was doing it!' So, what could be the harm?: normxxx]].

As the credit bubble grew, two pernicious moral propositions blinded top managers at Citigroup and other greedy banks to the ever-increasing probability of calamity: 'everyone else is doing it', so it must be okay; and didn't the ends justify the means? [[The money was just rolling in— and nothing bad had happened yet. : normxxx]] Over the course of the Bush Administration, the worldwide CDO market grew to near $500 Billion amd the derivatives market grew from a paltry $88,000 Billion in 2000 to well over $683,725 Billion today, resulting in gigantic executive bonuses and corporate earnings [[often in the Billions— a lot of new Billionaires were made in Bush's eight years, even as the median wage dropped: normxxx]]. Understandably, none of the participants was eager to jump off the gravy boat [[until just before it sank: normxxx]].

Lurking behind this frenzied momentum was a naïve faith in the wisdom of the marketplace: the belief that whenever excesses occurred, the market would 'gracefully adjust'. Recently, financier George Soros criticized "the prevailing theory of financial markets, which... holds that financial markets tend toward equilibrium and that deviations are random and can be attributed to external causes." He observed: "This theory has been used to justify the belief that the pursuit of self-interest should be given free rein."

The President of the United States has a dual responsibility to make key decisions and set a moral tone. By promoting a climate of unfettered self-interest, George Bush precipitated the current economic meltdown. American's eagerness for the onset of the Obama presidency indicates our need for a leader who will establish a public morality that emphasizes the common good.



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