Moral Outrage
Whew! God help us!

The beginning of a fullblown banking crisis

Let’s say Joe Blow bought a house in 2005 for $400,000 believing the hype that “Housing prices can only go up”. But by 2008, Mr Blow is underwater because housing prices have dipped and his house is only worth $300,000. Even worse, he has to put his house on the market fast because he just lost his job. So Blow is forced to sell his house for $300,000 and take a $100,000 loss. That’s the way capitalism is supposed to work, right?

But the rules don’t apply to the banks. If they win, they keep the profits. And if they lose, they get a bailout.

And, of course, all of this has terrible consequences for the real economy because diverting capital into failing financial institutions (that should be restructured) constricts growth and productivity. It’s no coincidence that the massive bank bailouts have been accompanied by belt-tightening measures that have pushed the broader economy to the brink of another recession.

Propping up toxic assets–so they appear to be worth more than they really are– is a costly business that results in chronic high unemployment, flagging demand, and slow growth. Until the banks are restructured and their debts are written down, prosperity will remain elusive.

Get the picture? We’re at the beginning of a full-blown banking crisis.

[Excerpt of an article by Mike Whitney]

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